Holiday cheer...

Having been away on holiday for the last week, I find it necessary to post about all manner of exciting things.

However, my definition of exciting may be staggeringly different to yours, so be warned.

I am informed that the Danish unemployment benefit system is quite wonderful, as workers have a given stretch of time in which to find a job, and if they fail to do so they have to either accept one found for them by the state, or lose their unemployment benefit.

Now, I'll confess before going much further that I haven't read the relevant legislation, or indeed anything, really, about this, but I'll offer my criticisms nonetheless.

In the Shapiro-Stiglitz Shirking Model, workers must be paid 'efficiency wages'; these being wages above what we would normally expect in order to induce workers to, well, work. The degree of these efficiency wages is determined by the size of the workers' outside option; this being their expected income if they get caught not working and concurrently sacked, such that;

w* > U(B) + (1-u)w

Where w* is the wage paid to a worker in the firm at the moment, U is the probability of being unemployed if they are fired, (1-u) is the probability of them finding another job if they are fired, and w is the wage which that job will pay them.

Assuming that the market is in equilibrium, which is always fun, we can assume that;

w = w*, and hence that;

w* > U(B) + (1-u)w*

Given that 0 < u < 1, this forms an equilibrium characterised by involuntary unemployment; some people who want to get a job, cannot.

Under the Danish system, there is effectively no fear of unemployment; in the medium run, the probability of being unemployed is effectively 0, thus making our function;

w*> 0(B) + (1-0)w*
W* > w*

The above inequality is, tragically, completely impossible to obtain and hence, sadly, the Danish system cannot work in the medium run, at least not particularly well, assuming your goals are not to cause distortions. As a Conservative, I obviously favour the tried and testing technique of reducing unemployment benefits (B), and decreasing the amount that wages need t differ from the market clearing rate.

Whilst this is all mostly conjecture, and my stature as an economist should hardly wow anyone, there is an important conclusion here; some Unemployment is good for society; a Government that claims that it will eradicate unemployment is (a) lying and (b) stupid.

A shameless plug?

Now seems like an excellent time to introduce a couple of other fun blogs which some of you might enjoy reading.

Of course, everyone's interested in travel, so let's start with what looks to be an exciting edition to the travel blog genre; the blog of one Mr James Bunting, who will be spending the next five or so months traveling around Asia, commenting as he goes; this blog will be coming very soon to syndication with Reading Online News, but if you want a sneak peek of what's to come, check it out at James' Website.

For those looking for a more serious piece of reading material, you can always look at Tim Sculthorpe's new blog, providing articles from and insight into the mind of the up-and-coming journalist; check it out here.

And of course there's always Professor Mankiw's blog, excellent for anyone looking for a good read on the topic of economics.

Fated Conflict

Today sees the launch of the Fated Conflict Website, providing our audience (and hopefully a few fans) with information about the Fated Conflict Series.

The most exciting element of this (to me, anyway), is the Fated Conflict Web Saga; a series of short stories written by myself and others (Tobias Tzfanya and Louise Juul Larsen) leading up to the launch of the next book in the series, A Sanctified Betrayal. I'm really quite excited about this project, particularly to see what take Louise and Toby have on the Fated Conflict World; check it out if you're interested, and remember that it updates every monday, so check back regularly.

Fair Vs. Free Trade

Among economists, there is rather little debate in the Free Vs. Fair Trade Argument. The fundamental basis of economics is that markets are by and large the best way of solving problems; a view held by Adam Smith (see the invisible hand), through even to Professor Arrow (see the first and second fundamental theorems of welfare), and appearing in Professor Mankiw's Princples of Economics. Whilst many would argue that markets do sometimes fail (the extent and regularity is more contentious), there are a number of established means by which these failures can be remedied, and Fair Trade is not one of them.

Among many of a liberal frame of mind, and a great and growing proportion of the public; particularly the student portion thereof, the argument for Fair Trade products is clearly identifiable as a moral imperative.

So, which group is right?

The answer is difficult to arrive at, and the debate will doubtless go on for many years to come; anyone who is interested in it may want to consult the Reading Online News debate on this matter this month; my esteemed colleague George Stefanidis is taking up the argument for Free Trade, while have leant my weak and feeble voice to the Fair Traders.