LABOUR ECONOMICS I

Economics is not exclusively about money. Economics is a kind of paradigm - a type of looking-glass which allows us to gain a certain unique understanding of the world around us. Economics is about how agents (usually humans) react to incentives and how they decide on the most "appropriate" actions. Economics is about how we decide what to eat, where to go, what movie to watch, or more succintly, how to live.

- Jose Miguel M. Abito (ECONews, July 2006)

Last month I wrote about men's (maybe) falling labor force participation rate in Singapore. In the post I wrote that this phenomena has be spotted in other industrialized countries years ago and there is already a fair amount of research on this issue.

In a recent article, the New York Times visits this issue ("Men Not Working, and Not Wanting Just Any Job", 31 July 2006). The article is worth reading, although it is too anecdotal to my taste. There are some interesting pieces information you can find in the article, though:

About 13 percent of American men in this age group (between 30 and 55) are not working, up from 5 percent in the late 1960’s. The difference represents 4 million men who would be working today if the employment rate had remained where it was in the 1950’s and 60’s.

.......

This same trend is evident in other industrialized countries. In the European Union, 14 percent of men between 25 and 54 were not working last year, up from 7 percent in 1975, according to the Organization for Economic Cooperation and Development. Over the same period in Japan, the proportion of such men rose to 8 percent from 4 percent.

Compare that to:

Today, about 73 percent of (American) women between 30 and 54 have a job, compared with 45 percent in the mid-1960’s, according to an analysis of Census data by researchers at Queens College. Many women without jobs are raising children at home, while men who are out of a job tend to be doing neither family work nor paid work.

At this rate, someday I may have to teach not "why women are less likely to work than men" but "why men are less likely to work (and more likely to be idle even at home) than women."

I do not copy and paste news articles in toto to my blog because of copyright issues. If you want to read the complete news articles, the best (and the cheapest) way is to use NUS Library E-Resources. Go to NUS Library Homepage and click E-Newspaper. You can read thousands of newspaper articles published around the world everyday.

Alternatively, you can try the newspaper websites. Some charge subscription fees (e.g. Straits Times, The Economist), while others require registration (e.g. New York Times). Freebies are hard to come by nowadyas.

According to the most recent statistics, in March this year, the ratio of the estimated number of job vacancies to the total number of unemployed persons in Singapore was 0.6 (statistics link). This means that there were--and most likely still are--more than enough number of job seekers in Singapore to fill all the vacancies. Isn't this odd? How come those jobs are left unfilled? This exactly is the question the Straits Times journalist who wrote the article about this issue ('Why is SERVICE going foreign?' 29 July 2006) asked me while he was researching. A good question indeed.

My answer: no, it is not odd. In a market economy, at any point of time, the number of vacancies cannot be zero, no matter how many are unemployed. Moreover the number of unemployed cannot be zero, no matter how many jobs are available. Why?

One reason is that it takes time for workers and jobs to be matched. Labor market is in a constant flow. At any given time, some vacancies are filled, while some new ones are created. Some unemployed people find jobs, while some employed people lose their jobs and some (e.g., graduates) enter the labor market and start looking for jobs. The employers and the unemployed then search for each other. However, it takes time for the job seekers to find out about avaliable jobs and fill the positions. It takes time for employers to post their vacancies, start hiring, and find employess they want. This is inevitable.

(In the ST news article, I am quoted saying, 'It usually takes a few months before the information that there are jobs available gets around to workers.'  It is a partial misquote. I have never said 'a few months'. I said only 'some time'.)

Another reason is that employers cannot simply fill a vacancy with the first person that shows up. Some jobs require specific skills. If employers cannot find people who can do the job, the job will remain vacant. Some vacancies in technology sectors and in high-end positions are likely to be that sort.

The third reason is that even an unemployed person would not simply take any job that he stumbles upon. No one would work for $3 an hour. Few would work in places over 40 degrees hot, unless paid amply. Some jobs are lowly even for the unemployed and hungry. Some vacancies in 'undesirable' jobs are likely to be this sort.

So we do not need to lose our sleep on why there are still vacancies and unemployment in the economy. What we have to look at further is what kind of jobs are vacant and what kind of people are unemployed. If there are many vacancies that require skilled workers, it indicates there is a need to get more skilled workers from abroad or train more workers domestically. If many good jobs are left vacant and few unemployed workers take them, it indicates that there is a need to improve information flow in the labor market or there is a need to look at incentive system (e.g., welfare).

Today's Straits Times reported that Australia is experiencing 'mini-baby boom', apparantly caused by the government's procreation benefits ("Aussies urged to 'procreate and cherish'"):

Mr Costello urged Australians to have more children in 2004, when he unveiled a US$2,250 (S$3,600) maternity payment for every new-born baby in what became known as his 'go forth and multiply' budget. The monetary incentive, which has just risen to US$3,200 this month, appears to be working, and while much of the Western world struggles with declining birth rates, Australia is in the grip of a mini-baby boom. The Australian newspaper reported yesterday that 261,404 babies were born last year, the highest number since 1992.

The article reports that Australia's total fertility rate (TFR) (the article calls it 'natural fertility rate' incorrectly) has increased from 1.75 in 2003 to 1.77 in 2004. This number means that 7 children would be born per 4 Australian women in their lifetime, if the fertility pattern in 2004 continued. Apparantly the government down under is not satisfied, although to Singapore that number would be to die for. In 2004 Singapore had 37,174 live births (35,135 among residents) and the TFR was paltry 1.24, that is, 5 children per 4 women's lifetime*.

The Australian government thinks their money incentives are working, but I have my doubts. Research shows that monetary incentives to raise fertility have limits. They certainly have positive effects, but the effect is likely to be quite small. I have not heard of any country that has succeeded in turning around their falling fertility rate by monetary incentives alone. My own research** for Singapore's case shows that Singapore is no exception.

*Source: http://www.singstat.gov.sg/keystats/surveys/popnindicators.pdf

**"How Effective Are Pronatalist Benefits? A Literature Survey and a Study on Singapore's Qualified Child Relief", Singapore Economic Review, 50(1), 9-23