Unemployment Flashcards
Mean Ue 1870-1913
5.8% (Boyer-Hatton series)
Trend stationary
Mean Ue 1920-38
10.5%
Never recovered to 1914 levels, even in recovery from 1921 (Feinstein 1972)
Characterise the types of Ue 1928-29
Wholely Ue’d: 70%
Temp. stopped=24%
Casual=6%
Staple industries Ue?
Higher throughout interwar compared to other industries (Crafts 2018)
Regional Ue?
High in outer Britain: North/Scotland=28% 1932
Long term Ue: 1920s vs 1930s?
5-10 in 1920s
25 in 1930s
1920s: Compare UK Ue to other countries
Heterogeneity
Low: France, Belgium, USA
High: UK, Germany, Norway
Outline Bargaining model of Ue (labour market)
High Ue leads to lower negotiated wages
Outline Bargaining model of Ue (labour market)
High Ue leads to lower negotiated wages
Bargaining model of Ue (goods market)
High Ue means firms have less pricing power to charge a premium over wages
Bargaining model of Ue (goods market)
High Ue means firms have less pricing power to charge a premium over wages
Bargaining model of Ue conclusion?
If Ue responsive to state of economy: Low U*
Thus, frictions cause Ue
Pre vs post war National insurance
1911: 2.25m workers
1920: 11m workers
Benefits changes interwar?
1911 vs 1925
1911: 7 shillings for 15 of 52 weeks at most
1925: 15 shillings for men/12 for women extended indefinitely (1924 act by labour gov)
Were benefits changes monotonic in 1920s?
No. 1927: Active burden of proof of job seeking
Union density 1910-20-30?
16-48-26
Newman 1991
Trade board coverage 1921?
3m workers
How did union membership react to cycles?
Roughly cyclical: Depressions lead to loss of jobs and so memberships
How do Benjamin and Kocher (1979) model Ue and benefits?
Regression with replacement ratio and deviation from trend output
B and K 1979 conclusion?
Insurance system led to 5-8% Ue rise!
‘army of unemployed was a volunteer army’
Problems with B&K?
- Ue not trend stationary so spurious relationship
- Assumption of 2 child family overestimated (B/W): 0.27 vs 0.37 in 1921
Criticisms of BK?
Crafts (1987): Regression does not apply to long term Ue
Collins (1982): Disaggregated data by industry removes statistical significance
If you remove the year 1920, it is no longer statistically significant
Contemporary accounts: Impact of Benefits on UE
None. Bakke (1933) and Unemployment Assistance Board 1938
(B/W) for secondary workers?
Eichengreen (1987): Significant, but not for household heads
Hatton and Bailey (2002): Controlling for occupation, not significant for any group!
(B/W) for secondary workers?
Eichengreen (1987): Significant, but not for household heads
Hatton and Bailey (2002): Controlling for occupation, not significant for any group!
One way in which (B/W) may actually have acted?
Encourage temporarily stopped
Hatton and Bailey 2002
2 Things misattributed to (B/W) by BK?
- Rising Ue ages 17-23: Wages also rise as age rises, meaning those in unproductive jobs become unprofitable
- Those unemployed are less likely to find jobs: Human K destruction?
Conclusion on benefits?
No significant impact on Ue rate!
Wage rigidity 1920s?
This would support Hatton (2010): Institutional flexibility removes equilibrating forces
High: <30% of wages were adjusted / year Lennard (2021)
But… Not rising compared to pre war (Phillips 1958)
Who said Hump shaped Hypothesis?
Calmors and Driffil 1988
Industry level bargaining evidence?
Hatton: 60% of employees by mid 1920s
Hatton (2002): Density at 45% 1920 and less than 30% post 1925
Does fall in Union membership matter?
Hatton (2002) argues no: collective bargaining underpinned by legislation permanently expanded
Attempts to reach fully centralised?
Existed, but failed!
National Industrial Conference 1920s
Mond-Turner Talks 1927-28
Evidence of hump shaped hypothesis?
Very limited: Can’t conclude it increased UE at the moment!
Attempts to reach more centralised does support it though!
Interaction of benefits and unions?
Hatton (2002)
Benefits as union wage floor around which negotiations were referenced
Hours of work shock: how much?
53.8 to 46.7 hours/ week 1913-20
RW increase from HoW shock
13%
Broadberry 1986 argues this led to a persisting gap between prod and RW leading to Ue (diagram!)
Hours of work shock not too significant?
Eradicated by 1922 if a firm side deflator is used, meaning can’t explain Ue
Prod. offset of HoW shock?
50-60% in most industries (Scott and Spadavechi 2011)
HoW on profit rate?
Solomou: Did lead to a fall in profits (more capital required/ unit of output)
Solow Growth Model: investment?
HoW shock other countries?
Similar reforms, but unaffected!
Demand side Ue explainors 1920s?
Contractionary MP
Moggridge 1972: 750,000 jobs lost due to 1925 overvaluation!
Bifurcated LM: Explain the Idea?
Eichengreen and Hatton (1988)
Multiple equilibria depending on your group (LT Ue or ST Ue) as hysteresis and human K destruction!
Probabilities of re-employment within 3months 1930s?
Crafts
Ue for <3 months p= 0.7
9-12: p=0.2
Alternate explanation for Bifurcated LM
Simply sorting.
Solomou argues evidence shows some extent of both
Insider-Outsider model 1930s
2 Assumptions
- Present workforce are not easily replaced
- Insiders do not care about outsiders
Insider-Outsider model 1930s
Evidence
Crafts (1989)
LTUe up 1% associated with wages up 0.2%
Outsiders are unable to apply pressure to bid down wage.
Instead, insiders now have greater power!
Human K destruction 1930s?
Skill deterioration: Given level of vacancies, fewer matches!
Also, effect on job seeking behaviour
Crafts: Great Depression led to NRU up 1.5%
Capital scrapping 1930s?
Fall in output so Y down so I down so K* down??
Little evidence for this, with I largely unaffected through GD
Demographics 1930s?
1911-38: All pop. increase in >45 age group (Solomou 1996)
Reduced labour mobility so (Glynn and Booth 1983): 60-80% Ue structural!
Re-employment probability within 2 weeks based on how long Ue?
Hatton (2004)
2 weeks= 0.35
40 weeks=0.05
Another problem with BK?
Solomou: Reverse causality through political pressure!
1932: Drop in benefits was immediately reversed due to lack of popularity (high Ue)
B/W causes inflexibility?
Hatton (2010): Back of the queue for benefits if you move area! Benefits impedes migration
