Unemployment in the 1920s Flashcards
What are the two potential explanations for unemployment in the 1920s?
- Benefits Systems (National Insurance System)
- Trade Unions and Collective Bargaining Institutions
Who are the economists to consider when looking at the benefits system?
- Benjamin and Kochin
- Eichengreen
- Hatton and Bailey
- Hatton
Explain Benjamin and Kochin’s estimates, and what their model was
- 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)
What were 2 issues with Benjamin and Kochin’s research?
- Unemployment is a “non-stationary” series
- Such a time-profile creates econometric issues of spurious relationships - 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
What was Eichengreen’s study? What did he find?
- 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
Explain why the NSLLL was unlikely to be biased, and hence why Eichengreen’s results are unlikely to be biased
NSLLL non-response rate was only 5% AND investigators visited randomly selected working-class households
What was Hatton and Bailey’s study? What did they find?
- 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
What did Hatton find in relation to the benefits system?
- 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
What is your conclusion regarding the literature on the Benefits system?
- 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
Who are the economists to consider when looking at trade unions and collective bargaining?
- Calmfors
- Hatton
What did Calmfors find?
- 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
What did Hatton find in relation to trade unions and collective bargaining?
By the mid-1920s, the estimated share of employees covered by industry-level agreements was around 60%