Policies to Help the Working Class in the Aftermath of COVID-19: Lessons from the Great Recession

The COVID-19 pandemic and the associated government-mandated shutdowns caused a historic shock to the U.S. economy and a disproportionate job loss concentrated among the working class. While an unprecedented social safety net policy response successfully offset earnings losses among lower-wage workers, the risk of continued and persistent unemployment remains higher among the working class. The key lesson from the Great Recession is that strong economic growth and a hot labor market do more to improve the economic well-being of the working class and historically disadvantaged groups than a slow recovery that relies on safety net policies to help replace lost earnings. Thus, the best way to prevent a “k-shaped” recovery is to ensure that safety net policies do not interfere with a return to the strong pre-pandemic economy once the health risk subsides and that progrowth policies that incentivize business investment and hiring are maintained.

Employment Dualism in Crisis: Labour Market and Welfare State Reforms Before and During COVID-19

Dual labour markets have been a specific feature of employment systems in Con-tinental Europe after an initial wave of deregulation that started in the 1980s in a situation of high and persistent unemployment. Since then, the institutional duali-sation of employment by type of contract has had massive implications on the quality and quantity of jobs. However, while dualisms were conceived as inevita-ble and stable, the perception has become more nuanced and dynamic, account-ing for partial dedualising steps observable over the last decade in particular. This paper gives an overview of the history of dualisation and dual labour markets before addressing current challenges arising from the digital transition and the COVID-19 pandemic. It concludes with a discussion about potential policies to overcome labour market dualisms.

Inequality in Income, Wealth, and Consumption Trends in the Western Balkans

This chapter looks at income, consumption, and inequality trends in the Western Balkans, a region still coping with incomplete transition and the legacies of the boom-bust cycle, as most clearly reflected in still-high unemployment rates. The chapter thus presents trends in inequality in the broader context of persistent unemployment and perceptions of high and rising inequality. It is fundamentally a story of transition, the process, still unfinished, of moving from a system with an ‘employer of last result’ and resulting job security, to one with income gains for at best some parts of the population, but widening inequality and increasing uncertainty, translating into reform fatigue and general feelings of discontent with the process of transition.

Stagflation, Persistent Unemployment and the Permanence of Economic Shocks

When changes occur, people do not know how long they will persist. Using a simple stochastic structure that incorporates temporary and permanent changes in an augmented IS-LM model, we show that rising prices and rising unemployment – stagflation – is likely to follow a large permanent reduction to productivity. All markets clear and all expectations are rational. People learn gradually the permanent values which the economy will reach following a permanent shock and gradually adjust anticipations. In our model, optimally perceived permanent values take the form of a Koyck lag of past observations.

Is unemployment on steroids in advanced economies?

Conventional macroeconomic theory is based on the idea that demand shocks can only have temporary effects on unemployment, however several European economies display highly persistent unemployment dynamics. The theory of hysteresis points out that, under certain conditions, demand disturbances can have permanent effects. We find strong evidence of unemployment hysteresis in advanced economies since the 1990s. Relying on an identification scheme instigated by an insider/outsider model, we exploit the heterogeneity in impulse responses to demand shocks to investigate what labor institutions soften or amplify these responses. Our results indicate that strengthening labor institutions that promote a faster adjustment of real wages, removing disincentives for firms to hire and for workers to be employed, and improving the matching between labor supply and demand can lessen the effects of adverse demand shocks and lead to a faster reversion of unemployment rates to pre-shock levels.

The Hayekian Theory of Chronic Unemployment

It is usually assumed that, while John Maynard Keynes developed a theory of chronic unemployment, Friedrich August Hayek did not. However, we defend in this paper that in «Profit, Interest and Investment» (1939) there is an implicit explanation of the high and persistent unemployment of the 1930s. The aim of this paper is to explain Hayek’s view about the economic crisis and recovery and to assess if we could talk about a Hayekian theory of chronic unemployment. We will defend that chronic unemployment has its origin in a dynamically inefficient design of some of the institutions that rule the market. Keywords: Economic crisis, recovery, dynamic efficiency, chronic unemploy- ment, Ricardo effect. JEL Classification: E14, E22, E24, E32, E63. Resumen: Suele asumirse que, al contrario de John Maynard Keynes, Friedrich August Hayek no desarrolló una teoría del desempleo crónico. Sin embargo, en este artículo defendemos que en «Profit, Interest and Investment» (1939) hay una explicación implícita al alto y persistente desempleo de la década de 1930. El objetivo de este artículo es explicar la visión de Hayek sobre la crisis y la recuperación económica y evaluar si puede hablarse de una teoría del desempleo crónico. Defenderemos que el desempleo crónico tiene su origen en un diseño dinámicamente ineficiente de algunas instituciones que gobier- nan el mercado. Palabras clave: Crisis económica, recuperación, eficiencia dinámica, desem- pleo crónico, efecto Ricardo. Clasificación JEL: E14, E22, E24, E32, E63.

Persistent unemployment will drive Bosnians to leave

Headline BOSNIA: High unemployment will drive high emigration

The Unemployed Workers’ Perceptions of Stress and Employment Prospects in Macedonia: The Role of Alternative Adjustment Mechanisms

Depressed labour market conditions in Macedonia manifested by high and persistent unemployment rate, strong segmentation and prevailing long-term unemployment is considered as a heritage of more than two decades long period of transition. Unemployment has a number of negative consequences such a decreased income which is assumed to influence the subjective experience of unemployment. The negative macroeconomic shocks in Macedonia have been mitigated due to the strengthened role of alternative labour market adjustment mechanisms such as: employment in the informal sector, emigration and inactivity. However, their impact on the unemployed workers’ perceptions of stress and future labour market prospects is less clear-cut. In this paper we use results from a survey carried out on a sample of unemployed workers in Macedonia in order to identify the psychological implications of unemployment by assessing the perceived stress and employment prospects with particular reference to the role of alternative labour market adjustment mechanisms.

STRATEGIES OF THE UNEMPLOYED IN SOUTH AFRICA: DOES MOVING ALLOW THE UNEMPLOYED TO GET AHEAD?

This paper examines the survival strategies of the unemployed using the balanced panel of the first three waves of the National Income Dynamics Study. We find that in response to unemployment and almost no unemployment insurance, unemployed individuals look to parents, relatives and friends for economic support. They are more likely to attach themselves to household that have some income through an employed member or in receive of state support. In many cases the unemployed delay setting up their own households while others move back into family households when faced with persistent unemployment. We use a probit model to show that the unemployed who move are more likely to be employed in a successive wave. The effect of moving on employment status remains significant and positive when we take into account household and individual characteristics. Moving allows the unemployed to get ahead.Â