https://cpes.org.uk/om/files/original/b46c3616da573e6d6bf3575c326e6cf1.pdf 27f0ca66858a325bb92b61fa7ef32633 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Prospects for Economic Management 1973 - 77 Text A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text. Text Any textual data included in the document Chapter 3 Productive potential and unemployment by Roger Tarling 1. Changes in employment and un~mployment in recent years have attracted considerable comment and remain quite a puzzle. During the winter of 1971/72, unemployment rose to nearly 1 million but since then has been falling rapidly, and is now under ~ million. Employment changed very little between mid-71 and mid-72 but the quarterly figures available so far suggest an enormous increase of 500~000 between mid-72 and mid-7.3. These changes conceal a large sectoral shift in the labour force; between mid-71 and 72, manufacturing employment fell by 270,000 and non:..manufacturing employment rose by 275,000; the indications for 1973 are that non-manufacturing employment has risen even more than in the previous year. 2. Our method is to adjust total employment and unemployment for lagged responses to equilibrium levels and then to correct output for changes in the pressu~e of demand. !his provides estimatee of par produetivity grGwthor productive potential. The success of the adjustment process is evaluated in terms of its ability to smooth the series of annual changes for total par productivity. We have always estimated particularly fast par growth between 1965 and 1969 and also noted that the change in 1963-64 was very much out of line (3 . 74%). Last year, we found that it was difficult to forecast the actual fall in.unemployment to the first quarter of 1973. The employment estimates now available and the continued rapid fall in unemployment, together with the fact that many indicators of the labour market have moved this year in a way very similar to their movements in 1963-64, have led us to consider a number of alternative adjustment prccesses which might resolve this probl~m~l) The one which gives most improvement in terms of smoothing annual changes, particularly;since 1969, is a variable adjustment process, similar in spirit to the Godley/Shepherd formulation (NIESR August 1964). 3. As described in the appendix, we now assume that the lag in. the response of actual employment and unemployment to equilibrium levels is longer when the rate of growth of output is higher. This implies that equilibrium unemployment in 1964 and 1973 were both lower than we would previously have estimated and that actual (1) We agree with the National Institutes' view that the behaviour of unemployment as an indicator .of changes in the labour market is not substantially different from behaviour in previous cycles (see NIESR November ·73 and Cripps and Tarling, New Society No'{ember 73); th:ere may be some short run effects of the raising of the school leaving age incorporated into the fast rate of decline of unemployment becaus~ the fall in the number of unemployed youths aged under 18 has been about 10,000 greater than would have been expected. 3-1 UDemployment continues te fall even when the rate of growth of output slows down couaideraDlY Decause of changes in the lenath ef the lag. The estimated growth of par productivity is now as follows: 1961-65 1965-69 1969-73 2.78 3.36 2.26 4. The variable adjustment process in fact has little effect on longer-period treads 1961-65 and 1965-69, so that we still estimate an acceleration in trend between 1961-65 and 1965-69. However we now find a lower and much smeether treai of par productivity in the period since 1969; this conflicts with views expressed, fcn:::~instance, by Paish (Lleyds Bank Review for 1973) and in the November 1973 review of the National Institute. 5. We can obtain some insight into these changes by disaggregatina between manufacturing and non-manufacturing sectors; there was a aecteral .ahif.t i~L._.l.:o.,..nt away from non-manufacturing in 1965-69 compared with 1961-65, and back to non~ manufacturing in the recent period. Adopting the same approach as in agareaate, we considered variable, but different, adjustment processes for manufacturing and non-manufacturina. The best interpretation, consistent with the overall pic~ure, is a longer laa in manufacturing, lengthening when the rate of grewth is.. faater; . this impliea a aborter la& in non-manufacturing which is rather insensitive to the rate of arowth. !atimatea of par productivity arowth in the two sectors are& 1961-65 1965-69 1969-72 Manufacturing 3.7 4.1 3.5 Nen-Manufacturing 2.3 2.9 1.6 Total 2.8 3.4 2.3 6. Ratea of growth of par productivity in nan-manufacturing were over 3% in 1966/7, 67/8 and 69/70, but only about 0.5% in 1971/2 and zero in 1972/73. Thua not only is moat of the variation in par productivity to be found in non-manufacturi1 but also erratic mova..nts in non-manufacturing preductivity correspond rouahly with chana·· in S.E.T., which waa introduced in 1966, raised by 50% in 1968, raised to twice the initial level in 1969 and then halved in 1971 and cempletely removed in 1972. 1. Our projection of future par productivity is based on this disagareaated analys: We take a slightly optimistic view of manufacturing praductivity and assume that it will grow at 4% p.a. For non-manufacturing, we assume that there will be no further reaponse to the remeval of S.E.T. and that the only relevant factor is the aupply 3-2 of labour. In the long run, the forecasts of labour supply(l) (at a constant pressure of demand) show a fairly substantial rise in the number of married females available for employment and also in the number of males aged 25-60. This is a supply position fairly similar to that in the early 1960's and hence we project a rate of productivity growth in non-manufacturing of 2.3% p.a., similar to that in the period 1961-65. Together with the projection for manufacturing, this yields a trend growth of 2.85% p.a. for total productivity. 8. The implications of this estimate of par productivity g~owth and the forecasts of labour supply for the future levels of employment and unemployment are as follows g Annual Rate of Growth of G.D.P. 1 1973-77 Employment (thousands) 1% 2% 3% 3!% lst quarter 1974 1976 1978 24787 24202 23672 24787 24438 24137 24787 24817 24909 24787 25004 25297 Unemployment (thousands) 1st quarter 1974 446 446 446 1976 769 627 446 1978 1098 827 488 446 362 327 9. A 3% growth in demand would be sufficient to hold employment near its end-1973 level. However, the growth at only 1% p.a. implies a terminal level of unemployment in the first quarter of 1978 of 1,100,000. The slower rate of growth which may be necessary to meet other targets could fail to m~et any acceptable unemployment target. (1) See Department of Employment Gazette, August. 1971. The changes shown by these projections are not much affected by revisions to the population estimates following the 1971 Census of Population, except that the trend increase in married female participation will probably be slightly larger than was assumed in 1971.  Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Chapter 3 Productive potential and unemployment Creator An entity primarily responsible for making the resource Roger Tarling Source A related resource from which the described resource is derived Prospects for Economic Management 1973 - 77, pages 3 to 3-2 Date A point or period of time associated with an event in the lifecycle of the resource 1974