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It has been common to argue that the immigration of low-skilled workers will mainly add to unemployment. We take issue with this conclusion from a Keynesian/ Political Economy position. Rather than the level of employment being determined by the wage rate, the alternate view is that employment is determined by the level of effective demand. In this case, immigration, by adding to effective demand, may increase employment levels, rather than decrease them.

A sizeable number of middle class women in India have benefitted from the expansion of the private sector following India’s integration into the global economy, gaining unprecedented incomes and enjoying much greater freedom of mobility than earlier generations. As earlier chapters have argued their prominence in public and professional life is recognized not only by their families but also by the media and popular culture. However, this recognition fails to take into account the many challenges associated with their position. Many of the jobs created in the transnational private sector in general and the IT industry in particular are fairly low skilled and associated with minimal growth opportunities but are coveted because of the high incomes that they offer in comparison with companies based in India or servicing the Indian market.

The combination of unemployment benefits, high taxes on labour income, social contributions and conditional transfers such as additional child benefits, may reduce the willingness of unemployed workers — especially the low skilled — to find and/or to accept a job (OECD, 1996, 1999). Low returns associated with being employed rather than unemployed may thus affect the decision of moving into employment.

Inactivity rates among working age men over 25 have risen by a multiple of around four since the mid-1970s. Among prime-age men (aged 25–54), inactivity rates have risen even more (over five times) over the same period. By contrast, unemployment rates are roughly the same now as they were in the mid-1970s and inactivity rates among women have fallen significantly. Rises in the inactivity rate of prime-age men in the bottom skill quartile make up the majority of the increase in overall prime-age male inactivity since the mid-1970s. As a consequence, between 50 and 60 per cent of inactive prime-age men are now in the bottom skill quartile. Around 70 per cent of inactive prime-age men report themselves as having a limiting health problem. For older men, this number is around 50 per cent. In the 1970s, a mere 10 per cent of prime-age men reporting a limiting health problem were inactive. By the late 1990s, the proportion had risen to around 40 per cent. Since the 1970s, there has been a significant rise in the overall proportion of men reporting a limiting health problem. Much of the rise in prime-age male inactivity can be accounted for by these two facts. By contrast, among older men, around half the rise in inactivity since the 1970s is accounted for by increasing inactivity among those without any reported limiting illness. Many of these would be occupational pensioners. The level of inactivity among prime-age men is particularly concentrated among those who are both low skilled and suffering from a chronic health problem or disability. Over time as inactivity rose, this concentration got much worse. Important factors underlying these changes are the significant weakening of the low skill labour market and the operation of the invalidity benefit system.

Currently there are about 120,000 18–24 year olds participating in the New Deal for Young People (NDYP). About three-quarters of participants are male and they are much less skilled than the population as a whole. Evaluations of the NDYP in the first few years of the programme show that it has had a significant affect on raising the proportion of people leaving unemployment and finding jobs. The aggregate impact of the NDYP is to raise employment by about 17,000 a year. This is much smaller than the government’s claimed figure of 375,000 which refers to all participants who found jobs. There does not appear to be a dramatic change in the low skilled UK youth labour market. The stock of longer-term unemployed has fallen, primarily because people have entered options such as education and training rather than finding jobs. The employment to population ratio for 18–24 year old men was virtually unchanged at 61 per cent between 1993 and 2001. Although the net amount of jobs created by the New Deal is probably small, so are the costs. The true costs are not as high as published details suggest, as benefits would have had to be paid to NDYP participants in any case. Hence the programme seems worth continuing on cost-benefit grounds.

Over much of the past two decades the relative wages and employment of the low skilled have fallen dramatically in the UK. Between 1980 and 1992, for example, the real earnings of the top tenth of male earners in the UK rose by 51 per cent, whereas the earnings of the bottom tenth only increased by 11 per cent.1 Nickell (1996) shows that the unemployment rate of less-skilled males in the UK rose from 6.4 per cent in the mid-1970s to 18.2 per cent in the mid-1980s, whereas over the same period the unemployment rate of skilled males rose only from 2.0 per cent to 4.7 per cent. The rise in UK wage inequality has also been in many directions. Although the most significant widening of relative wages has occurred between manual and non-manual workers, there has also been a large increase in the dispersion of wages within the categories of both manual and non-manual workers (see Gregg and Machin, 1994).

This paper presents a preliminary version of a new macroeconometric model developed at the Netherlands Bureau for Economic Policy Analysis. It is the result of a research effort with two major objectives. The first one is to build a model that is suitable for short, medium and long-term analyses. The rationale behind this goal is that many current policies and policy proposals are aimed at improving the structure of the economy. Thus, these policies aim to change the equilibrium of the economy. However, the new equilibrium obviously is not reached overnight, and these policies may in effect have very different short and medium-term effects. In particular, the short/ medium and long-term welfare effects of these policies may be of opposite sign, following the saying of ‘no pain, no gain,’ and it is this trade-off between ‘current pain’ and ‘future gain’ that often makes it unclear whether a policy should be adopted, or at least makes the proposal controversial.

The Philippines is a country rich in natural and human resources. Agriculture has traditionally been and is still very important for the Philippine economy. In addition, the country boasts one of the highest tertiary enrolment rates in the region, even paralleling some of the high income economies. Yet, despite progress in the last couple of years, the economic performance of the Philippines has been disappointing relative to the other economies in East and Southeast Asia. The average annual GDP growth rate and the growth rate of exports between 1980 and 1993 were far lower than its ASEAN counterparts. In the international and regional division of labour, moreover, rather than attracting the higher value added, more skill-intensive jobs, the Philippines is competing with Thailand, Indonesia and Malaysia, countries with lower overall school enrolment rates, for foreign investment which seeks cheap and low skilled labour (see Table 8.1).