Cyclical Unemployment Research Articles

Gaols or De Facto Mental Institutions?

The over-representation of people with mental illness in the criminal justice system highlights the need for legislative reform and the implementation of programs breaking the cycle of mental illness, poverty, unemployment and substance abuse across Australia. Whilst there is no inherent association between mental illness and crime, there is a strong causal link between mental illness and incarceration. The fragmentation of mental health services and the closure of many community-based services have led to the criminalisation of the mentally ill. As a consequence, unsurprisingly, gaols and juvenile detention centres have become “de facto” mental institutions.

CYCLICAL UNEMPLOYMENT AND CYCLICAL OUTPUT: AN ESTIMATION OF OKUN'S COEFFICIENT FOR SOUTH AFRICA

AbstractPersistently high unemployment in South Africa, especially in the face of improved economic conditions since 1994, begs the question: Does unemployment in South Africa respond to changes in output? Okun's law refers to the inverse relationship that exists between cyclical output and cyclical unemployment. This paper estimates Okun's coefficient for the South African economy, using annual data from 1970‐2005. Output and unemployment are decomposed into their trend and cyclical components, using a variety of detrending methods. The presence of structural breaks in Okun's relationship is also investigated, while cointegration analysis was also considered. Evidence of a statistically significant relationship between cyclical output and cyclical unemployment are found in both symmetric (estimates range from −0.77 to −0.16) and asymmetric (estimates range from −0.77 to −0.18) specifications of Okun's law, irrespective of the detrending technique. However, cyclical unemployment constitutes only a relatively small fraction of total (observed) unemployment, which implies that a more expansionary macroeconomic policy stance might only have a limited impact on total unemployment in South Africa.

AN ECONOMIC INTERPRETATION OF SUICIDE CYCLES IN JAPAN

Suicide rates in Japan have increased dramatically in recent years, making Japan’s male rate the highest among developed economies. This study revises the standard economic model of suicide to accommodate Japan’s experience, focusing on the change in human capital for the unemployed. We then use the new model and detrended data to empirically investigate the relationship between the suicide cycle and the unemployment cycle. Unlike previous aggregate time series studies, we find that the relationship between the suicide rate and the unemployment rate is significantly and robustly positive for both men and women even after controlling for several social variables. (JEL I12, J60, E30)

The Ins and Outs of Cyclical Unemployment

A dominant trend in recent modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend has been encouraged by recent influential papers that stress the role of longer unemployment spells, rather than more unemployment spells, in accounting for recessionary unemployment. After reviewing an empirical literature going back several decades, we apply a convenient log change decomposition to Current Population Survey data to characterize rising unemployment in each postwar recession. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates, especially for job losers (layoffs), as well as procyclical outflow rates. (JEL E24, E32)

In search of the natural rate of unemployment

The natural rate of unemployment can be measured as the time-varying steady state of a structural vector autoregression. For post-War US data, the natural rate implied by this approach is more volatile than most previous estimates, with its movements accounting for the bulk of the variation in the unemployment rate, as well as substantial portions of the variation in aggregate output and inflation. These movements, in turn, can be related to variables associated with labor-market search theory, including unemployment benefits, labor productivity, real wages, and sectoral shifts in the labor market. There is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment, supporting the existence of a short-run Phillips curve.

A Bad Start? Fixed-Term Contracts and the Transition from Education to Work in West Germany

Fixed-term contracts in Europe have recently become the subject of both policy and research interest, seen as particularly relevant in the transition from school to work. Some commentators argue that fixed-term contracts have an integrative function in the transition from school to work, providing a ‘bridge’ to the labour market. A contrasting perspective is that they hinder successful integration into the labour market by leading to a repeating cycle of fixed-term jobs and unemployment. We investigate this issue in Germany, a country with a regulated labour market and a ‘co-ordinated’ transition from education to work. Using life history data we consider who gets a fixed-term contract at the beginning of working life in Germany and how this affects their subsequent labour market career. Our first key finding is that fixed-term contracts are found among those for whom the school-to-work transition is not so co-ordinated, including both high-skilled and low-skilled labour market entrants. Our second finding is that, after five years, the unemployment rates of those who started with fixed-term contracts and those who started with permanent contracts converge. Beginning working life with a fixed-term contract does not clearly signal a ‘bad start’ in Germany.

The thick market effect on local unemployment rate fluctuations

This paper studies how the thick market effect influences local unemployment rate fluctuations. The paper presents a model to demonstrate that the average matching quality improves as the number of workers and firms increases. Unemployed workers accumulate in a city until the local labor market reaches a critical minimum size, which leads to cyclical fluctuations in the local unemployment rate. Since larger cities attain the critical market size more frequently, they have shorter unemployment cycles, lower peak unemployment rates and lower mean unemployment rates. Our empirical tests are consistent with the predictions of the model. In particular, we find that an increase of two standard deviations in city size shortens the unemployment cycles by about 0.72 months, lowers the peak unemployment rate by 0.33 percentage points, and lowers the mean unemployment rate by 0.16 percentage points.

In Search of the Natural Rate of Unemployment

We use a structural-VAR model to estimate the steady-state rate of unemployment, which we define as the natural rate. Although nothing constrains it to do so, the natural rate measured by this approach implies a strong negative relationship between cyclical unemployment and inflation, adding to the empirical evidence for a short-run Phillips Curve. Meanwhile, the natural rate appears to be more volatile than previous estimates and, indeed, accounts for the bulk of the variation in the U.S. unemployment rate over the past 50 years. Much of the variation in the natural rate can be related to structural factors consistent with search-based equilibrium models of employment.

Ross & Glendining and the Development of the New Zealand Woollen and Worsted Industries before 1914

Cyclical downturns and heavy unemployment from the 1860s onwards encouraged the New Zealand government to foster the development of industry in order to promote economic stability. The woollen and worsted industry was a beneficiary of bonuses and tariffs, and by the turn of the century there were ten mills at work. Although not the first mover, the dominant firm in the industry was that of Ross & Glendining. Initially a major importer of clothing and textiles, this firm integrated backwards into woollen manufacturing to take advantage of growing markets. The success of the firm was partly due to the considerable mercantile wealth of the partners and their access to an extensive distributional network. More important, perhaps, was their enterprise and their willingness to innovate even under the most adverse conditions. This present article exploits a hitherto little used archive in order to provide a unique insight into the ways in which two Scottish entrepreneurs took advantage of that environment to create the basis for what was to become the country's largest manufacturing enterprise.

Asymmetry in Okun's law

Abstract. In this paper we support the proposition that the output‐unemployment relationship as represented by Okun's law is asymmetric. Okun's coefficients are defined based on a dynamic model that allows for asymmetry in the relationship between cyclical output and unemployment. Using data from the United States for the post‐war period, our results show that the short‐run effects of positive cyclical output on cyclical unemployment are quantitatively different from those of negative ones, and the data are consistent with the proposition that cyclical unemployment is more sensitive to negative than to positive cyclical output. Several theoretical explanations of asymmetry rationalize the findings. JEL Classification: C13, C22, E32

The Thick Market Effect on Local Unemployment Rate Fluctuations

This paper develops a model to study how the thick market effect influences local unemployment rate fluctuations. The model demonstrates that the average matching quality improves as the number of workers and firms increases. Unemployed workers accumulate in a city until the local labor market reaches a critical minimum size, which leads to cyclical fluctuations in the local unemployment rate. Since larger cities attain the critical market size more frequently, they have lower unemployment rates, shorter unemployment cycles and lower peak unemployment rates. Our empirical tests are consistent with the predictions of the model. In particular, we find that an increase of two standard deviations in city size lowers the unemployment rate by 0.7 percentage points, decreases the peak unemployment rate by 0.3 percentage points, and shortens the unemployment cycles by about 0.7 months.

Competitive Equilibria: Convergence, Cycles or Chaos

There are three types of Anything Goes results: two of them from economic theory and one from the realms of dynamical systems. The study considers the implications of such results and tries to identify conditions under which certain types of conclusions may be implied: convergence, cycles or chaos. The study has been divided up into five chapters. Chapters 1 and 2 contain the basic tools of analysis; the first refers to continuous time processes whereas the second refers to discrete time processes. These chapters contain a summary of definitions and results and some applications of these results. The chapters are by no means a comprehensive account of non-linear dynamic systems; they are there to keep the study self-contained. Chapters 3 and 4 contain an analysis of Stability of Competitive Equilibria; the first refers to Walrasian Tatonnement processes while the second to Non-Walrasian or Non-tatonnement processes. We have tried to make the analysis in these chapters as exhaustive as possible, so that readers may understand and appreciate the different aspects of this problem. In short, we examine the workings of the so-called and obtain conditions when the Invisible Hand is also successful in carrying out the tasks that we usually assume that it is capable of. Chapter 5, currently the last chapter, is devoted to processes of economic growth in one sector models. The aspect studied in some detail is the approach to the question of unemployment cycles.

Okun's Law Revisited*

AbstractIn the light of modern theoretical studies, the negative relationship between output and unemployment may take a nonlinear form, in the sense that changes in output can cause asymmetric changes in the unemployment rate. A regime‐dependent specification of Okun's law, where the inverse relationship between cyclical unemployment and cyclical GDP is allowed to differ across recessions and expansions, is estimated for the US economy. Using both the Hodrick–Prescott filter and a bivariate structural time series model to isolate the cyclical component of the variables of interest, the nonlinear specification is highly significant when tested against the linear alternative independently of the method used for extracting the cycle of unemployment and GDP. The estimation results imply that the contemporaneous effect of growth on unemployment is asymmetric and significantly higher in recessions than in expansions, and shocks to unemployment tend to be more persistent in the expansionary regime.

Determinants of suicide in the Transkei sub-region of South Africa

Background. South Africa has a history of traumatized citizens and is a society in transition. Suicidal behavior among the black population group in South Africa appears to be on the increase. Under the post-apartheid dispensation they are undergoing a lot of stresses especially in relation to their as yet unmet expectations and demands from the government. Objective. To identify the possible determinants of suicide in the Transkei sub-region of South Africa. Methods. Interviews with relatives of suicide victims, and analysis of victims’ demographic, socioeconomic, and psychosocial data. Results. Rural people (>90%) were much more likely to commit suicide than urban dwellers (<10%). Suicide notes were left by 13% of the victims. Hanging was the method of choice in 57%, gunshot in 30%, and poisoning in 13%. Among those who died by hanging and by gunshot injuries, males far outnumbered the females (82% and 89%, respectively). By contrast, females constituted the greater proportion of deaths by poisoning (75%). Apparent precipitating factors included economic hardship (87%), alcohol abuse (23%), health related issues (17%), marital problems (13%), and social disputes (10%). The uneducated (70%) and unemployed (64%) used hanging as the method of choice. The highly educated 5 (17%) were all employed, and used a firearm in committing suicide. Family disputes 5 (17%) and separation of parents from teenage children were recorded in 17% of the cases. Conclusion. Financial hardship was the main underlying reason, identified in 87% victims of suicide. To break this vicious cycle of unemployment, alcohol abuse, and poor health, a comprehensive poverty alleviation program along with community education could be an important step towards reducing suicides in the Transkei sub-region of South Africa.

Endogenous, Efficient Long‐Run Cyclical Unemployment, Endogenous Long‐Run Growth, and Division of Labor

The paper uses a dynamic equilibrium model to explain the concurrence of economic growth and business cycles. Introducing durable goods into a model with ex‐ante identical consumer–producers and economies of specialized learning‐by‐doing, the author shows that when job‐shifting costs, economies of specialized learning‐by‐doing, and trading efficiency are sufficiently large, a dynamic equilibrium with business cycles and unemployment might be Pareto superior to noncyclical growth patterns. Long‐run cyclical unemployment still exists when the credit market is imperfect. Extending the model into overlapping generations framework, the author shows that complete division of labor with business cycles would still occur in equilibrium.

A system approach for measuring the euro area NAIRU

This paper addresses the issue of measuring the NAIRU for the euro area and assessing the robustness and precision of the obtained estimates. The empirical framework adopted is based on systems combining an Okun-type relationship between cyclical unemployment and the output gap with a Phillips curve and stochastic laws of motion for the NAIRU and potential output. Such systems have been estimated using Kalman-filter techniques. The results obtained point to an estimate of the area-wide NAIRU that is robust to changes in the underlying models. This robustness is shown to hold both in terms of the mean – i.e., the shape of the resulting NAIRU – and the variance of the process. The latter is derived through bootstrap exercises using the models alone or pooled together. The evidence found suggests that the increase in the aggregate NAIRU that took place in the early part of the sample period has come to a halt and may be about to be reversed.

Sectoral Shifts and Cyclical Unemployment in Japan

This paper examines D. M. Lilien's (1982, J. Polit. Econ.90, 777–793) sectoral shifts hypothesis for Japan. It diverges from previous studies in several directions: a finer industry division is used to compute the dispersion index, two proxy variables are used to measure sectoral shifts, stage-of-business-cycle effects are examined, and Lilien's hypothesis is investigated for both male and female unemployment. Although there is no evidence of a long-term relationship between unemployment and sectoral shifts, this paper finds significant short-term effects of sectoral shifts on unemployment in recessions. Furthermore, the impacts of sectoral shifts on male and female unemployment are found to be quite different. J. Japan. Int. Econ., June 2002, 16(2) pp. 227–252. Osaka School of International Public Policy, Osaka University, 1–31 Machikaneyama, Toyonaka, Osaka 560-0043, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: J64, J16, C22, J6.

Unemployment and vacancy in the Hong Kong labour market

This paper combines unemployment and vacancy data to analyse the efficiency of the Hong Kong labour market for the period 1976 to 1997. It is confirmed that the negative relationship between unemployment and vacancy, commonly known as the Beveridge curve, applies to the Hong Kong labour market. There was an inward shift of the Beveridge curve around 1982, which implies falling match frictions since then. Systematic evidence is also found that Hong Kong has been close to full employment, for on average, around 80% of unemployment in the period was due to structural and frictional unemployment with only 20% attributable to cyclical unemployment.

Effects of de-industrialization on unemployment, re-employment, and work conditions in a manufacturing workforce

BackgroundThe purpose of this study was to investigate the impact of a 20-year process of de-industrialization in the British Columbia (BC) sawmill industry on labour force trajectories, unemployment history, and physical and psychosocial work conditions as these are important determinants of health in workforces.MethodsThe study is based on a sample of 1,885 respondents all of whom were sawmill workers in 1979, a year prior to commencement of de-industrialization and who were followed up and interviewed approximately 20 years later.ResultsForty percent of workers, 64 years and under, were employed outside the sawmill sector at time of interview. Approximately one third of workers, aged 64 and under, experienced 25 months of more of unemployment during the study period. Only, 1.5% of workers were identified as a "hard core" group of long-term unemployed. Workers re-employed outside the sawmill sector experienced improved physical and psychosocial work conditions relative to those employed in sawmills during the study period. This benefit was greatest for workers originally in unskilled and semi-skilled jobs in sawmills.ConclusionsThis study shows that future health studies should pay particular attention to long-term employees in manufacturing who may have gone through de-industrialization resulting in exposures to a combination of sustained job insecurity, cyclical unemployment, and adverse physical and psychosocial work conditions.

Expectations of Modernity: Myths and Meanings of Urban Life on the Zambian Copperbelt (review)

Expectations of Modernity: Myths and Meanings of Urban Life on the Zambian Copperbelt. JAMES FERGUSON. Berkeley: University of California Press, 1999; 326 pp. The story of in decline--of a continent in deep economic and political crisis, where the modernization project has not only failed but also reversed itself-has become all-too-familiar these days. As narrated in the popular press, it is typically told as a blame-the-victim tale of nepotism, corruption, blind ethnic attachment, and timeless tradition. In the scholarly literature, it often becomes a narrative of Africa's victimization-by colonialism and neocolonialism, disease and the environment. Whatever one's script of the causes, the issues seem depressingly intractable and the Afro-pessimistson both right and left-keep growing in number. James Ferguson's new book wades into this unsettling terrain with an analysis of the rise and fall of the Zambian Copperbelt, and-a Ferguson trademark-a brilliant critique of the scholarly/anthropological literature that accompanied its rise. Trumpeted during the 1950s and 60s as an success story-an African Birmingham-the Copperbelt produced much of the world's copper and dramatically raised local standards of living. Here, observers suggested, was Africa's future, a future in which the profits of a booming industrial sector could support a rapidly modernizing urban population. Just as precipitously, however, and along with much of the rest of the continent, the Copperbelt slid into recession during the 1980s. Falling copper prices and increasing external debt led into the familiar downward cycle of high unemployment, the suspension of government services, and the neglect of infrastructure. Today, the Copperbelt lies in ruins, and, as Ferguson puts it, history seems to be running in reverse. De-industrialization has replaced industrialization, workers are leaving the city to return to the land, and the mines are being sold back to the private company-the Anglo-American Corporation of South Africa-that owned them during the colonial period. It is not so much with the causes of collapse that Ferguson is here concerned, as with mapping its social and cultural effects. Thus, he describes the desperation of unemployed workers laid off by the mines, of retirees who can no longer count on their pensions, of urban migrants unwillingly forced back to the villages, of rural-urban tensions made manifest in sordid tales of neglect, jealousy, and witchcraft. Resurrecting an old anthropological device, Ferguson deploys the case study method to useful effect in following unemployed and retired workers who have left the cities of the Copperbelt and returned to the land. These stories of humiliation and betrayal are poignant testaments to modernity's failure in this Africa at the Millenium. Ingeniously folding this story of economic crisis and collapse into a parallel story about the epistemological crisis in anthropology, Ferguson argues that Copperbelt anthropology of the 1950s and 60s-onducted by members of the famed Rhodes Livingstone Institute-unwittingly relied on and reified modernist categories. …