Local & Regional Economics Regional and Local Economics (RELOCE) Lecture slides – Lecture 5b 1 Unemployment Disparities

Local & Regional Economics

Regional and Local Economics (RELOCE) Lecture slides – Lecture 5b

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Unemployment Disparities


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RELOCE - Lecture 5b

Last lecture: - Inter regional labour migration

This lecture: - Unemployment Disparities

Aims Examine why unemployment disparities persist Look at types of unemployment Discover who is likely to be unemployed Examine the issue hidden unemployment

Objectives To understand why regional economists study unemployment

To be able to identify the main issues Regional and Local Economics (RELOCE)

Lecture slides – Lecture 5b


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Important questions for economists

Why do regional unemployment disparities occur and persist?

Why do some towns and cities have higher rates than their suburbs and rural hinterland?

What’s the link between unemployment and regional policy?

1933 1999North East 127.4

(29.8%)156.5(9.7%)

South East 72.6(17%)

62.9(3.9%)



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Unemployment disparities exist within as well as between regions

Armstrong & Taylor find wide variations in unemployment in Europe

Similar situation in the UK wide fluctuations within regions

Was the recession of 1990-92 a turning point? Same number of jobs lost in south as in the previous

recession but less lost in north Shake-out from unsustainable service sector boom in

south Service-sector employment boom more subdued in the

north North’s industrial base already slimmed-down and efficient

East Sussex 6.6% Tyne & Wear 2.2%



Regional and Local Economic Analysis (RELOCE) Lecture slides – Lecture 10

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Highest Rate % Lowest Rate % Range Median South West Penwith 4.3 North Dorset 0.7 3.6 1.7 Eastern Great Yarmouth 4.9 South Cambridgeshire 1.0 3.9 2.0 East Midlands Bolsover 5.0 Rutland 0.6 4.4 2.2 West Midlands Birmingham 5.4 Stratford-on-Avon 1.1 4.3 2.1 South East Thanet 6.2 Mole Valley 0.6 5.6 1.4 Yorkshire & Humberside Kingston upon Hull 6.3 Craven 1.1 5.2 3.1 Wales Blaenau Gwent 6.7 Powys 1.8 4.9 3.4 North West Knowsley 8.1 Ribble Valley 0.8 7.3 2.6 North East South Tyneside 8.2 Castle Morpeth 2.1 6.1 4.7 Scotland West Dunbartonshire 8.3 Aberdeen City 1.5 6.8 3.8 Northern Ireland Strabane 9.0 Ballymena 2.5 6.5 4.4 London Lewisham 9.7 City of Westminster 0.8 8.9 3.9


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Why is the LM adjustment process so slow?

Wages are unresponsive to excess supply

National negotiations

Decentralised management functions

Mobility constraints

Employers caution

Minimum Wage

Proportion of small firms



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Types of unemployment

Frictional unemploymentJobs available for

unemployed

Takes time to match workers to jobs and jobs to workers

Levels high in boom low in slump

Some sectors experience high level of churning

Structural unemploymentUnemployment and

vacancies coexist

Mismatch between skills and jobs

Reasons - technological change; changes in consumption; production transfer

Long-term chronic in slum re-training in boom



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Measuring frictional and structural unemployment

Unemployment/Vacancy ratio Portsmouth TTWA, Oct 2000

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Ser

vice

Occ

up

atio

ns

Frictional

Per

son

al/P

rote

ctiv

e

Sal

es O

ccu

pat

ion

s

Occ

up

atio

ns

Op

erat

ives

Occ

up

atio

ns

Cle

rica

l/Sec

reta

rial

Pla

nt/

Mac

hin

e

All

occ

up

atio

ns

Man

ager

s/A

dm

inis

trat

ors

Cra

ft/R

elat

ed

Oth

er O

ccu

pat

ion

s

Pro

fess

ion

al

Ass

oci

ate

Structural

Occ

up

atio

ns

Pro

fess

ion

al/T

ech

nic

al



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Demand for labour, supply of labour

Real wage

n* n2n1

Unemployment

w*

w1

S

S

D

D

1. Real wages too high

2. Influenced by, unions, benefit levels, minimum wage

3. Solution neuter TUs, cut benefits, abolish minimum wage

4. Lower real,wages induces employers to take on staff, invest and increase capacity

Neo classical unemployment



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Demand deficient unemployment

Demand for labour, supply of labour

Real wage

n*n2n1

Unemployment

w*

w1

S

SD’ D

D’ D

1. Severe decline in national demand

2. Transmitted to all regions

3. Unemployment reduced by increasing aggregate demand

4. Use regionally discriminating taxation and expenditure



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U - V relationship over time

I

II

III

Vacancies

Unem ploym ent

S

S D

D

E

E

W *

W 2

W 1

A B C

E

F G H

Real Wage

Em ploym ent

D


Adapted from Armstrong and Taylor (2000) pp 183


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Characteristics of the Unemployed

Aged under 25 (particularly females)

Non white

Low educational attainment

Unskilled (males) Skilled & Partly-skilled (Fem)

Unmarried

In rented accommodation

Working in construction

No fixed job or occupation



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DoE Registered

unemployment

161,300

Census

unemployment

178,300Gov. Schemes

30,400

Sick

87,700

Early retirement

22,200

Real unemployment

318,600

Real levels of coalfield unemployment


Adapted from Fothergill and Beatty


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Unemployment and sickness Extended study by Beatty and Fothergill published in 2000 in

Regional Studies. At the core of the theory is the notion that long-term sickness is

widespread in the workforce. Draws on the concepts of “hidden sickness”, the “queue for

jobs” and hidden unemployment. Based on empirical observations in UK and shows how job

losses translate into higher recorded sickness. They find that the process varies between locations.



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Source: Fothergill and Beatty, Fig 3, Regional Studies 34.7 pp622 Regional and Local Economics (RELOCE)

Lecture slides – Lecture 5b


Regional and Local Economic Analysis (RELOCE) Lecture slides – Lecture 10

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Note the dark shaded areas are predominantly areas dependant on heavy industry and coal

Fothergill and Beatty’s article is available on the “L” Drive


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Conclusions Important issue. Supply-side economists suggest

unemployment disparities could be reduced by increased labour market flexibility

Keynesian economists suggest difficult to reduce labour market frictions must manage demand spatially

Truth is out there somewhere between the two extremes

Concept of hidden unemployment seen as increasingly important in a tight labour market


Documents

Local & Regional Economics Regional and Local Economics (RELOCE) Lecture slides – Lecture 5b 1 Unemployment Disparities