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Mismatch: A Framework for Thought

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  • Richard Jackman
  • Richard Layard
  • S Savouri

Abstract

The rise in European unemployment is often blamed on increased mismatch between labour supply and demand- either by age, skill or region. To investigate this, we first develop models to explain differences in unemployment rates - both where labour supply is given and where it responds through labour mobility. Evidence supporting the model is presented using regional data for Britain and the US. We then ask how the intersectoral dispersion in unemployment rates is related to the overall average unemployment rate. We conclude from our model that average unemployment increases with the variance of relative unemployment rates across groups. Since this variance is substantial, it explains a good part of total unemployment. But, since the variance has not risen for skill groups or regions, it cannot explain the overall rise in European unemployment. We then turn to policy. If labour supply is given, there is a strong case for taxes and subsidies to redirect demand to high unemployment groups. But if there is a perfect labour mobility (infinitely elastic supply across groups), then even with job rationing there is no efficiency case for intervention except where there are externalities. With partial labour mobility the conclusion lies in between. Given the positive externalities of training and possible congestion externalities of migration, there may be a case for subsidies to training and to unemployment in high-unemployment areas.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0001.

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Date of creation: May 1990
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Handle: RePEc:cep:cepdps:dp0001

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Cited by:
  1. David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters, in: Differences and Changes in Wage Structures, pages 145-174 National Bureau of Economic Research, Inc.
  2. Vincenzo Cassino & Richard Thornton, 2002. "Do changes in structural factors explain movements in the equilibrium rate of unemployment?," Bank of England working papers, Bank of England 153, Bank of England.
  3. Fahr, René & Sunde, Uwe, 2002. "Estimations of Occupational and Regional Matching Efficiencies Using Stochastic Production Frontier Models," IZA Discussion Papers 552, Institute for the Study of Labor (IZA).
  4. René Fahr & Uwe Sunde, 2002. "On the Effects of Career Choice: Matching Efficiency of Different Occupations and Education Levels," 10th International Conference on Panel Data, Berlin, July 5-6, 2002, International Conferences on Panel Data B1-1, International Conferences on Panel Data.
  5. Cameron, G. & Muellbauer, J., 1999. "Earnings, Unemployment, and Housing: Evidence from a Panel of British Regions," Economics Papers 1999-w7, Economics Group, Nuffield College, University of Oxford.
  6. Wall, Howard J & Zoega, Gylfi, 2002. " The British Beveridge Curve: A Tale of Ten Regions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 261-80, July.
  7. Gemma Garcia, 1998. "Unemployment and vacancies in Spain: Labour mismatch and active labour market policy," ERSA conference papers ersa98p182, European Regional Science Association.
  8. Pablo Burriel-Llombart & Jonathan Thomas, 2001. "Skill imbalances in the UK labour market: 1979-99," Bank of England working papers, Bank of England 145, Bank of England.
  9. David G. Blanchflower & Andrew J. Oswald, 1994. "Estimating a Wage Curve for Britain 1973-1990," NBER Working Papers 4770, National Bureau of Economic Research, Inc.

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