1. The labour market: Unemployment and workforce training Outline 1. How does the labour market work? 2. Unemployment: Who bears the burden? 3. Are ALMPs (e.g. YTS, New Deal) successful?

2. 1. A two-sided search model n Agents have imperfect information n Search is costly n Search decisions u (I) Choice of search technology u (ii) Choice of search intensity u (iii) Stopping rule

3. Stopping rules n Worker: wage offer > reservation wage n Firm: expected surplus (productivity) > reservation surplus n Meeting & matching n (I) Firms: arrival rate of applicants n (ii) Workers: arrival rate of firms n (I) + (ii) = contact rate (c) (meeting) n Outcome: match or not (probability m)

4. The hiring rate (h) n h = mc n h = mc(U, V) n Derive the Beveridge curve n Causes of unemployment? u 1. Macro factors - shift the beveridge curve u 2. Micro factors - affecting Pr(o) & Pr(a)

5. 2. Who bears the burden of unemployment? n (a) Youths n (b) The unqualified n (c) Ethnic minorities u persistence u causes - an official view

6. Official view n Factors which may explain the persistently higher rates of unemployment among ethnic minorities, apart from a) the younger age profile… include [their] b) generally low level of qualifications and c) their industrial and d) regional distribution. n Alternative views u discrimination u enclaves - a taste for isolation

7. 3. Have ALMPs been successful? n What are ALMPs? u I) Job Centers/Employment Offices u (ii) Services for the disabled u (iii) Training programmes n How do we evaluate their impact? On what?

8. Evaluation n On what? u A) Subsequent wages - before & after u B) Employment probability n How? u Counterfactual question u partial analysis v. cost-benefit analysis n Successful? u Youth training - no wage effect, small effect on pr(employment)