November 2012 Newsletter

02–NOVEMBER 2012 MONTHLY NEWSLETTER

SpotNomics

Department of Economics Editor: Dr. E. Azzopardi Contributor: Mr C. Fava

This Issue Great Economic Thinkers Economy and the Environment Examination Success Unemployment—Q & A

Great Economic Thinkers Paul Krugman

Economy and the Environment The study of Economics is concerned with the optimum use of available scarce resources. Households and firms depend on nature for resources. Some natural resources are finite. One potential cost of economic growth is the environmental degradation. We have come to realize, therefore, that economics cannot be viewed solely as the study of how goods and services are produced without taking into account the impact of such activity on the environment. Environmental economists emphasize the negative externalities generated from any form of economic activity and the importance of internalizing such costs so as to grow with the least possible environmental damage. Such economists argue that society can bear a ‘right level of pollution.’ Others contend that economic growth makes it possible to promote higher levels of environmental protection.

Nobel Prize-winning economist and New York Times columnist Paul Krugman is renowned for his extensive work on international economics, including international trade, economic geography, and international finance. The Research Papers in Economics project ranked him as the 14th most influential economist in the world as of March 2011 based on his academic contributions. He has been writing also on unemployment. In his most recent publication “End this Depression Now!”, Krugman argues that a strong recovery is a step away only if our political leaders find the intellectual clarity and political will to end this depression now. Krugman Source: simcoe.com/opinion/article/644749--cartoon-nease-environment-vs-economy has been criticizing the SimpsonBowles Plan presented to president Obama. Such plan - intended to reduce the deficit - has been penned by Krugman as “terrible” and “really bad.” The Hints for drawing diagrams proposed changes to Social Security and Medicare jeopardize the safety net, • use a pencil so that mistakes can be erased easily thus betraying those voters who sup• use a ruler where appropriate ported him for his emphasis on preserv• label clearly both axis ing the social safety net. • mark all points of equilibrium On a similar note, he argues that • label the curves Europe’s “protesters are right. More • include a title austerity serves no useful purpose; the truly irrational players here are the al• show the measurements used (e.g. € or 000’s) legedly serious politicians and officials • include the time period where appropriate (e.g. per hour or per month) demanding ever more pain.”

Examination Success

Unemployment—Q & A What is unemployment? An unemployed person is defined in Malta as someone aged 15 to 65 without work during the reference week who is available to start work within the next two weeks and who has actively sought employment at some time during the last four weeks. Source: http://epp.eurostat.ec.europa.eu/statistics_explained

Definitions

How is unemployment measured?

What is happening to unemployment in the EU?

The Employment and Training Corporation (ETC) definition includes only those persons who register as unemployed. The Labour Force Survey (LFS) definition, however, includes all persons actively seeking employment. The LFS conducted among private households for the purpose of gathering information about the labour force. The selection of participants is conducted on a random basis out of all households in the Maltese Islands. The surveys are carried out by telephone. For those persons who are employed during the reference period, there are relevant questions on employment, such as place of work, occupation and number of hours worked. With regard to unemployed persons, questions are asked on the type of work they are after, how long they have been unemployed and methods of job search.

The overall unemployment rate in the EU-27 reached 9.7 % in 2011, thus staying stable at a high level in comparison with 2010. The impact of the economic crisis on unemployment in the years from 2008 to 2010 has completely wiped out the reduction experienced in the unemployment rate between 2004 and 2008. In the United States, where the unemployment rate grew from 9.3 % to 9.6 % between 2009 and 2010, it dropped again in 2011 to 8.9 %. Between 2008 and 2009, the unemployment rate had increased by a staggering 3.5 percentage points.

Are the figures credible? The ETC measure has come under increasing criticism because it is open to manipulation by the government. Politicians have the power to change the rules on who is entitled to claim unemployment benefits and how they set the rules can distort the figures. The LFS measure is a European recognised method, but even this method of calculation has its problems. As the LFS is collected through a survey, there is a possibility that the sample may not be truly representative. Both measures of unemployment may understate the true size of the unemployment problem. For example, part time workers who wish to work full time are not included in the statistics. On the other hand, the figures may overstate the unemployment problem if workers profess to be actively seeking work, and illegally collect benefits, when they already have a job.

The unemployment rate rose in 12 Member States between 2010 and 2011, dropped in 13 and remained stable in two, France and Italy. The highest decreases in the annual average unemployment rates between 2010 and 2011 were experienced in the Baltic countries, with Estonia in the lead (- 4.4 ppt) followed by Latvia (-3.3 ppt) and Lithuania (-2.4 ppt). The unemployment rate also fell in Belgium, the Czech Republic, Germany, Hungary, Malta, the Netherlands, Austria, Slovakia, Finland and Sweden. The highest increases were reported in Greece (+5.1 ppt), Portugal (+1.9 ppt), Spain (+1.6 ppt) , Cyprus (+1.3 ppt) and Bulgaria (+1.0 ppt). Increases below one percentage point were reported in Denmark, Ireland, Luxembourg, Poland, Romania, Slovenia and the UK. For the fourth year in a row, Spain remained the country with the highest overall unemployment rate in 2011, at 21.7 %. The dispersion of unemployment across the EU-27 continued to increase during 2011. Source: http://epp.eurostat.ec.europa.eu/statistics