Unemployment in the 1920s Flashcards

1
Q

What are the two potential explanations for unemployment in the 1920s?

A
  • Benefits Systems (National Insurance System)
  • Trade Unions and Collective Bargaining Institutions
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2
Q

Who are the economists to consider when looking at the benefits system?

A
  • Benjamin and Kochin
  • Eichengreen
  • Hatton and Bailey
  • Hatton
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3
Q

Explain Benjamin and Kochin’s estimates, and what their model was

A
  • Estimate that the insurance system raised the unemployment rate by five to eight percentage points on average
  • Estimate that in the absence of the system, unemployment would have been at normal levels through much of the period
  • their model was to regress unemployment on B/W (benefit to wage ratio)
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4
Q

What were 2 issues with Benjamin and Kochin’s research?

A
  1. Unemployment is a “non-stationary” series
    - Such a time-profile creates econometric issues of spurious relationships
  2. Measurement issues
    - B/W ratio estimated is biased (family with 2 children)
    - If we use the average benefit level and average wage, B/W is much lower
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5
Q

What was Eichengreen’s study? What did he find?

A
  • Took a 10% sample from the NSLLL survey and explained unemployment incidence amongst those aged 18-64 based on benefit to wage ratio controlling for individual and household characteristics
  • Found that a positive relationship between unemployment incidence and benefit-wage ratio was significant only for secondary workers
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6
Q

Explain why the NSLLL was unlikely to be biased, and hence why Eichengreen’s results are unlikely to be biased

A

NSLLL non-response rate was only 5% AND investigators visited randomly selected working-class households

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7
Q

What was Hatton and Bailey’s study? What did they find?

A
  • Used all the NSLLL data
  • Included a broad set of control variables which may independently affect unemployment and may be correlated to the benefit-wage ratio such as individual’s industry and occupation
  • Analysed unemployment incidence separately for men and women and for younger workers
  • Controlling for individual skill and occupation the effect of benefits on unemployment is not significant for any group
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8
Q

What did Hatton find in relation to the benefits system?

A
  • Finds that the benefit effect may be working via demand effects on the temporary stopped group of unemployed
  • Employers were using the temporary stopped system to manage demand variation in their industry
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9
Q

What is your conclusion regarding the literature on the Benefits system?

A
  • Benjamin and Kochin (1979) evidence is weak
  • Eichengreen (1987) and Hatton and Bailey (2002) both disprove/discredit their work
  • HOWEVER, benefits may have had effects via the system set up for the temporary stopped group in the inter-war
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10
Q

Who are the economists to consider when looking at trade unions and collective bargaining?

A
  • Calmfors
  • Hatton
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11
Q

What did Calmfors find?

A
  • Systems of collective bargaining that are either very decentralised or very centralised lead to lower NAIRU because they help resolve coordination problems in the economy
  • Industry level collective bargaining (intermediate level of centralisation, what the UK had) is associated with a higher NAIRU
  • Coordination failures arise, increasing the NAIRU
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12
Q

What did Hatton find in relation to trade unions and collective bargaining?

A

By the mid-1920s, the estimated share of employees covered by industry-level agreements was around 60%

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