Measuring Job Quality.

Extract from LLAKES newsletter n4.

What do we mean by “job quality”, and how can we design indices to measure it? These are the central questions in another LLAKES European research project being led by Francis Green.

The project follows a call from the European Foundation for Living and Working Conditions, an agency of the European Union based in Dublin, to carry out analyses of its 5th European Working Conditions Survey, which was completed in 34 countries during 2010. Working together with LLAKES researcher, Tarek Mostafa, Francis’s bid won the contract to devise job quality indices from the data, and to use the indices to describe the distribution and growth of job quality in Europe.

From the outset, the idea of job quality needed to be defined, the concept was focused squarely on objective features of the job, rather than on personal characteristics of the worker. Indices for wages, intrinsic work quality, employment quality (security and prospects), and work-life balance features were devised. Rather than focusing just on wages, which economists generally favoured, or combining them artificially to form a single index, it was decided to analyse the four indices separately. Tarek and Francis have since been busy analysing how these aspects of jobs vary across socioeconomic groups, and between European countries. We know that wages were increasing steadily in many countries, prior to the great recession of 2008, and that earnings had become much more unequal, including in Britain. Of particular interest is what’s been happening to the non-wage aspects of job quality over time. Is it getting any better? If so, in what dimensions? Is it becoming more unequally distributed across the population? Up to now very little has been known about these matters. Francis presented some initial findings on these issues to a conference on job quality in early November at Cornell University, New York State, organised by the Industrial and Labor Relations Review, in a paper entitled “Is job quality becoming more unequal?” In US conferences one is sometimes urged to make sure to include his “elevator” answer in his presentation, (i.e. the summary you would give to someone important if you found yourself describing your paper’s argument during a ride in the lift). In this case, Francis’ elevator statement required less than one floor: “not in Europe”. It was found that work quality, work intensity and work-life balance features were all becoming less, not more, unequal between 1995 and 2010; while environmental security (i.e. absence of physical and ergonomic hazards) was pretty stable.

Euro Zone Fears Still High Despite Recent Debt Plan

European Commission President Jose Manuel Barroso announced Thursday that Europe is closer to solving the euro zone crises after an agreement has been reached in Brussels. On the other hand, numerous economists, including New York Times columnist Paul Krugman, are still skeptical about how effective such an agreement might be. In Krugman’s words, “The bitter truth is that it’s looking more and more as if the euro system is doomed. And the even more bitter truth is that given the way that system has been performing, Europe might be better off if it collapses sooner rather than later.”

Today, the main threat is not necessarily Greece, but the failure of the economies of Italy and Spain. Italy is the third largest economy of the euro zone, and any run on its banks spells disaster for the rest of the European economies. Given that the reaction to the Greek crisis was weak and relatively late, one can imagine what a broader crisis means. France is already struggling with its debt and it is almost impossible for it to bail out its southern neighbors. Germany has been reluctant since the beginning of the crisis to provide help to the failing economies.

But the bailouts that Germany is required to fund are the price that it has to pay in order to save the euro. This comes despite the unpopularity of these bailouts with German voters and the well-founded fears concerning the situation of some of the essentially broken European economies. Even more ironically, European leaders called upon the U.S. and China to support the crisis deal.

Of course, one should not forget the exceedingly productive role that the UK might play, which consists of looking half-suspiciously and half-mockingly upon what the rest of Europe is doing.

The main ailment of the EU is the existence of a monetary union without a fiscal one. When the euro was created, investors and policymakers wrongly believed that the Greek debt will be as safe as the German debt. This led to a boom in lending to Europe’s peripheral economies. But when the crisis started in the U.S. and spread towards the EU, the lending frenzy stopped, economic activity and tax revenues declined, debt spiraled, and the confidence fairy deserted this part of the world.

The solution to this problem would have been easy and straightforward if Europe were a fiscal union. In this case, states with a budgetary surplus would fund those with a deficit. However, two obstacles stand in the way of such a union. First, Europe is not a single country and it does not have the coherence of, say, America and the states which compose the U.S. union. Secondly, countries like Greece have been fiscally profligate even in the good days. Although some countries with limited debt such as Spain and countries with high debt but limited deficits such as Italy might emerge from the crisis, Greece will still pose a threat to the rest of Europe.

So far, the response of the European Commission was to impose fiscal austerity on its member states while providing bailouts to debtor countries until the private sector starts lending again. However, too much austerity might have undesirable effects. If public sector spending is being slashed in debtor countries (e.g. Greece) and the private sector is not lending, then how are jobs and growth supposed to be created? The answer would be through exports to creditor countries (e.g. Germany, France, etc.) as Krugman notes. But if these creditor countries are also imposing austerity and consumers are unwilling to buy these exports, then Europe as a whole will be driven back into recession. Of course, public spending as opposed to austerity also has limits defined by how much debt a country can accumulate without suffering from a loss of confidence.

After the extensive talks in Brussels, European leaders agreed to the following: Banks holding Greek debt would accept a 50% loss, a mechanism to boost the euro zone’s main bailout fund to about 1 trillion euros ($1.4tn), and banks must also raise more capital to protect them against losses resulting from any future government defaults.

Now, let’s wait and see if the confidence gods and fairies will smile upon Europe.

Preschool Education and Care: a Win-Win Policy

A new study that I conducted with Professor Andy Green suggests that preschool education and care has a positive effect on female employment and on educational performance at the age of 15, but it does not help close the gap between poorer students and their peers.

Debates about policy frequently involve identifying social and economic trade-offs. A policy which is designed to boost economic competitiveness may have negative social consequences or, conversely, policies designed to enhance social cohesion may come at a high economic cost. The tensions between economic and social goals seem particularly evident in times of economic austerity. However, social scientists occasionally identify policies which they claim would have clear benefits, both on the economic and social side. Pre-primary education and care (PSEC) is one such policy area.

A new study that I conducted with Professor Andy Green showed clearly that PSEC opens the doors of employment for women. Affordable and accessible pre-school provision frees up mothers of young children to undertake paid work and is thus likely to increase the employment rates of women in general. Raising rates of employment makes an important contribution to raising GDP per capita and improving living standards. At the same time participation in PSEC is held to improve the cognitive abilities of young children. These gains would come at little net costs since they are off-set by the increases in productivity and in tax revenues which will accrue.

We used two datasets: The first is a macro dataset that covers Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, New Zealand, Norway, Spain, Sweden, Switzerland, the UK, and the USA from 1980 to 2008. We included a large number of determinants of employment. These determinants are: PSEC, expenditure on unemployment (welfare), rigidity of employment, union coverage, coordinated wage bargaining, unemployment benefits’ duration and replacement rate, the rate of house ownership, and prison population. We also included the following variables: The degree of centralization of wage coordination (plant, firm, industry, or economy level), an index of employment protection, migrant stock, the ratio of minimum to average wage, taxes on labour, and union density. These variables did not have a significant effect on total or female employment and were taken out of the equation. The second is a micro-dataset: the Program for International Student Assessment (PISA 2009). Using this data we assessed the impact of attending preschool education on the achievements of 15 year-olds in Mathematics in the same countries mentioned above.

The findings are interesting. An increase in PSEC of 10% (making pre-primary education affordable and accessible) increases female employment by 6.1%. This result is substantial and intuitive since women are the major benefiters of PSEC. For the rest of the variables the impact on female employment is as follows. Expenditure on employment (welfare), rigidity of employment, and union coverage have a negative and significant effect on it, while the impact of coordinated wage bargaining, house ownership, and prison population is positive and significant. By contrast, unemployment benefits’ duration and replacement rate have an insignificant effect.

It is also worth noting that prison population accounts for a large difference in employment rates between the US and the rest of the countries. This happens because inmates are not considered as unemployed and as a consequence are taken out of the statistics. This artificially inflates employment rates in the US. Anecdotally, the prison population of the US is of 743 inmates per 100,000 inhabitants in 2008, and in Sweden it is of 78 inmates. This corresponds to 12.6% difference in total employment rates in favour of the US. Such a higher level of employment is artificial and does not result in higher productivity and it has high social and economic costs related to the need to operate prisons and to incarcerate so many people.

When comparing the social democratic economies with the liberal ones, it is possible to see that they attain high levels of employment through different roads. In the liberal economies flexibility is paramount while in social democratic economies publicly provided PSEC and coordinated wage bargaining play an important role.

On the other hand, using the PISA 2009 dataset, we were able to prove that attending PSEC is positively and significantly related to performance scores on reading at the age of 15 for all social groups. Hence, the cross-national analysis does not support the argument that raising levels of PSEC participation necessarily reduces social gaps in attainment at 15 years of age. Participation in PSEC increases educational performance by similar amounts for children of all social groups in most countries. Social gaps in performance at 15 may only be mitigated by high levels of PSEC provision where children from less advantaged families get more – or better quality – provision.

The important implication of this for policy is that for PSEC to reduce social gaps in school attainment it is not sufficient merely to increase aggregate PSEC participation rates. It would require policies with a substantial bias towards children from disadvantaged families so that they receive more – or better quality – PSEC than children from other social groups. Policy in England seems to be moving in this direction. On Sept 19th 2011 the Department for Education set out plans to extend the existing free entitlement of PSEC to 15 hours per week, which currently applies to all three and four year olds, and to all disadvantaged two year olds (i.e. for those qualifying for free school means or in local authority care). This should increase PSEC participation rates for disadvantaged families. DFE estimates that approximately 140000 two year olds would be eligible to benefit. However, it remains to be seen whether this will bias participation towards this group sufficiently to reduce inequalities in learning outcomes.

This study also appeared on Montrose42’s blog, on Nursery World, and on the page of the Centre for Longitudinal Studies at the IOE.

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Dr. Tarek Mostafa

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