Rethinking the Welfare State: The prospects for ... - e-Library

Labour market training 189
conflicting goals. However, despite this pervasive consensus on what the outcomes
should be, both the rationales for government intervention and the characteristics of the
labour market which underpin these rationales are complex and multifaceted.
There is a close relationship between the character of modern unemployment and the
rationales underlying the ends of government intervention in the labour market.
Individuals are unemployed for a variety of reasons. For the sake of simplicity, we may
group the causes of unemployment into three broad categories: cyclical unemployment,
frictional unemployment, and structural unemployment. 11 Individuals who are without
jobs because of a downturn in the business cycle are cyclically unemployed. For cyclical
unemployment, unemployment insurance (for income smoothing) and growthencouraging
macroeconomic policy (to expedite the transition to macroeconomic
expansion) are the most appropriate tools of assistance. Frictional unemployment
includes individuals who are unemployed because they are “between jobs.” For frictional
unemployment, various intermediary strategies that may help match employers looking
for new employees with unemployed individuals with the requisite skills is the most
appropriate form of government intervention. The third and most problematic category of
unemployment from a societal standpoint—structural unemployment—is comprised of
those unemployed persons who are unable to find employment because they lack the
skills necessary for available job opportunities. Structural unemployment cannot be dealt
with by macroeconomic policy because the structurally unemployed (by definition) are
unlikely to find lasting employment without the acquisition of skills that enhance their
productivity and abilities.
The modern unemployment dilemma is, increasingly, a dilemma of structural
unemployment and wage pressures on low-skilled workers. Unemployment figures have
been on a long-term rise in most OECD countries. 12 Indeed, in all countries except
Canada, the United States and Japan, unemployment levels in the early 1990s reached
their highest levels since the Great Depression. Currently, North America’s
unemployment figures compare favourably with most European countries. Part of the
explanation for this inter-continental difference is that although Canada’s over-all
unemployment rate is considerably higher than that in the United States, both countries
boast structural unemployment figures that are roughly one-quarter of what they are in
most of Western Europe. 13
Despite North America’s advantage with regard to the rate of structural
unemployment, there are several reasons to be dissatisfied with the employment situation.
The unemployment rate has not risen as sharply for low-skilled work in North America as
it has elsewhere in the OECD, but this is largely a function of the substantial drop in real
wages for the low-skilled component of the workforce. 14 (However, this decline in real
wages has recently shown signs of reversing.) 15 In addition to the number of actual
unemployed, there are also many who are employed part-time but who would prefer fulltime
work (the underemployed), and many welfare recipients who have given up looking
for work altogether (discouraged workers). Pressures on low-skilled workers reflect to
some degree the increasing international division of labour with a shift in low-skilled
manufacturing jobs to low-wage developing countries and to a greater degree
technological change and lower levels of unionization. 16 Globalization has resulted in an
essentially bifurcated labour market. Reliable sources of offshore low-skilled labour have
increased significantly, placing severe pressure on low-skilled workers in industrialized