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If the index representing total employment in Macedonia in
1989 was 100.3 – it was 62 in 1997. The figure for women
was marginally higher.

Total employment in the economic sector went down by more
than 40% between 1989-97.

The strongest declines were in trade and in tourism and
catering. But severe drops were registered in mining and
industry, agriculture and fisheries, forestry (which was
already depressed in 1989). Only water treatment and
management and crafts and trades – actually increased. But
construction, transport and communications, and, to a
lesser extent, housing, utilities, landscaping, financial,
technical and business services also declined.

Total employment in the non-economic sector was almost
unaffected !!!
Even in sectors such as education, science, culture and
information and healthcare and social services, the effects
were minimal.
And in administration and politics there was actually an
INCREASE.

The total employed declined from c. 517,000 (1989) to less
than 320,000 in 1997.
The total in the economic sectors declined from 430,000 to
270,000.
The total in the non-economic sectors declined from c.
90,000 to 84,000.
The female population reacted more strongly to the trend.
Female employment declined from 133,000 in 1995 to less
than 122,000 in 1997.
Less than 73,000 women were employed in the economic sector
in 1997, compared to more than 84,000 in 1995. In the non-
economic sector, the figures are 49,000 and 49,000
respectively (in other words, employment in the non
economic sector remained stable while even as it declined
strongly in the economic sector).

To summarize:

In 1997, all employed people numbered c. 319,453 (of whom
121,666 were women).
In the economic sector: 235,206 (72359)
In companies with social ownership: 185522 (70,094), of
which 121,663 were in the economic sector (30,835 women).
In privately owned firms the figure is – 22, 593 (of whom
21,910 in the economic sector). Women accounted for 10,492
(10,252 in the economic sector) of this number.
2414 workers (629 women) worked in cooperatives (all part
of the economic sector).
Firms with mixed ownership employed 91,988 (31,854 women).
Of these employees, 88,799 (30,548) were in the economic
sector.
State owned firms, institutions and organs employed 16,936
workers (8,597 women). Of these only 420 were engaged in
economic activities (95 women).
The (monthly) demand for workers declined from 6,619 in
1989 to 1,907 in 1996. Concurrently, monthly layoffs
doubled from 1,408 to 2,805. First time applicants for
unemployment benefits peaked monthly at 3,847 in 1992 and
declined to 2,073 in 1996. This is a bad sign – it
indicates growing desperation among the long term (more
than 12 months) unemployed.
New hiring virtually collapsed from 1,506 monthly in 1989
to 972 in 1997. Yet, this grim picture has to be balanced
by mentioning that many people are unofficially employed
and not registered anywhere.
The total number of employment seekers (in parentheses –
the number of women) has gone up from 150,400 (78,075) in
1989 to c. 253,000 (115,000) in 1997. But this is
misleading because fully 200,000 people have dropped from
the workforce and have given up seeking employment.
First time applicants went up from 116,000 to 186,000 in
the same period.
In 1989 only 75,000 unskilled workers were jobless. In 1997
the number almost doubled to 133,000.
And while only 5,800 received unemployment compensation in
1989 – their numbers multiplied by 10 (!) and reached over
50,000 in 1997.
Due to improvements in education on the one hand and to
growing desperation on the other hand – almost no people
younger than 18 years were looking for jobs in 1997 (only
1,700) compared to 1989 (11,900).
To a large extent, the same is true for the 18-25 age
groups. 70,400 sought work in 1989 versus 60,100 in 1997.
But the pernicious and lasting effects of unemployment were
more than evident in the next age groups. In the age groups
25-40 the number of e4mployment seekers increased from
55,200 to 135,000 in the same period. The number of people
between the ages 40-50 seeking work quadrupled (!) from
10,500 to 39,500. The same goes for people over the age of
50 (from 5,500 to 21,500).
By far the largest group of employment seekers was people
with no previous work experience (128,400 in 1989 and
180,700 in 1997).

The situation was much better in all other groups of work
experience:
Less than 1 year experience – from 6,300 (1989) to 7,900
(1997)
1-2 years – 3,500 to 5,000
2-3 years – 2,500 to 3,600
3-5 years – 3,400 to 5,700
5-10 years – 5,300 to 13,200
10-20 years – 3,200 to 18,200
20-30 years – 800 to 11,700
The number of unemployed people with more than 30 years
experience went up – from 100 in 1989 to 3,100 in 1997.

The time structure of unemployment has also worsened.
In 1989 22,900 found employment within 6 month. In 1997 –
there were only 6,100.
Within 6-9 months – from 8,300 to 4,100
Within 9-12 months – from 8,000 to 5,000
Between 1-3 years – from 51,300 to 71,600
Between 3-5 years – from 28,500 to 49,500 (!!!)
Between 5-8 years – from 20,700 to 49,900 (!!!)
More than 8 years – from 13,800 to 71,400 (!!!!!!!)

In other words, most of the employment seekers have to wait
for years before they gain employment. About 30% of them
wait for more than 8 years. This is nothing short of
disastrous.

Unemployment is concentrated, therefore, among the
relatively young and without work experience. Additionally,
the skilled and highly skilled workers have lesser
difficulties in finding a job. Only 46,000 of them were
employment seekers in 1997 (compared to 26,000 in 1989).
The semi-skilled and those with elementary school are the
most vulnerable, with 132,800 employment seekers (versus
75,200 in 1989). Even those with secondary school training
fared badly, with 74,200 employment seekers (versus 49,300
in 1989).

The Workforce Survey

Macedonia has executed a workforce survey for the first
time in 1996.
In this survey the following definitions were used:
Economically Active
The combined numbers of the employed and the unemployed
Employed
People aged 15 or more who worked for a wage (in cash or in
kind) or had income during at least one hour during the
reference week
Or
Were temporarily absent from work with a formal job
assignment
Or
Were helping on the family property or enterprise without
wages
Self Employed
An employer who operates his or her own enterprise or
engages independently in a profession or trade or owns a
farm and employs other people
Or
An employer who works for a private or public employer
Or
Own account worker – a person who operates his or her own
enterprise or engages independently in a profession or
trade but does not employ other persons
Or
An unpaid family worker – a person who works without pay in
an enterprise, a trade, or on a farm owned by another
member of his or her household.
Unemployed
Was without work during the reference week and …
Was seeking work, i.e. has taken specific steps to find a
job and …
Was prepared to accept a job in the reference week or in
the following week
Changes in the Labour Force
The activity rate as the ratio of the labour force in the
total population above the age of 15 years
The employment rate as the ratio of the number of workers
employed to the total population above the age of 15 years
The unemployment rate as the ratio between the numbers of
the unemployed to the total labour force.

As of 4/97:

The total activity rate was 53.7% (66.5% for men and 41.2%
for women).
But this number hides major disparities in age groups. For
instance: the activity rate of the age groups 35-39 was as
high as 80.5% while for adolescents between the ages of 15-
19 it was only 22.7% and for people between the ages 55-59
it was 36.5%.

The total employment rate was 34.4% (44.6% men and 24.4%
women).
Again, there were great disparities between age groups. The
employment rate for ages 40-44 was 62.6% - while for ages
15-19 it was only 4.4% and for ages 20-24 it was a meager
18.2%.

The total unemployment rate was 36% (33% for men and 40.8%
- women).
More than 80.4% of the population aged 15-19 was
unemployed, but only 20.2% of 40-44 and only 12% of 55-59.

The total population above the age of 15 at the time of the
survey was 1,489,625 (men – 736,977 and women – 752,648).

The total labour force was 800,513 (men – 490,122, women –
310,392).

The total number of unemployed was 288,213 (men – 161,717,
women – 126,496).

The total number of employed people was 512,301 (men –
328,404, women – 183, 896).

Outside the labour force there were 689,112 people (men –
246,856, women – 442,256).

To summarize in terms of percentages:

Ages 15-19 – 11% of the population – 4.6% of the labour
force – 1.4% of the employed – 10.3% of the unemployed –
18.3% of those outside the work force.
Ages 20-24 – 10.3% - 12.4% - 5.5% - 24.8% - 7.9%
Ages 25-29 – 9.7% - 13.8% - 10% - 20.7% - 5%
Ages 30-34 – 9.5% - 13.8% - 13.4% - 14.3% - 4.5%
Ages 35-39 – 9.8% - 14.7% - 16.8% - 11% - 4.1%
Ages 40-44 – 9.7% - 14.1% - 17.6% - 7.9% - 4.5%
Ages 45-49 – 9% - 12% - 15.4% - 6% - 5.5%
Ages 50-54 – 6.9% - 7.3% - 9.8% - 2.8% - 6.4%
Ages 55-59 – 6.2% - 4.2% - 5.8% - 1.4% - 8.5%
Ages 60-64 – 6.7% - 1.8% - 2.6% - 0.4% - 12.4%
Ages 65-69 – 5.1% - 0.5% - 0.8% - 0% - 10.4%
Ages 70-80 – 0.4% - 0.3% - 0.3% - 0.2% - 0.6%

In the population above the age of 15 years as a whole,
there were c. 104,000 without education, 199,000 with
incomplete education, 474,000 with primary education,
151,000 with 3 years or less of secondary education, about
369,000 with 4 years of secondary education and c. 55,000
with a higher education. There were 81,100 with university
degrees, 2,400 masters, 1,200 doctorates and 53,400
“other”.

Yet, the numbers in the labour force were very different
and reflected the absolute disadvantage of the uneducated,
unskilled, semi skilled and even those with only secondary
education.

Those without education were 20,000 in the labour force,
12,000 among the employed, 8,000 among the unemployed (the
employed and unemployed make up the labour force) - and a
staggering 84,000 outside the workforce altogether.

The respective figures for those with incomplete education:
62,300, 44,200, 18,100, 136,300

For those with primary education (notice the marked
improvement in employability!!!):
220,800, 118,000, 103,100, 253,100

And for those with 3 years of secondary education:
106,100, 64,800, 41,200, 45,100

Those with only one additional year of secondary education
already look much better:
263,000, 176,000, 87,000, 106,300

And those with a higher education maintain European rates
of unemployment:
41,000, 32,700, 8,300, 13,400

Those with university degrees:
67,200, 54,100, 13,100, 13,900

Masters:
1,630, 1,560, 70

Doctorates:
1,156, 1,086, 70, 71

76.3% of all men were employed (82.6% of women), 4.3% were
employers (1.7%), 4.9% were self- employed (2.5%), 3.4%
worked in family owned businesses (7.5%), 10.8% of all men
worked in agriculture (and 5.6% of women).

Men made up 62.3% of the employed (women – 37.7%), 82.2% of
all employers (17.8%), 78% of the self employed (22%), 45%
of those employed in family businesses (55%), 77.5% of
those employed in agriculture (22.5%).

The Situation in 8/99

Economic underdevelopment, agrarian over-employment,
external shocks and an unrestructured economy led to an
increase in both structural and cyclical employment.
The supply side is still composed mainly of new entrants,
women and unskilled or semi-skilled labour as well as
educated workers.
The demand structure is incompatible with the supply. It is
made of replacement jobs, new jobs (mainly in labour
intensive industries), jobs generated by foreign entities.
The number of the unemployed broke yet another record in
1999 and reached 344,472 people. Of these, almost half –
154,000 – were unskilled. But the unemployed included 5
doctors, 34 holders of master’s degrees and 11,400 with
higher education. About 33,000 of these numbers were made
“technologically redundant” – the euphemism for being laid
off due to restructuring of enterprises or their closure.
By comparison, the number of employed people was only
316,000.
In the first 8 months of 1999 alone there were 6,000 new
unemployed per month versus a monthly average of 3,700 in
1998. This increase is attributed to the inclusion of
people who did not bother to register with the Employment
Bureau in the past.

The fiscal burden increased dramatically as contributions
deteriorated to 25% of the Employment Bureau’s financing
while the state budget contributed the remaining 75%, or 3
billion MKD (equal to 100 million DM or c. 1.7% of GDP).
The Employment Bureau also pays health insurance for about
200,000 unemployed workers.

The Labour Unions

The Association of Trade Unions in Macedonia (ATUM or CCM
in the Macedonian acronym) is a voluntary organization,
which encompasses 75% of all the employed workers in
Macedonia as its members.

It is organized in the level of firms and institutions and
has in excess of 2600 chapters. Additionally, it has about
150 chapters in the municipalities and in the various
industrial sectors (all 15 of them).

The typical Macedonian trade union is not supported by the
government and is entirely financed by its membership fees
(self sufficient).

The first collective agreement was signed in 1990 at which
time the idea of Economic Social Council was floated as
well as the idea of a tripartite
(government+employees+employers) dispute settlement
mechanism.

The Labour Relations act was passed in 1994 and instituted
national collective agreement for the economic sector
between CCM and the Board of Employers of the Economic
Chamber of Commerce of Macedonia. Another general
collective agreement covered all public services, public
companies, state organs, local authorities and legal
persons performing non-economic activities. This latter
general collective agreement was signed between CCM and the
Government of the Republic of Macedonia.
Yet a third set of more than 20 collective agreements
between CCM and various organs of the Chamber of Commerce
and ministries covered other sectors.

The Future of Unemployment in Macedonia

Public enterprise restructuring, privatization and reform
are likely to increase unemployment benefits by 200-300
million MKD annually (assuming only 2,000-3,000 workers are
fired, a very conservative assumption as there are 18,000
workers in the 12 major loss making state firms, whose
closure was demanded by the IMF).

Unemployment is very dependent on productivity and GDP
growth. The World Bank predicts that with a GDP growth of
0%, the total expenditures on unemployment benefits could
equal 2.3% of GDP. Even if GDP were to grow by 4% annually,
their projections show unemployment benefits equaling 1.6%
of GDP.

III. Bibliography

1. “Has Job Stability Declined Yet? New Evidence for
the 1990s”, NEBR working paper, December 1997.
2. “Job Tenure and Labour Market Regulation: a
Comparison of Britain and Italy using Micro
Data”, CEPR discussion paper, October 1997.
3. “A Disaggregate Analysis of the Evolution of Job
Tenure in Britain 1975-93”
4. “Monetary Union and European Unemployment”, CEPR
discussion paper No. 1485, October 1996.
5. “Policy Complementarities: The Case for
Fundamental Labour Market Reform” by David Coe
and Dennis Snower. IMF Staff Papers Volume 44,
No. 1, 1997.
6. “French Unemployment: Why France and the USA are
alike” by D. Cohen, A. Lefranc and G. Saint Paul.
Economic Policy 25, October 1997.
7. “Minimum Wages and Youth Unemployment in France
and the USA” by I. Abowd, F. Kramarz, T. Lemieux
and D. Margolis. NBER working paper 6111.
8. “Making the most of the minimum: statutory
minimum wages, employment and poverty”,
Employment Outlook, June 1998
9. “Symposium: The Natural Rate of Unemployment”,
Journal of Economic Perspectives, Winter 1997
10. “Rewarding Work” To be published by Harvard
University Press.
11. “The Role of Shocks and Institutions in the
Rise of European Unemployment: The Aggregate
Evidence” (http://www.web.mit.edu/blanchard)
12. “Job security Provisions and Employment”,
Quarterly Journal of Economics, August 1990.
13. Review Essay by Paul Gregg and Alan Manning
in Unemployment Policy, Eds. Dennis Snower and
Guillermo de la Dehesa, Cambridge University
Press, 1997.
14. “The Dutch Model”, Frits Bolkestein, By
Invitation, The Economist, May 22nd, 1999, pp. 97-
98
15. “Beer, Sandwiches and Statistics”, Economic
Focus, The economist, July 12th, 1997, p.78
16. “Agricultural Productivity, Comparative
advantage and Economic Growth”, Journal of
Economic Theory 58, 1992
17. “Deindustrialization”, World Economic
Outlook, April 1997
18. “Deindustrialization: Causes and
Implications” by Robert Rowthorn and Ramana
Ramaswamy. IMF working paper, April 1997.
19. “The Grabbing Hand: Government Pathologies
and their Cures” by Andrei Shleifer and Robert
Vishny. Harvard University Press.
20. “The Chemistry of Growth”, Economic Focus,
The Economist, March 6th, 1999, p.80.
21. “The Politics of Unemployment – Europe hits
a brick wall”, The Economist, April 5th, 1997,
p.19.
22. “Working man’s burden”, Economic Focus, The
economist, February 6th, 1999, p.88.
23. “An Assessment of Economic Reforms and
Country Competitiveness in Transition Economies:
Macedonia”. Compiled by Lidija Rangelovska for
the Harvard Institute of International
Development (HIID), July 1999.
24. “Statistical Yearbook of the Republic of
Macedonia, 1998”, Statistical Office of the
Republic of Macedonia, XXXIII, Skopje, November
1998, pp. 158-206
25. “National Development Strategy for Macedonia
– Development and Modernization”, Macedonian
Academy of Sciences and Arts, Skopje, 1997, pp.
127-147
26. “The Republic of Macedonia”, SIBIS, Skopje,
1996, pp. 59-60
27. “The Encyclopedia Britannica”, 1999 Edition
28. “Aide Memoire Public Expenditure
Institutional Review Mission”, July 19-30, 1999,
Draft 7/30/99
29. “IMF Fiscal Affairs Department – FYROM: Some
Options for Restructuring Government
Expenditures” by Sheetal K. Chand, Calvin
McDonald, Eric Haindl. November 1997.
30. “Program of the Republic of Macedonia for
stimulating investments with a special emphasis
on attracting foreign direct investments”, The
Government of the Republic of Macedonia, Skopje,
March 1999
31. “Republic of Macedonia – World Bank – Social
Support and Technical Assistance Project – Labour
Redeployment Program – Semiannual Report – June
1999” by The Privatization Agency of the Republic
of Macedonia – Project Coordination Unit –
Coordinator: Vladimir Sarac – Skopje, July 31,
1999.
32. ILO Convention no. 160 – “Convention on the
Statistics of Labour Force” (ILO 1992, p.1325).
33. “The Consequences of Labour Market
Flexibility: Panel Evidence Based on Survey
Data”, by R. Di Tella and R. MacCullouch, Harvard
Business School and ZEI, University of Bonn
respectively, April 28th, 1999.

The Labour Divide
I. Employment and Unemployment
By: Dr. Sam Vaknin
Also published by United Press International (UPI)

Communism abolished official unemployment. It had no place
in the dictatorship of the proletariat, where all means of
production were commonly owned. Underemployment was rife,
though. Many workers did little else besides punching cards
on their way in and out.
For a long time, it seemed as though Japan succeeded where
communism failed. Its unemployment rate was eerily low. It
has since climbed to exceed the United States' at 5.6%. As
was the case in Central and Eastern Europe, the glowing
figures hid a disheartening reality of underemployment,
inefficiency, and incestuous relationships between
manufacturers, suppliers, the government, and financial
institutions.
The landscape of labour has rarely undergone more all-
pervasive and thorough changes than in the last decade.
With the Cold War over, the world is in the throes of an
unprecedented economic transition. The confluence of new,
disruptive technologies, the collapse of non-capitalistic
modes of production, the evaporation of non-market
economies, mass migration (between 7.5% - in France - and
15% - in Switzerland - of European populations), and a
debilitating brain drain - altered the patterns of
employment and unemployment irreversibly and globally.
In this series of articles, I study this tectonic shift:
employment and unemployment, brain drain and migration,
entrepreneurship and workaholism, the role of trade unions,
and the future of work and retirement.
I. The True Picture
According to the ILO ("World Employment Report - 2001"),
more than 1 billion people - one third of the global
workforce - are either unemployed or underemployed. Even
hitherto "stable" countries have seen their situation
worsen as they failed to fully adjust to a world of labour
mobility, competitiveness, and globalization.
Unemployment in Poland may well be over 18% - in Argentina,
perhaps 25%. In many countries, unemployment is so
entrenched that no amount of aid and development seem to
affect it. This is the case in countries as diverse as
Macedonia (35% unemployment) and Zimbabwe (a whopping 60%).
The much heralded improvements in the OECD countries were
both marginal (long term unemployment declined from 35% of
the total to 31%) and reversible (unemployment is
vigorously regaining lost ground in Germany and France, for
instance).
Official global unemployment increased by 20 million people
(to 160 million) between the nadir of the Asian crisis in
1997 and 2001. The situation has much deteriorated since.
The ILO estimates that the world economy has to run (i.e.,
continue to expand as it has done in the roaring 1990's) -
in order to stay put (i.e., absorb 500 million workers
likely to be added to the global labour force until 2010).
How can this be achieved with China unwinding its state
sector (which employs 13% of its workforce) - is not clear.
Add to this stubbornly high birth rates (esp. in Africa)
and a steady decline in government hiring al over the world
- and the picture may be grimmer than advertised.
But the rate of unemployment is not a direct and exclusive
result of growth or the lack thereof. It is influenced by
government policies, market forces (including external
shocks), the business cycle, discrimination, and investment
- including by the private sector - in human capital.
The problem with devising effective ways of coping with
unemployment is that no one knows the true picture. Taking
into account internal, rural-to-urban, migration patterns
and the growth of the private sector (it now employs 5% of
the labour force) - China may have a real unemployment rate
of 9.5% (compared to the official figure of 3.1%). Egypt's
official rate is 8% -but it masks vast over-employment in
the public sector. Lebanon's is 9% - due to a one-time
reconstruction bonanza, financed by the billionaire-turned-
politician, Hariri. Algeria's unemployed easily amount to
half the work force - yet, the published rate is 29%. In
numerous countries - from Brazil to Sri Lanka - many people
are mainly employed in casual work.
The average unemployment rate in Central and Eastern Europe
is 14% - but it is double that (more than 30%) among the
young (compared to 15% for West European youths). The
average is misleading, though. In Georgia the rate is 70% -
in the Czech Republic 16%.

Even in the OECD, the tidal wave of part-time workers,
short term contracts, outsourcing, sub-contracting, and
self-employment - renders most figures rough
approximations. Part time work is now 20% of the OECD
workforce (German attempts to reverse the trend
notwithstanding). Temporary work and self-employment
constitute another 12% each. No one knows for sure how many
illegal economic migrants are there - but there are tens of
millions of legal ones.
II. The Facts
IIa. Labour Mobility
"Mobility", "globalization", "flextime" - media imagery
leads us to believe that we move around more often, and
change (less secure) jobs more frequently. It is not so. By
many measures, the world is less globalized today than it
was a century ago. Contrary to popular perceptions, job
tenure (in the first 8 years of employment) has not
declined, nor did labour mobility increase (according to
findings published by the NBER and CEPR). Firms' hiring and
firing practices are more flexible but this is because
"sarariman" jobs are out of fashion and many workers (80%
of them, according to the Employment Policy Foundation)
prefer casual work with temporary contracts.
Workers keep moving, as they always have, among firms and
between sectors. But they are still reluctant to relocate,
let alone emigrate. The subjective perception of job
insecurity is high, even after the most prosperous decade
in recent history. Witness the sparse movement of labour
among members of the EU, despite the existence, on paper,
of a single labour market. Still, rising systemic
unemployment everywhere serves to increase both the
efficiency and productivity of workers and to moderate
their wage claims.
IIb. Collective Bargaining
Studies linked collective bargaining to an increased wage
level, decreased hiring and more rigid labour markets. But
unionized labour has greatly contracted in almost all OECD
countries. Why has unemployment remained so persistently
high?
In France and the Netherlands collective agreements were
applied to non-unionized labour (close to four fifth of the
actually employed in the latter). Employment increases only
where both union membership and coverage by collective
agreements are down (USA, UK, New Zealand, Australia).
There are different models of wage bargaining. In the USA
and Canada agreements are sometimes signed at the firm or
even individual plant level. Throughout Scandinavia (though
this may be changing in Norway and Denmark now that centre-
right parties have won the elections), a single national
agreement prevails. There is no clear trend, though.
Britain, New Zealand and Sweden decentralized their
collective bargaining processes while Norway and Portugal
are still centralized.
Both types of bargaining - centralized and decentralized -
tend to moderate wage demands. Centralized bargaining
forces union leaders to consider the welfare of the entire
workforce. Either of the pure models seems preferable to a
hybrid system. The worst results are obtained with national
bargaining for specific industries. Hybrid-bargaining
Europe saw its unemployment soar from 3 to 11% in the last
25 years. Pure-bargaining USA maintained a low unemployment
rate of 5-6% during the same quarter century.
IIc. Unemployment Benefits
Blanchard and Wolfers studied 8 market rigidities in 20
countries (including the EU, USA, Canada, and Japan)
between the years 1960-96. The unemployment rate in an
imaginary composite of all the studied countries should
have risen by 7.2% in this period. But unemployment
increased by twice as much in countries with strict
employment protection laws compared to countries with laxer
labour legislation.
Unemployment in the country with the most generous
unemployment benefits grew five times more than in the most
parsimonious one. It grew our times faster in countries
with centralized wage bargaining than in countries with
utterly decentralized bargaining. Labour market rigidities
all amplify the effects of asymmetrical shocks - which
bodes ill for the eurozone.
Other studies (e.g., the 1994 OECD one year study, the more
substantial DiTella-MacCullouch study) seem to support
these findings. The transition from a rigid to a flexible
labour market does not yield immediate results because it
increases labour force participation. But the unemployment
rate is favorably affected later.
IId. Minimum Wages
In the USA, the minimum wage is 35% of the median wage (in
France it is 60%, in Britain - 45%, and in the Netherlands
it is declining). When wages are downward-flexible – more
lowly skilled jobs are created. A 1% rise in the minimum
wage reduces the probability of finding such a job by 2-
2.5% in both America and France, according to the NBER
(Lemieux and Margolis).
The proponents of minimum wages say they reduce poverty and
increase the equality of wealth distribution. Their
opponents (such as Peter Tulip of the Federal Reserve)
blame them for job destruction, mainly by raising the
NAIRU. The OECD's position is that wage regulation cannot
remedy poverty. As "The Economist" succinctly puts it, "few
low paid workers live in low-income households and few low-
income households include low paid workers. (Thus), the
benefits of the minimum wage, such as they are, largely
bypass the poor."
Again, it is important to realize that unemployment is not
universal - it is concentrated among the young, the old,
the under-educated, the unskilled, and the geographically
disadvantaged. One in eight of all workers under the age of
25 in the USA are unemployed, more than twice the national
average (the figure in France is one in four). A 10% rise
in the minimum wage - regardless of its level - reduces
teenage employment by 2-4%, calculates the OECD.
Many countries (USA, UK, France) introduced "training
wages" – actually, minimum wage exemptions for the young.
But even this sub-minimum wages still represent a high
percentage of mean youth earnings (53% in the USA and 72%
in France) and thus have an inhibiting effect on youth
employment.
Minimum wages do reduce inequality by altering the income
distribution and by equalizing wages across ages and
genders - but they have no effect on inequality and poverty
reduction, insists the OECD. "The Economist" quotes these
figures (in 1998):
"In American households with less than half the median
household income, only 33% of adults have a low-paid job.
(compared to 13% in the Netherlands and 5% in the UK). In
most poor households no one is employed in a regular job.
Many low earners, on the other hand, have well-paid
partners, or affluent parents ... Only 33% of those
Americans who earn less than two-thirds of the median wage
live in families whose income is less than half the
national median. (In the UK the figure is 10% and in
Ireland – 3%). Over a 5-year period, only 25% of low paid
Americans are in a poor family at some point; in Britain
10% are."
Thus, minimum wages seem to hurt poor families with
teenagers (by making teenage employment unattractive) while
benefiting mainly the middle class.

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