Unemployment Pool Research Articles

How Do the Labour Force Characteristics Encounter COVID-19 Economic Consequences—A Canadian Experience

This paper draws on a current international analysis of pandemic consequences in the labour market and on the way different segments have been impacted. The purpose is to provide a critical investigation of the facts and arguments regarding how and why the consequences of the same health epidemic are differently faced at an uneven socio-economic burden. The objectives are twofold: First, we aim to explore on an international level the inequality settings that COVID-19 has highlighted, focusing on the most affected economic pillars such as the labour market. Second, we provide an empirical analysis of the likelihood of Canadian labour force participants to be unemployed before and after COVID-19, as one of the measurable effects of the pandemic. We assess how the likelihood of the working-age population falling into the unemployment pool varies before, during and immediately after the pandemic restrictions ease, using Canadian Labour Force Survey microdata. The findings indicate that mainly immigrants and youth suffered the most, pointing out their probably higher participation in precarious jobs and calling for policy initiatives to fix the structural faults in the labour market.

The Cost of Human Capital Depreciation During Unemployment

Abstract This paper argues that human capital depreciation during unemployment generates an externality in job creation: firms ignore how their hiring decisions affect the skill composition of the future unemployment pool, and hence the output produced by new hires. As a consequence, job creation is too low from a social point of view. But the extent to which it is too low varies over the cycle. The reason is that the increase in the expected productivity of a new hire from next period’s unemployment pool caused by hiring an additional worker today, depends on the pool’s composition, which varies over the cycle.

Efficient Mismatch

This paper presents a model in which mismatch employment arises in a constrained efficient equilibrium. In the decentralized economy, however, mismatch gives rise to a congestion externality whereby heterogeneous job seekers fail to internalize how their individual actions affect the labor market outcomes of competitors in a common unemployment pool. We provide an analytic characterization of this distortion, assess the distributional nature of the associated welfare effects, and relate it to the relative productivity of low- and high-skilled workers competing for similar jobs.

Loss of skill and labor market fluctuations

In this paper, we examine how skill loss can contribute to aggregate labor market fluctuations in the Diamond-Mortensen-Pissarides model. We develop a computationally tractable stochastic version of that model wherein workers accumulate skills on the job and face a risk of skill loss after job destruction. We find that skill heterogeneity dampens the fluctuations of labor market variables, and that introducing skill loss offsets this effect and generates additional amplification. The main forces driving this result are pro-cyclical increases in the probability of skill loss during unemployment: these provide incentives to post proportionally more vacancies during upturns by raising the surplus from employing high-skill workers. Compositional changes in the unemployment pool, on the other hand, play a negligible role for empirically plausible rates of skill depreciation, which imply a relatively slow process compared to the duration of unemployment spells.

Loss of Skill and Labor Market Fluctuations

This paper studies the effects of skill loss on aggregate labor market fluctuations. We develop a computationally tractable stochastic version of the Diamond-Mortensen-Pissarides model, wherein workers accumulate skills on the job and lose them after job destruction. Gradual skill loss, which captures the phenomenon of negative duration dependence, shifts the composition of the unemployment pool towards low-surplus workers. Sharp loss of skills, which captures the effects of job displacement, reduce the profits of hiring low-surplus and high-surplus workers. Therefore both sources of skill loss lower the average expected value of filling a vacancy, and magnify the response of job creation to aggregate shocks. Quantitatively, we find that labor market fluctuations increase substantially when these two mechanisms are combined and the probability of skill loss moves countercyclically.

The Asymmetric Cyclical Behavior of the U.S. Labor Market

The U.S. employment rate fluctuates asymmetrically over the business cycle: it contracts deeply and sharply during recessions, but it recovers slowly and gradually during expansions. By contrast, output features nearly symmetric fluctuations. I explain these facts using a search-and-matching model with worker heterogeneity in skills. The model identifies endogenous job separation and cyclical fluctuations in the composition of the unemployment pool as key driving forces of the asymmetric cyclical behavior of the U.S. labor market and output.

Unemployment Insurance and Underemployment

AbstractShould unemployment insurance (UI) systems provide coverage for underemployed job seekers? Based on a statistical analysis of Norwegian unemployment spells, we conclude that the answer to this question is yes. Allowing insured job seekers to retain partial UI benefits during periods of insufficient part‐time work not only reduces UI expenditures during the part‐time work period, but it also unambiguously reduces the time until a regular self‐supporting job is found. Probable explanations are that even small temporary part‐time jobs provide access to useful vacancy information and that such jobs are used by employers as a screening device when hiring from the unemployment pool.

Artemisinin resistance--modelling the potential human and economic costs.

BackgroundArtemisinin combination therapy is recommended as first-line treatment for falciparum malaria across the endemic world and is increasingly relied upon for treating vivax malaria where chloroquine is failing. Artemisinin resistance was first detected in western Cambodia in 2007, and is now confirmed in the Greater Mekong region, raising the spectre of a malaria resurgence that could undo a decade of progress in control, and threaten the feasibility of elimination. The magnitude of this threat has not been quantified.MethodsThis analysis compares the health and economic consequences of two future scenarios occurring once artemisinin-based treatments are available with high coverage. In the first scenario, artemisinin combination therapy (ACT) is largely effective in the management of uncomplicated malaria and severe malaria is treated with artesunate, while in the second scenario ACT are failing at a rate of 30%, and treatment of severe malaria reverts to quinine. The model is applied to all malaria-endemic countries using their specific estimates for malaria incidence, transmission intensity and GDP. The model describes the direct medical costs for repeated diagnosis and retreatment of clinical failures as well as admission costs for severe malaria. For productivity losses, the conservative friction costing method is used, which assumes a limited economic impact for individuals that are no longer economically active until they are replaced from the unemployment pool.ResultsUsing conservative assumptions and parameter estimates, the model projects an excess of 116,000 deaths annually in the scenario of widespread artemisinin resistance. The predicted medical costs for retreatment of clinical failures and for management of severe malaria exceed US$32 million per year. Productivity losses resulting from excess morbidity and mortality were estimated at US$385 million for each year during which failing ACT remained in use as first-line treatment.ConclusionsThese ‘ballpark’ figures for the magnitude of the health and economic threat posed by artemisinin resistance add weight to the call for urgent action to detect the emergence of resistance as early as possible and contain its spread from known locations in the Mekong region to elsewhere in the endemic world.

Optimal Monetary Policy in the Presence of Human Capital Depreciation During Unemployment

When workers are exposed to human capital depreciation during periods of unemployment, hiring affects the unemployment pool's composition in terms of skills, and hence the economy's production potential. Introducing human capital de- preciation during unemployment into an otherwise standard New Keynesian model with search frictions in the labour market leads to the finding that the flexible price allocation is no longer constrained-efficient even when the standard Hosios condi- tion holds. This is because it generates a composition externality in job creation: firms ignore how their hiring decisions affect the extent to which the unemployed workers' skills erode, and hence the output that can be produced by new matches. Consequently, it might be desirable from a social point of view for monetary policy to deviate from strict inflation targeting. But quantitative analysis shows that al- though optimal price inflation is no longer zero, strict inflation targeting stays close to the optimal policy.

EFFICIENCY WAGES WITH HETEROGENEOUS AGENTS

This paper builds a model of efficiency wages with heterogeneous workers in the economy who differ with respect to their disutility of labor effort. In such an economy, two types of pure strategy symmetric Nash equilibria in firm wage offers can exist: a no-shirking equilibrium in which all workers exert effort while employed and a shirking equilibrium in which within each firm some workers exert effort while others shirk. The type of equilibrium that prevails in the economy depends crucially on the extent of heterogeneity among the workers and the equilibrium rate at which workers join firms from the unemployment pool.

Unemployment Insurance and Underemployment

Should unemployment insurance (UI) systems provide coverage for underemployed job seekers? Based on a statistical analysis of Norwegian unemployment spells, we conclude that the answer to this question is yes. Allowing insured job seekers to retain partial UI benefits during periods of insufficient part-time work not only reduces UI expenditures during the part-time work period; it also unambiguously reduces the time until a regular self-supporting job is found. Probable explanations are that even small temporary part-time jobs provide access to useful vacancy-information and that such jobs are used by employers as a screening device when hiring from the unemployment pool.

The Cost of Human Capital Depreciation During Unemployment

Skill erosion during unemployment was of particular concern as unemployment duration increased in the Great Recession. I argue that it generates an externality in job creation: firms ignore how their hiring decisions affect the unemployment pool’s skill composition, and hence the output produced by other firms' new hires. As a consequence, job creation is too low from a social point of view. But the extent to which it is too low varies over the cycle. This is because the externality’s magnitude, which depends on the impact of job creation on the pool’s skill composition, reduces when the share of unemployed workers who already have eroded skills increases.

Statistical discrimination from composition effects in the market for low-skilled workers

In a random search environment with two racial groups each composed of identical numbers of high and low productivity workers, firms use an imperfect screening device (interviews) to control hiring. If inconclusive interviews lead firms to hire majority workers but not minority workers, then the unemployment pool for majority workers is of higher average quality. This can justify the initial hiring choices. Color-blind hiring always eliminates racial disparities but is not necessarily beneficial; in the USA it would improve welfare with only a brief small increase in white unemployment.

Statistical Discrimination from Composition Effects in the Market for Low Skilled Workers

In a random search environment with two racial groups each composed of identical numbers of high and low productivity workers, firms use an imperfect screening device (interviews) to control hiring. If inconclusive interviews lead firms to hire majority workers but not minority workers, then the unemployment pool for majority workers is of higher average quality. This can justify the initial hiring choices. The model is calibrated to the market for high-school drop-outs in the USA. Color blind hiring always eliminates racial disparities but is not necessarily beneficial; in the USA it would improve welfare but white unemployment would increase.

Entrepreneurship: Solution for Socio-Economic Development

Increasing unemployment in most of the developing countries has become main hindrance behind decreasing livelihood standards and poverty. The per capita income has been decreasing rapidly and the poor are becoming poorer. Even the literates are not able to generate income as per the needs and suffering from underemployment or unemployment. There is a huge skill shortage seen in the qualified graduates as per the industry standards. India has a large population of such literate unemployed pool of labor force which is not able to economically contribute in the society and the nation. The main challenge in front of governments is how to enhance the economic empowerment in the society. The economic empowerment of these excluded literate youths in the country can play a major role in boosting the economy at a local level. There is a need for an entrepreneurial environment which can facilitate entrepreneurs to start their own ventures and develop micro economy. Skill based special trainings and awareness about entrepreneurship among students can be the solution. Information dissemination, financial access, mentoring and business incubation facilities in the education institutions could be few of the steps in this regard. Entrepreneurship attitude among this enormous pool of unemployed literates can increase the trades activities and jobs creation in the local market. Thus an efficient education system pertaining to the industry demands and focused towards empowering the literate youths is need of the hour.

Inequality and Size of the Informal Sector during Recession: A Note

AbstractThis note provides a theoretical explanation for the empirical observation that more unequal economies tend to have larger informal sector. In contrary to the general belief, it shows that informal sector does not necessarily expand at the time of recession acting as a buffer for the unemployed pool.

Accounting for Unemployment: The Long and Short of It

Shimer (2007) accounts for the volatility of unemployment based on a model of homogeneous unemployment. Using data on short-term unemployment he …nds that most of unemployment volatility is accounted for by variations in the exit rate from unemployment. The assumption of homogeneous exit rates is inconsistent with the observed negative duration dependence of unemployment exit rates for the U.S. labor market. I describe a simple model of heterogeneous unemployment with short-term and long-term unemployed, and use data on the duration distribution of unemployment to account for entry to and exit from the unemployment pool. This alternative account con…rms that most of unemployment volatility is due to variations of exit rates from unemployment, but it also reveals that most of unemployment volatility is due to the volatility of long-term unemployment rather than short-term unemployment.

The Beveridge curve in Europe: new evidence using national and regional data

The Beveridge curve depicts the empirical negative relationship between job vacancy rate and unemployment rate, and reflects the efficiency of the job matching process. Movements along a fixed downward sloping Beveridge curve are associated with cyclical shocks, while shifts of the curve arise from structural factors that alter the matching efficiency between job vacancies and unemployed workers. National and regional data on job vacancies and unemployment are combined to estimate the Beveridge curves of five European countries and their regions, focusing on the period 1975 to 2004. I also analyse whether shifts in European Beveridge curves are due to changes in the composition of the unemployed pool, labour market rigidities or cyclical and structural shocks. The empirical evidence suggests that changes in labour market rigidities, long term unemployment, as well as cyclical shocks are responsible for outward shifts in European Beveridge curves. I also find evidence of nonlinearities in the relation between unemployment and labour market institutions.

A Search Model with a Quasi-Network

In a standard search model the expected duration of unemployment is independent of the duration of previous employment, as well as of the current length of the unemployment spell. This paper offers a network mechanism to generate these correlations. Here, employed workers invest in social contacts with other employed workers, which will help them find jobs in the event of unemployment. These social contacts depreciate because they can also become unemployed and unemployed contacts are assumed to be useless. In this model the longer you have been working, the more contacts you are likely to have, and the more contacts you have the shorter your expected unemployment duration will be. The model is a simple and tractable way of introducing network ideas in one of the workhorses of labour and macroeconomics. In the model the network is eroded during periods of high unemployment, and is therefore less productive in an absolute sense. Nevertheless, the number of job finders per contact in the unemployment pool increases during periods of high unemployment. Finally, the model provides guidance for indirect inference of network effects from the data.

Free migration between the EU and Switzerland: Impacts on the Swiss economy and implications for monetary policy

The agreement with the European Union on liberalized migration had sizable effects on the Swiss economy. Simulations with a macroeconometric model show that the agreement mitigated the incidence of labor shortages and stimulated business investment, giving rise to an increased growth potential. The inflow of new immigrants also affected the demand-side of the economy by boosting consumption and housing investment. As the supply-side effects prevailed, inflation was dampened. Monetary policy reacted by pursuing a more expansionary course. Annual GDP growth was raised by half a percentage point in the upswing 2004–2008. However, as the employment effect was of similar size, the widely expected productivity gains did not materialize. Moreover, the unemployment rate was lifted by 0.5 to 0.7 percentage points and household suffered from lower real wage growth. The consequences of the migration agreement over a full economic cycle are more difficult to assess. If the increased flexibility of labor supply observed in the recent upturn carries symmetrically over to recessions, the migration agreement reinforces the swings in GDP and employment growth but dampens the swings in unemployment and inflation. In contrast, if the reaction of migration flows to rising and falling labor demand is asymmetric, unemployment might increase over the cycle because recovering labor demand attracts additional foreigners while the formerly dismissed workers remain in the unemployment pool. These different possibilities are illustrated in the paper by additional model simulations.