Pondering idleness as a sensible approach to economic difficulties?
Revised Article:
Pondering the persistent rise in worklessness, economist Paul Ormerod argues it's a trouble we can't afford to ignore.
Worklessness has surfaced as a significant concern across political lines, with troubles escalating since the pandemic hit. Grimsby, for example, shows one disturbing statistic: over half of its working-age population is now on benefits. And, nationwide, spending on disability benefits for anxiety and depression has doubled during this period. Mind-boggling figures reveal that the UK spent £3.4bn last year on Personal Independence Payments for alleged mental health issues[1].
But could worklessness be rational? Some economic theories claim people optimize their time between work and leisure. If they struggle to earn, why work at all? Ormerod doesn't think so[1].
For three decades, the dominant macroeconomic trend, from academia to the IMF, has been the "dynamic stochastic general equilibrium," or DSGE, models. These buzz-worthy models, which dive deep into complex math, influence policymaking[1].
Originally shaped by Finn Kydland and Edward Prescott, these models focus on the trade-off individuals face between work and leisure. With work providing essential income and leisure valued in its own right, people strive for an optimal balance across their lives[1].
When productivity dips temporarily, these models propose that individuals shift to leisure as they earn less and prioritize relaxation over work[1]. The pandemic's lockdowns certainly lowered productivity, making it rational to work less[1].
Still, hoping for a quick return to work after productivity rebounds seems ill-advised[1]. In reality, issues like path dependence come into play, leading to complexities. If you opt for benefits now, you may find yourself less employable when productivity inches upward. Consequently, altering the work-leisure trade-off isn't a problem for the distant future; it demands immediate action during our present circumstances[2].
Keir Starmer's minor tweaks to benefit cuts demonstrate a need for bolder measures[1]. By acknowledging these issues and implementing effective policies, policymakers can address worklessness more effectively. After all, economic downturns have lasting effects that demand serious and pressing solutions.
Paul Ormerod wears many hats: Honorary Professor at the Alliance Business School at the University of Manchester, economist at Volterra Partners LLP, and author of the critically acclaimed book, Against the Grain: Insights of an Economic Contrarian, published jointly by the IEA and City AM[1].
[1] Benefits spending has doubled since the pandemic; threatening employment possibilities and reinforcing the need for prompt policymaking changes.[2] Real-world economies introduce imperfections and constraints that complicate an individual's ability to make optimal work-leisure choices. Path dependence and market imperfections are prime examples, as they affect an individual's long-term employability and make it challenging to return to the workforce when economic conditions improve.
- The escalating problem of worklessness, a concern that transcends political boundaries, has been a notable issue since the pandemic began, with Grimsby showing a distressing statistic: over half of its working-age population receiving benefits.
- The UK spent £3.4bn last year on Personal Independence Payments for alleged mental health issues, which is a worrying figure that underscores the impact of worklessness on benefits spending.
- Economist Paul Ormerod argues that one cannot afford to ignore the persistent rise in worklessness, especially when considering the consequences in macroeconomics and policy-and-legislation.
- Keir Starmer's minor adjustments to benefit cuts indicate a need for more substantial policy changes, as addressing worklessness effectively requires bolder measures.
- Paul Ormerod, an economist who wears multiple hats, including Honorary Professor at the Alliance Business School and author of Against the Grain, discusses the complex trade-off individuals face between work and leisure, a topic that is particularly relevant in the current economic climate and general news.
