The rapid rise of unemployment in the UK and US during the last ten years, has been felt at all levels, cut across all classes, and caused social, economic and emotional problems on a scale not seen since the 1930s. With rates in excess of 13.2 and 11.0 per cent, which are double the figures for three years before, it is not surprising that interest has been shown from many directions and attempts to explain, and/or ease, the situation have been legion. The result has been a dichotomy so entrenched, that economists have often felt themselves forced to support one side or the other, even though neither provides a real solution. The two broad views of the causes of unemployment as voluntary or demand deficient are equally unsatisfactory in isolation. From the voluntary or natural standpoint, one is faced with the problem of explaining why unemployment has risen to this extent while its major factor, replacement ratio has been steadily falling. On the other hand, supporters of demand deficiency or cyclical explanations unable to account for the fact that, since the late 1960s, unemployment has hardly declined in any year, particularly in the UK. To a large extent, the existing body of empirical estimates based on a theoretical foundation of the problem, have proved sadly inadequate for the recent experience. The dilema has recently been resolved, in part, by preceiving the problem as a fundamentaly structural one rather than completely voluntary or demand deficient. This implies a permanent loss of jobs in declining industries that is unassociated with demand levels or current method of wage bargaining. Clearly there is some merit in all of the theories even though their extreme explanations fail individually, to resolve completely the complex and labyrinthine unemployment problem. This can only be attempted when a clear, unbiased view of its determinants has been established, and it is towards this end that this research is directed. It attempts to analyse the existing theories, extrapolate what is relevant, and inject additional elements, so that the rising nature of unemployment is rationally explained. The research concludes that an adequate statistical description of the data generation process for unemployment in both countries over the period 1952-1983, can be obtained using the above methodology. Despite the many generalisations and assumptions concerning the operation of the labour market, the constructed unemployment models would clearly explain its rising nature. From this it might be possible to proffer valid remedial recommendations.
|Date of Award||1985|