Comment on G. Hughes and B. McCormick, "Measuring Unemployment and Cyclical Participation in the British Labour Market"

Abstract

In the first part of this paper, the distribution of unemployment in Britain for 1986 is estimated using search-based criteria. The purpose is to obtain a more relevant economic picture of the unemployment problem in various regions, occupations, and age groups than is provided by official unemployment statistics, which count those who receive unemployment benefits without taking into account whether or not these persons engage in any search activity. Moreover, active searchers who are ineligible for benefits are not included. The second part estimates the extent to which search activity of the unemployed is sensitive to unemployment and vacancy rates - among other things. Following the presentation of the results, which are based on logit regressions on individual data for 1981 to 1986, the authors briefly discuss policy strategies for reducing unemployment. This very interesting work may be placed in perspective by drawing on Pissarides (1986), who showed that almost all changes in unemployment in Britain up until the mid-1980s can be accounted for by changes in the flow out of unemployment. It is solely in the period 1980 to 1981 that a rise in the flow into unemployment played a role. But even during this period, the fall in the flow out of unemployment is quantitatively the most important. In order to understand the unemployment problem, and to come up with efficient policies against it, it thus seems important to study (i) the determinants of the job search behavior of the unemployed, (ii) the conditions which determine firms' labor demand behavior, and (iii) the relationship between unemployment (and employment) and wage demands in the short and longer term under alternative policy regimes (accommodating versus nonaccommodating), i.e., the conditions under which a fall in unemployment leads to the lowest (largest) rise in wage inflation (employment) in the longer term; cf. below. This paper provides a valuable analysis of the first issue and touches on the third issue in the conclusion. The number of (recession) discouraged workers is also estimated.