Unemployment in Western Countries

With few exceptions, unemployment rates throughout the Western world have increased sharply during the past five years. Although they have begun to decline in several countries, especially the United States, it appears that they will remain at historically high levels for at least several more years. In this paper we shall present an overview of recent unemployment patterns in North America, Japan and several countries in western Europe.

The problems of employment form one of the key problems of economic policy both at the national and international levels. The worsening of the employment situation in western countries late in the 1960s, and increasingly from the beginning of the 1970s, with mounting unemployment, made the problems extremely urgent.

In this paper I shall present two hypotheses regarding the duration of, and the remedies against, unemployment in the industrialised countries.

Traditional theory, both classical and neo-classical, asserts that free trade in goods between different regions is always to the advantage of each trading country, and is therefore the best arrangement from the point of view of the welfare of the trading world as a whole, as well as of each part of the world taken separately.¹ The purpose of this paper is to show that these propositions are only true under specific abstract assumptions which do not correspond to reality. I want to show that conditions can exist (and indeed are likely to exist) in which unrestricted trade may lead to a loss of welfare to particular regions or countries and even to the world as a whole — the world will be worse off under free trade than it could be under some system of regulated trade.

The major objective of this paper is to attempt to estimate the effects of trade between the US and the developing world on US employment over the recent past. The paper is divided into four sections.

The characterisation of involuntary unemployment is of importance both for economic theory and policy. It is important for theory in as much as it delineates that unemployment which is attributable to the malfunctioning of the economic system and not to the voluntary decisions of individual workers.

J. M. Keynes started his General Theory with the obvious assertion that when involuntary unemployment exists, the labour supply is not met (which he calls the negation of the ‘second postulate’ of classical theory). During recent years it became common among some theorists to say that workers are then rationed in their labour supply.

It is therefore misleading to reason on aggregative equilibrium as if it displayed the factors which initiate change and as if disturbance in the economic system as a whole could arise only from those aggregates.

This paper has four objectives. First it seeks to review the facts about unemployment and inflation with an emphasis on putting recent experience into a longer-term perspective. Additionally, a review of the facts, although in themselves well-known, provides an accessible statement of those features of the world which, as a minimum condition, any acceptable theory must be able to explain. The second objective of the paper is to review the alternative explanations for the facts about the relationship between unemployment and inflation and to evaluate critically those alternatives partly in the light of their ability to explain the observed behaviour of unemployment and inflation and also, and very importantly, in the light of their consistency with other well-known facts about human behaviour which are embodied in all acceptable economic theories. The third objective is to identify and highlight puzzles and paradoxes present in the existing state of knowledge. Hopefully this will serve to put into sharp focus the ongoing research task in this area. Finally the paper analyses, in the light of the existing state of knowledge, the key alternative policy recommendations for dealing with the twin problems of unemployment and inflation.

In this paper I shall try to analyse recent and future trends of the demand for labour and its determinants in the FRG at the national level as well as in selected industries.

Ever since the institutional labour economists rejected classical economic theory over six decades ago, there has been a deeply troubling schism in the foundations of our discipline that still has not been satisfactorily resolved. As a result, our ability to forecast inflation and unemployment suffers, and our policy analyses of structural and demand issues are often not very enlightening.

As compared to white males, blacks and women in the United States tend to have a high incidence of unemployment, tend to earn lower wages when employed, and tend to be distributed across the range of occupations in a different way. The same is true for women and identifiably lower-class persons in most other countries.¹ With respect to any particular group in any particular country, there is likely to be disagreement as to the source or sources of these three problems. Some observers believe that the problems of these groups stem in the main from characteristics of their members, which cause them to shy away from certain jobs, to have or appear to employers to have lower productivity in certain jobs, and to have a high rate of separation from jobs. Other observers emphasise discrimination — the tradition-bound attitudes of employers which result in witholding access to certain jobs from group members who potentially might have normal productivity in those jobs.²

Economists have always had an ambiguous attitude toward work. The mainstream of economic theory has viewed work as sacrifice. Man worked in order to produce so that he could consume. According to neo-classical theory, a person or a household exchanged work for income, and leisure could be substituted for income. This assumed motivation for work gave rise to the well-known problem of the shape of the supply curve for labour.

Italian interest in an income distribution/labour supply analysis has developed out of dissatisfaction with the apparent implications of the labour supply surveys made by the official Statistics Bureau (ISTAT). Moreover, conflicting estimates and characteristics of supply and demand have made it difficult to make reliable future labour supply calculations.¹

Except for several years immediately following the Second World War, unemployment has seldom posed a serious threat to the economic policy-makers in Japan. The annual rate of unemployment has consistently registered a markedly low, ‘super-full-employmentx2019; figure. The published unemployment statistics have never exceeded 3 per cent; if anything, they were kept below 1 percentage point during the phase of rapid economic growth in the 1960s (Table 15.1). The rising unemployment in the 1974 recession, eventually exceeding the 3 per cent level, may therefore mark the beginning of a new era in the Japanese economy.