Unemployment Macroeconomic Performance and

Why has unemployment fallen in some countries and not in others? This classic book is now re-issued with an updated introduction, which shows how well the analysis explains recent developments. The book is both a textbook and an original monograph in which the authors set out their analyticframework which has now become standard in some countries. The book both explains unemployment and shows how it can be reduced. It contains a long overview chapter which is accessible to any non-specialist with an elementary knowledge of economics.

Richard Layard is Emeritus Professor of Economics and Co-Director of the Centre for Economic Performance at the London School of Economics.
Stephen Nickell is Professor of Economics at the London School of Economics. Richard Jackman is Professor of Economics at the London School of Economics.

Introduction to New Edition

xiii

Preface to First Edition

xliii

1. Overview

1

(82)

1. Facts to be explained

1

(7)

2. Our broad approach

8

(4)

3. What determines equilibrium unemployment?

12

(4)

4. Why does unemployment fluctuate?

16

(3)

5. How do real wages relate to unemployment?

19

(3)

6. If labour markets don't clear, why don't wages fall?

22

(9)

7. How do import prices, taxes, and productivity affect unemployment?

31

(3)

8. How does job-search behaviour affect unemployment?

34

(7)

9. Is unemployment voluntary or involuntary?

41

(3)

10. Why are some groups more unemployed than others?

44

(4)

11. Why has unemployment differed between countries?

48

(13)

12. How can unemployment be reduced?

61

(14)

13. Summary

75

(2)

Notes

77

(6)

MICROFOUNDATIONS

2. Wage Bargaining and Unions

83

(67)

1. Basic facts and bargaining theory

86

(14)

2. How unions affect unemployment

100

(12)

3. Bargaining over employment?

112

(6)

4. A digression Does featherbedding create jobs?

118

(7)

5. A world with good and bad jobs

125

(4)

6. Corporatism: centralized versus decentralized bargaining

129

(9)

7. Trade unions and nominal inertia

138

(5)

8. Summary

143

(1)

Notes

144

(6)

3. Efficiency Wages

150

(23)

1. 'Recruit, retain, and motivate': basic theory

151

(6)

2. Underlying mechanisms

157

(7)

3. Evidence

164

(4)

4. Efficiency wages and the persistence of unemployment

168

(2)

5. Summary

170

(2)

Notes

172

(1)

4. Wage Behaviour: The Evidence

173

(43)

1. Is the labour market competitive? Inter-industry evidence

174

(7)

2. The effect of outside and inside factors

181

(8)

3. The effect of the characteristics of the firm

189

(4)

4. The effect of unions

193

(6)

5. The effect of unemployment

199

(5)

6. The effect of productivity

204

(5)

7. Real wage resistance and benefit effects

209

(2)

8. Nominal inertia

211

(1)

9. Summary

212

(2)

Notes

214

(2)

5. Job Search: The Duration of Unemployment

216

(69)

1. Unemployment duration: the facts

220

(10)

2. Job search: theory

230

(5)

3. Job search: the facts

235

(15)

4. Determinants of duration: cross-section evidence

250

(6)

5. Determinants of duration: time-series evidence

256

(10)

6. Unemployment inflow and the U/V curve

266

(6)

7. Determinants of vacancies

272

(4)

8. Summary

276

(1)

Appendix: Job search of unemployed people in Britain, 1987

277

(5)

Notes

282

(3)

6. Mismatch: The Structure of Unemployment

285

(51)

1. The structure of unemployment: some facts

286

(13)

2. How the structure of unemployment is determined

299

(8)

3. How mismatch is related to the NAIRU

307

(6)

4. Evidence on sectoral wage behaviour and on mobility

313

(4)

5. Policy implications

317

(7)

6. Mismatch and the unemployment-vacancy relationship

324

(7)

7. Summary

331

(2)

Notes

333

(3)

7. The Pricing and Employment Behaviour of Firms

336

(25)

1. Dynamic models of prices and employment behaviour

338

(4)

2. Dynamic models of prices and employment with convex adjustment costs

342

(9)

3. Time delays and staggered price-setting

351

(3)

4. Optimal pricing with fixed costs of adjustment

354

(2)

5. Summary

356

(2)

Notes

358

(3)

THE MACROECONOMIC OUTCOME

8. The Macroeconomics of Unemployment

361

(36)

1. A closed-economy model

362

(8)

2. The dynamics of the model

370

(7)

3. The unemployment-inflation trade-off and the NAIRU

377

(7)

4. The open-economy model

384

(5)

5. The behaviour of the open economy

389

(4)

6. Summary

393

(2)

Notes

395

(2)

9. Explaining Post-war Unemployment in OECD Countries

397

1. The model

401

(1)

2. Evidence on the parameters

402

(6)

3. Explaining changes in unemployment

408

(5)

4. Explaining the key parameters

413

(17)

5. A common multi-country equation for unemployment dynamic

430

(7)

6. Unemployment in Britain: a case-study of the open economy

437

(11)

7. Summary

448

(1)

Appendix: The derivation of model parameters

449

(18)

Notes

467

(4)

POLICY IMPLICATIONS

10. Policies to Cut Unemployment

471

(41)

1. Policies for the unemployed: benefits and active manpower policy

472

(10)

2. Policies on mismatch: employment subsidies and training

482

(1)

3. The reform of wage-bargaining and incomes policy

483

(7)

4. Marginal employment subsidies

490

(2)

5. Non-targeted public employment

492

(1)

6. Profit-sharing

493

(9)

7. Work-sharing and early retirement

502

(6)

8. Deregulation

508

(1)

9. Summary

508

(2)

Notes

510

(2)

Annexes

512

(44)

1.1 The 'intertemporal substitution' theory of fluctuations

512

(1)

1.2 A model of the OECD economy with endogenous commodity prices

513

(1)

1.3 Unemployment benefit systems in OECD countries

514

(3)

1.4 Wage-bargaining systems in OECD countries

517

(7)

1.5 Optimal disinflation policy with hysteresis in wage-setting

524

(2)

1.6 Unemployment and inflation series for each OECD country

526

(7)

2.1 A brief note on implicit contract theory

533

(1)

2.2 Bargaining theory

533

(4)

2.3 Properties of the survival function

537

(1)

2.4 Effect of employment measures upon wage-bargaining in corporatist economies

538

(1)

3.1 Efficiency wages and bargaining combined

539

(2)

4.1 Wage determination in a turnover model

541

(1)

4.2 A model of wages and employment in a two-stage bargaining framework

541

(3)

5.1 Unemployment stocks and flows: selected countries

544

(3)

5.2 The reservation wage: the dynamic programming approach

547

(2)

5.3 Allowing for employed job-seekers

549

(1)

6.1 Mismatch and substitution between types of labour

550

(1)

8.1 A 'disequilibrium' framework

551

(3)

Notes

554

(2)

Discussion Questions

556

(4)

List of Symbols

560

(2)

List of Tables

562

(3)

List of Figures

565

(3)

Additional references to new edition

568

(5)

References

573

(25)

Index of Names

598

(5)

Index of Subjects

603

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Unemployment Macroeconomic Performance and the Labour Market

Summary

Author Biography

Table of Contents

Supplemental Materials

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Rent More, Save More! Use code: BBRENTAL

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Unemployment Macroeconomic Performance and the Labour Market

Summary

Author Biography

Table of Contents

Supplemental Materials

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