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TWO QUESTIONS ARE POSED BASED ON THE ASSUMPTION THAT INDIVIDUAL WELFARE DEPENDS ON FAMILY INCOME: IS FAMILY INCOME MORE EXPLICABLE THAN INDIVIDUAL EARNINGS AND HOW CAN POLICIES AFFECTING FAMILY INCOME BE EVALUATED? QUESTION 1 IS EXAMINED USING A MODEL OF FAMILY LABOR SUPPLY. FOR 2, POLICIES CAN BE EVALUATED USING EXPLICIT EQUITY-EFFICIENCY TRADEOFFS.

Richard Layard is one of Britain's foremost applied economists, whose work has had a profound impact on the policy debate in Britain and abroad. This book contains his most influential articles on the subject of unemployment. It is published along with a companion volume Inequality , which deals with these topics and with economic transition. Unemployment explains what causes unemployment and proposes remedies to reduce it. There is a strong focus on how unemployed people are treated and how this affects unemployment - including Layard's well-known recommendation of a job-guarantee for long term unemployed people. Other key topics covered are the effect of unions and wage bargaining, the effect of low skill, and the possible role of rigid employment laws. The book opens with Richard Layard's personal credo Why I became an Economist .

When policy-makers have multiple objectives, they still need an over-arching criterion which determines the importance of the different objectives. The most reasonable criterion is the wellbeing of the population. Fortunately, it turns out that this is also the outcome which most determines whether a government gets re-elected. We therefore argue that, wherever there is a fixed budget constraint, money should allocated to those policies which give the greatest increase in wellbeing per pound of expenditure. If desired, now policies can focus especially on areas of life which cause the most misery. The new science of wellbeing provides evidence on which these are: especially mental and physical illness and poor relationships at work, at home or in the community. But, to approve a policy, there must be evidence of its effectiveness in dealing with the problem – preferably through controlled experiments. Where a policy increases the length of life, this counts as an addition to wellbeing, measured by Wellbeing-Years (or WELLBYs) per person born. Even policy-makers unmoved by wellbeing as an objective should promote it because of its large positive effects on productivity, academic learning and life-expectancy. If wellbeing is to play its proper role in decision-making, this will require a major re-organisation of Finance Ministries and other decision-making bodies.

AbstractThis lecture argues that mental health is a major factor of production. It is the biggest single influence on life satisfaction, with mental health eight years earlier a more powerful explanatory factor than current income. Mental health also affects earnings and educational success. But, most strikingly, it affects employment and physical health.In advanced countries mental health problems are the main illness of working age – amounting to 40% of all illness under 65. They account for over one third of disability and absenteeism in advanced countries. They can also cause or exacerbate physical illness. It is estimated that in the absence of mental illness, the costs of physical healthcare for chronic diseases would be one third lower.The good news is that cost-effective treatments for the most common mental illnesses now exist (both drugs and psychological therapy). But only a quarter of those who suffer are in treatment. Yet psychological therapy, such as cognitive behavioural therapy, if more widely available would pay for itself in savings on benefits and lost taxes.The lecture ends by illustrating how rational policy can be made using life-course models of wellbeing. Such policies should include a much greater role for the treatment and prevention of mental illness.
Jel codes
I30, J30

The government is committed to improved access to psychological therapy. How big an expansion is necessary to meet the NICE guidelines on depression and anxiety, and how should it be organised?

"Unemployment, not productivity, is the problem in Europe. So unemployment does not reflect some general weakness of the European economy. If it did, we would also see poor secular productivity growth, which is not the case. Unemployment is a specific problem, having specific causes, and for which there are specific remedies. Many European countries have reduced their unemployment rates to United States levels or below, including some, such as Denmark, which have very high tax rates. It is precisely the variation of experience among the different countries, which helps us to understand what must be done by those large continental countries where unemployment remains so shockingly high. By the early 1990s the evidence already showed that the keys to reducing unemployment were welfare-to-work policies for the unemployed and more flexible wages. Those countries like Denmark, the Netherlands and Britain which acted on this evidence have halved their unemployment since then. Those which have not taken action have continued to have high unemployment, even at the peak of the European boom in 2000. In that year both France and Germany had record levels of vacancies despite massive unemployment - showing that the main reason for unemployment was a failure to mobilise the unemployed. Almost any job is better than being unemployed. Research on happiness shows that being unemployed is as bad for a person's happiness as being divorced, and three times worse than losing one third of your income. So it is good for unemployed people that, after a while, they should be expected to fill most types of vacancy. It is also important that after some period they automatically receive offers of activity, which they are required to accept rather than staying at home on benefit. This 'activation principle' has been a major factor in lowering unemployment in many countries. But this whole approach requires an active and energetic service which combines job search assistance and benefit monitoring. The Hartz reforms in Germany are a massive step in the right direction but they need to be energetically monitored and followed in other countries. Wage flexibility is also vital in regions where productivity is lower than elsewhere and needs to be adequately reflected in lower wages. This applies to east Germany, southern Italy and southern Spain. But other elements in the 'flexibility' package often advocated, such as lower job security and lower taxes, would make little difference and there is no need to abandon the whole European model in order to deal with the specific problem of unemployment." (author's abstract)

"Unemployment, not productivity, is the problem in Europe. So unemployment does not reflect some general weakness of the European economy. If it did, we would also see poor secular productivity growth, which is not the case. Unemployment is a specific problem, having specific causes, and for which there are specific remedies. Many European countries have reduced their unemployment rates to United States levels or below, including some, such as Denmark, which have very high tax rates. It is precisely the variation of experience among the different countries, which helps us to understand what must be done by those large continental countries where unemployment remains so shockingly high. By the early 1990s the evidence already showed that the keys to reducing unemployment were welfare-to-work policies for the unemployed and more flexible wages. Those countries like Denmark, the Netherlands and Britain which acted on this evidence have halved their unemployment since then. Those which have not taken action have continued to have high unemployment, even at the peak of the European boom in 2000. In that year both France and Germany had record levels of vacancies despite massive unemployment - showing that the main reason for unemployment was a failure to mobilise the unemployed. Almost any job is better than being unemployed. Research on happiness shows that being unemployed is as bad for a person's happiness as being divorced, and three times worse than losing one third of your income. So it is good for unemployed people that, after a while, they should be expected to fill most types of vacancy. It is also important that after some period they automatically receive offers of activity, which they are required to accept rather than staying at home on benefit. This 'activation principle' has been a major factor in lowering unemployment in many countries. But this whole approach requires an active and energetic service which combines job search assistance and benefit monitoring. The Hartz reforms in Germany are a massive step in the right direction but they need to be energetically monitored and followed in other countries. Wage flexibility is also vital in regions where productivity is lower than elsewhere and needs to be adequately reflected in lower wages. This applies to east Germany, southern Italy and southern Spain. But other elements in the 'flexibility' package often advocated, such as lower job security and lower taxes, would make little difference and there is no need to abandon the whole European model in order to deal with the specific problem of unemployment." (Author's abstract, IAB-Doku) ((en))

The article reviews the Swedish model in the context of international evidence on the determinants of unemployment. There are three main determinants. (1) How unemployed people are treated. Unemployment benefits available for long periods tend to encourage long-term unemployment. The humane alternative is to replace benefits for long-term unemployed people by a guarantee of work or training. This policy has served Sweden well, despite frequent arguments to the contrary. (2) How wages are determined. Where unions are strong, centralized is better than decentralized bargaining because it takes into account the common interest in low unemployment. Countries like Sweden which have strived for wage consensus have benefited. (3) High minimum levels of skill. Unless these are achieved, the solidaristic wage policy advocated in the Swedish model is bound to increase unemployment. Other proposed remedies for unemployment, such as lower employers' payroll tax, less employment protection, more work sharing and early retirement are unlikely to have much effect on unemployment.