Unemployment during the Inter-War period

The 1919-20 reduction in working hours accompanied by the maintenance of the weekly wage has been argued to underlie the rapid rise in unemployment in Britain in the early 1920s and some of the persistence of unemployment through to 1939. To what extent can these aspects of interwar unemployment be attributed to this supply-side change?

Unemployment was persistently high during the inter-war years at 10.9% (Feinstein) compared to an average of 5% pre-WWI. Even within the inter-war period there were large differences in this rate – jumping from 17% in 1921 to 9.7% in 1927 and reaching a peak of 22.1% [...]

Post-Keynesianism Part II

Day 1 – Talk 2

After our Introduction to Post-Keynesianism from Engelbert Stockhammer we were given a talk by Ozlem Onaran, from Greenwich University, on “Aggregate demand, income distribution and unemployment”.

She begins by adding to Engelbert’s introduction, highlighting that fundamental uncertainty can lead to path dependency – that is decisions made today (as a result of fundamental uncertainty) will have knock-on effects into the future. Post-Keynesians believe that full-employment is a special scenario, unlike neo-classicalists who believe that full-employment is the natural equilibrium and deviations are temporary and as a result of external shocks.

The determinants of investment are reminded as: capacity utilisation (how much of existing machinery is being used), credit availability, animal spirits, technological opportunities (after WWII there were many new technologies – partially discovered/created through military efforts – which helped aid the post-war boom as firms rushed to invest in these new technologies to make profit from them) and future profitability. [...]

What is hysteresis?

I recently wrote an article on the situation in Greece, and mentioned the effects of hysteresis which I will expand upon in this blog article.

Hysteresis is a theory developed by the Keynesians to explain why laissez-faire economic policy may be damaging in the long run. Neoclassicalists would argue that during an economic downturn, when an external shock causes demand to fall, wages should be allowed to fall which would increase the international competitiveness of the economy so that exports can grow to increase demand and provide a boost to the economy fueling further growth until the economy is out of the slump and growing again. [...]

Evaluate macroeconomic policies which may be used to reduce the level of unemployment in the UK

This is an exam question from the Edexcel Unit 2 June 2012 Paper. Have a go at it yourself and then compare with the essay below (you can also check out the mark scheme). I was awarded 30/30 for the essay below, feel free to add any further suggestions in the comment box. I don’t seem to like paragraphs much!!

One macroeconomic policy currently being employed is the use of monetary policy. Monetary policy is the manipulation of interest rates and more recently quantitative easing to control the economy. it is run by the Monetary Policy Committee at the Bank of England. [...]

The Costs and Distributional Effects of Unemployment

The classical view on unemployment says that there are only unemployed people who are not able and willing to work at the going wage rate. So if people would accept a lower wage they would find jobs. In this view all unemployment is a short-term problem and the best solution is laissez faire – leave the market to find equilibrium to resolve the issue of unemployment.

If people accept lower wages then the costs of living will fall as firms do not need to charge such high prices, so in fact workers will find the lower wages are acceptable once they start work. [...]