The labour market: Unemployment and workforce training

Outline

1. How does the labour market work?

2. Unemployment: Who bears the burden?

3. Are ALMPs (e.g. YTS, New Deal) successful?

1. A two-sided search model Agents have imperfect information

Search is costly

Search decisions (I) Choice of search technology (ii) Choice of search intensity (iii) Stopping rule

Stopping rules Worker: wage offer > reservation wage Firm: expected surplus (productivity) >

reservation surplus

Meeting & matching (I) Firms: arrival rate of applicants (ii) Workers: arrival rate of firms (I) + (ii) = contact rate (c) (meeting) Outcome: match or not (probability m)

The hiring rate (h) h = mc

h = mc(U, V) Derive the Beveridge curve

Causes of unemployment? 1. Macro factors - shift the beveridge curve 2. Micro factors - affecting Pr(o) & Pr(a)

2. Who bears the burden of unemployment?

(a) Youths

(b) The unqualified

(c) Ethnic minorities persistence causes - an official view

Official view “Factors which may explain the persistently higher

rates of unemployment among ethnic minorities, apart from a) the younger age profile… include [their] b) generally low level of qualifications and c) their industrial and d) regional distribution.”

Alternative views discrimination enclaves - a taste for isolation

3. Have ALMPs been successful? What are ALMPs?

I) Job Centers/Employment Offices (ii) Services for the disabled (iii) Training programmes

How do we evaluate their impact? On what?

Evaluation On what?

A) Subsequent wages - before & after B) Employment probability

How? Counterfactual question partial analysis v. cost-benefit analysis

Successful? Youth training - no wage effect, small

effect on pr(employment)