In brief: Job guarantee: a new promise on long-term unemployment

Richard Layard and Paul Gregg call for a 'job guarantee' for jobseekers who have been out of work for 12 months or more

Unemployment: the way forward for Europe

This paper was originally delivered as a TSB Forum lecture in Glasgow on Thursday 28 October, 1993. Professor Layard argues that unemployment must be reduced permanently below the intolerable levels of the 1980s and early 1990s. To achieve this, reforms must be made in the areas of training and job subsidies for those unemployed for 6-12 months, in training of young people, and in systems of wage determination

Big ideas: wellbeing and public policy

Richard Layard outlines the development of CEP research on what makes people happy and how society might best be organised to promote happiness.Wellbeing, happiness, public policy

Does Relative Income Matter?: Are the Critics Right?

Do other peoples' incomes reduce the happiness which people in advanced countries experience from any given income? And does this help to explain why in the U.S., Germany and some other advanced countries, happiness has been constant for many decades? The answer to both questions is "Yes". We provide 4 main pieces of evidence. 1) In the U.S. General Survey (repeated samples since 1972) comparator income has a negative effect on happiness equal in magnitude to the positive effect of own income. 2) In the West German Socio-Economic Panel since 1984 the same istrue but with life satisfaction as the dependant variable. We also use the Panel to compare the effect of income comparisons and of adaptation as factors explaining the stable level of life-satisfaction: income comparisons emerge as much the more important. 3) When in our U.S. analysis we introduce "perceived" relative income as a potential explanatory variable, its effect is as large as the effect of actual relative income - further supporting the view that comparisons matter. 4) Finally, for a panel of European countries since 1973 we estimate the effect of average income upon average lifesatisfaction, splitting income into two components: trend and cycle. The effect of trend income is small and illdefined. Our conclusions relate to time series and to advanced countries only. They differ from those drawn in recent studies by Deaton and Stevenson/Wolfers, but those studies are largely cross-sectional and mostly include non-advanced as well as advanced countries.Easterlin Paradox, happiness, relative income, growth

The Marginal Utility of Income

In normative public economics it is crucial to know how fast the marginal utility of income declines as income increases. One needs this parameter for cost-benefit analysis, for optimal taxation and for the (Atkinson) measurement of inequality. We estimate this parameter using four large cross-sectional surveys of subjective happiness and two panel surveys. Altogether, the data cover over 50 countries and time periods between 1972 and 2005. In each of the six very different surveys, using a number of assumptions, we are able to estimate the elasticity of marginal utility with respect to income. We obtain very similar results from each survey. The highest (absolute) value is 1.34 and the lowest is 1.19, with a combined estimate of 1.26. The results are also very similar for subgroups in the population. We also examine whether these estimates (which are based directly on the scale of reported happiness) could be biased upwards if true utility is convex with respect to reported happiness. We find some evidence of such bias, but it is small—yielding a new estimated elasticity of 1.24 for the combined sample.Marginal utility, income, life satisfaction, happiness, public economic, welfare, inequality, optimal taxation, reference-dependent preferences

Combatting Unemployment: Is Flexibility Enough?

Our conclusions are the most important influences on unemployment come from the following (i) The longer unemployment benefits are available the longer unemployment lasts. Similarly, higher levels of benefits generate higher unemployment, with an elasticity of around one half. On the other hand active help in finding work can reduce unemployment. So more "flexibility" may need to be complemented by more intervention to provide active help. (ii) Union coverage and union power raise unemployment. But if wage bargaining is decentralised, wage bargainers have incentives to settle for more than the "going-rate", and only higher unemployment can prevent them leap-frogging. Although decentralisation makes it easier to vary relative wages, this advantage is more than offset by the extra upward pressure on the general level of wages. Thus, where union coverage is high, coordinated wage bargaining leads to lower unemployment. (iii) Conscious intervention to raise the skill levels of less able workers is an important component of any policy to combat unemployment. Pure wage flexibility may not be sufficient because it leads to growing inequality which in turn discourages labour supply from less able workers. Thus in these areas it is clear what types of reforms are needed. If well designed, such reforms might halve the level of unemployment in many countries. But there are three remedies which have been widely advocated in both OECD Jobs Study and the Delors White Paper. These are: less employment protection, lower taxes on employment, and lower working hours. Our research does not suggest that lower employment taxes or lower hours would have any long term effects; while the effects of lower employment protection would be small. (iv) Lower employment protection has two effects. It increases hiring and thus reduces long-term unemployment. But it also increases firing and thus increases short-term unemployment. The first (good) effect is almost offset by the second (bad) one. The gains from flexibility are small. (v) Employment taxes do not appear to have any long-term effect on unemployment and are borne entirely by labour. There may be some short-term effects, but it is not clear that there would be any fall in inflationary pressure if taxes on polluting products were raised at the same time as taxes on employment were lowered. (vi) Hours of work appear to have no long-term effect upon employment. Equally, if early retirement is used in order to reduce labour supply, it is necessary to reduce employment pari passu unless inflationary pressure is to increase. While flexibility hours and participation can reduce the fluctuations in unemployment over the cycle, they cannot affect its average level.