Happiness: Lessons from a New Science by Layard Richard

Author:Layard, Richard [Layard, Richard]
Language: eng
Format: azw3
Publisher: Penguin Group US
Published: 2006-06-26T16:00:00+00:00

Work

Another key element of most people’s well-being is work. Indeed, we saw in chapter 5 that unemployment is one of the worst things that can happen to anyone. In impact it is similar to marriage break-up—you cease to be needed. This psychic effect comes on top of the effect of reduced income.

Thus a key priority for any civilised society is a low level of unemployment. But how can this be achieved? In the last twenty-five years many European countries have allowed unemployment to rise to levels unknown since the 1930s and to remain there. To find out how to reduce unemployment, we have to explain the intercountry differences shown in the table opposite. After much disagreement about this in the 1980s, a consensus has emerged among mainstream economists. This says that you cannot permanently reduce unemployment by increasing the aggregate demand for a country’s output, because this will only produce rising inflation. Instead, you have to alter the structure of the labour market.

Two main factors matter.12 The first is how people are treated if they are unemployed. If they are paid unemployment benefits for an indefinite period and not required to fill the vacancies that exist, there will be many long-term unemployed people, even when vacancies abound. In the European boom around the year 2000, that was the situation in both France and western Germany.13 So inflation rose, and the European Central Bank raised interest rates, bringing the boom to an end.

Unemployment rate, 2000-2004

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