PhD proposal

BUSINESS SCHOOL PhD SCHOLARSHIP RESEARCH PROPOSAL

DEGREE:

Doctor of Philosophy

CENTRE:

Economic Policy

PROPOSED TITLE:

Improving Local Labour Market Performance in UK:
The role of family and friendship support networks.

BACKGROUND AND CONTEXT

The efficiency and effectiveness of the labour market can be gauged by the level of economic inactivity and unemployment in that economy. Worklessness is a term commonly used to describe the unemployed and the economically inactive. Ritchie et. al (2005) define worklessness as, “individuals who are unemployed and claiming unemployment benefits, individuals who are economically inactive and eligible for inactivity benefits (who may or may not be claiming them), and individuals who are working exclusively in the informal economy (who may or may not be claiming benefits)”. They recognise that there are a wide range of groups - lone parents, minority ethnic groups, disabled people, and carers - who are more likely to be disadvantaged in the labour market and have a higher risk of being workless and living in deprived areas. While recognising that being a member of any of these groups does not necessarily make an individual workless, membership of any of them can increase the risk of being workless. Worklessness is a problem because of its close relation to poverty, which is often reflected in levels of crime, ill health and family breakdown. However, the above direction of causation is not clear-cut.

In the United Kingdom, labour market performance appears very healthy. The 2007
ONS Labour Market Statistics show a rise in the number of people in employment.
According to Jim Murphy, the then Minister of State for Employment and Welfare
Reforms: “The number of people on the main benefits-Jobseeker‟s Allowance,
Incapacity Benefits and Lone Parent Benefits - are down over the year, the number of people in jobs continues to rise and the number of vacancies remains very high”. The report also found that though economic inactivity had risen in the quarter, the longer term trend was falling. However, there is evidence showing that the underlying problem of worklessness remains. Freud (2007), in a radical review to the welfare system recommended: “the greater use of private and voluntary sector resources and expertise so harder–to-help benefit claimants receive more employment support; a new focus on long term mentoring to tackle the problem of repeat benefit claimants; greater rewards for organisations that are successful in helping claimants find and stay in work, with higher payments based on sustaining customers in employment for as long as three years.”

There is also a wide disparity between subregion and regional performances. A study on economic inactivity in Yorkshire and Humber found that the economically inactive were a significant part of the region‟s society accounting for a fifth of all working age people (Yorkshire Forward report March 2004). There is evidence, stemming from work by Nolan and Ryan (2006, 2007) of considerable scope for enhancing the performance of the labour market (and predicting individuals‟ success) in Hull and the neighbouring sub-region. That work, which focused on opportunities for addressing worklessness and exclusion, found strong evidence that both workless applicants and applicants from disadvantaged areas were highly successful in gaining employment.

In their view, that success originated largely from interventions to maximize the impact of the skills and qualifications in the hiring/interview process of these otherwise relatively disadvantaged groups.

This work aims at exploring how opportunities identified for addressing worklessness can be expanded to examine the role played by family and friendship support and social networks. Hannan (1999) stresses the social and psychological aspects of unemployment and shows the crucial role social resource patterns play in shaping an individual‟s chances of entry to the labour market. After controlling for current duration in a state, demographic and economic factors, he finds that respondents who have close employed friends are significantly more likely than those who do not to exit unemployment. His findings also indicate that the unemployed who have close employed friends are significantly less likely to suffer psychological distress.

REVIEW OF LITERATURE

Studies indicate that worklessness tends to be geographically concentrated. Atkinson and Kintrea (2001) through their area-effect work show that living in deprived areas of Britain poses additional problems for residents, which further cement their disadvantage. By comparing the position of two pairs of deprived and socially mixed neighbourhoods, they found that an area‟s reputation was very important in determining opportunities. For instance, a high proportion of those living in deprived areas felt that the reputation of the area was a big hindrance to their job prospects, compared to those from socially mixed areas. This is supported by the Social
Exclusion Unit‟s 2004 study, which shows that for people living in an area with many people out of work, their chances of finding work can be reduced simply because of

where they live. They noted that this happens because of the characteristics of a place like lack of jobs, poor transport and the effect of living with other workless people limiting the chances of finding work through friends.

Turok (2005) notes that several policies have been targeted at tackling unemployment and economic inactivity which have either been demand focused or supply based.
Supply based policies have often taken the form of: „personal advice and guidance‟ which focused on informing job seekers about the labour market; „basic skills‟ aimed at increasing the foundational skills of workless groups in order to improve their employability and „work experience‟ with emphasis on giving participants a period of temporary work experience in order to demonstrate a track record of reliable work habits and discipline to potential employers. Demand policies on the other hand, have included „new business formation‟ whereby individuals have been given support to start their own businesses; „existing business development‟ with emphasis on supporting the growth and development of established firms and provision of
„business infrastructure‟ support.

An approach which simultaneously tackles the demand-side and the supply-side may be more effective in tackling worklessness in some areas (Ritchie et. al, 2005). They recognise the recent research from think-tank IPPR which challenges the
Government‟s emphasis on tackling unemployment and worklessness through
„supply-side‟ measures such as skills training. This according to them might be an appropriate response for regions such as London, but not others where there is also a need for job creation (an emphasis on increasing labour demand). Turok et. al (2005) support the view that a balance needs to be struck between improving labour supply

and increasing demand.

They note that government tends to assume that high

unemployment and economic inactivity in less prosperous areas are associated with deficient skills and motivation to seek work, rather than a shortage of jobs. Much greater emphasis needs therefore to be given to measures in deprived areas aimed at boosting labour demand through creating additional jobs, even though this may be a challenging and often slow process.

The Performance and Innovation Unit‟s 2002 findings indicate that more unemployed people find employment through friends and personal contacts than through any other single route. However, Fraser and Burchell (2001) note that a major reason why individuals living in poorer areas find it difficult to move into employment is because their peers are also unemployed. Thus, it is important to promote ties that connect individuals with their friends and acquaintances. “Policy measures encouraging employment which are restricted to the individual may well be undermined by family or communal pressures which discourage or disparage it. Policy initiatives should therefore be properly clustered in ways that affect both individuals and their close and influential community, that is, peer group, friends, family, partners, neighbours among others” (Ritchie et al, 2005). In this way they note, not only can the regressive influence of individuals outside the initiative be reduced, but also negative role models may be displaced by positive ones as a new, work-based norm builds up.

The basic theory of labour supply states that an individual is faced with the choice between working to earn money to buy goods and services and consuming leisure, that is, all time spent not working (Perloff, 2004). The theory of consumer behaviour has been used to analyse how the individual faced with a given income will allocate

time between alternate uses. Thus for such an individual the supply curve for hours worked will depend on the total available time less the number of hours spent on leisure for any given wage rate. Becker (1965) sees households as producers and consumers, who combine both time and market goods in producing basic goods and who would choose the commodity set that best maximises their utility subject to commodity prices and income constraints. Here income refers to the sum of money income and the opportunity cost of using time and goods to obtain utility whereas commodity prices are the sum of the costs of goods and time inputs.

Background work on the family is provided by the consensus model of Samuelson
(1956), which treats the family as though it were a single decision-making agent, with a single pooled budget constraint and a single utility function that included the consumption and leisure time of every family member. Given a two-member family consisting of a husband and a wife, each having an individual utility function that depends on his or her private consumption of goods; they will by consensus maximize a consensus social welfare function of their individual utilities, subject to a joint budget constraint as though the family were a single agent maximizing a utility function. Becker (1974) expands this by explaining how the family achieves a consensus regarding the joint welfare function and how resources are distributed within the family. He describes the family as consisting of a group of purely selfish but rational "kids" and one altruistic parent whose utility function reflects a concern for the well-being of other family members. He argues that the presence of an altruistic parent who makes positive transfers to each member of the family is sufficient to induce the selfish kids to act in an apparently unselfish way.

Unitary models however, consider the family as a whole and as such may fail to capture intrahousehold related issues that might have a significant effect on each member‟s welfare. Cooperative bargaining models were proposed to analyse multiperson household since they consider household behaviour as the result of an interaction process among family members. Manser and Brown (1980) and McElroy and Horney (1981) applied the Nash cooperative bargaining model to marriage and concluded that individuals, given their relative bargaining power in the family, have to reach a Pareto efficient allocation of the gains obtained from the fact of living together. According to Chiappori (1988), given a set of assumptions including weak separability of public goods and the private consumption of each family member, pareto optimality implies, and is implied by, the existence of a "sharing rule." Under such a sharing rule, the family acts as though decisions were made in two stages, with total family income first divided between public goods and the private expenditures of each individual, and then each individual allocating his or her share among private goods. The skills and attributes of individuals and the characteristics of the labour market have often been used as primary means of determining their ability to achieve economic independence, alleviate poverty and avoid welfare dependency. Stone et. al
(2003) extended this approach to examine how various measures of social capital relate to individual labour market outcomes including labour force status. They focused on job search method since it was the most obvious mechanism by which social capital may impact on labour market outcomes and because generally it drew attention to the role of family and informal ties in supporting labour market engagement. Their findings show that for those who used personal contacts they

found their job through family, friends and professional contacts. Aguilera (2002) studied the relationship between friendship networks and labour force participation in the USA. He noted that friendship social networks increased labour force participation among whites with personal friends who owned businesses and blacks with community leader personal friends. Green and White (2007) observed that locally based social networks give some young people strong advantage in the labour market, with family and friends providing valuable support. They noted that family support encourages young people to pursue their interests, take up education, training or employment, and helps them to decide what opportunities to pursue. However, in some instances, reliance on family support can reduce ambition and limit choices to familiar options and locations.

Research shows that while social networks may help people access jobs easily, they may not be in occupations where workers can fully exploit their abilities and as such may lead to a mismatch between a worker‟s occupational comparative advantage and his actual productivity. Bentolila et. al (2003) show using US and European country data the presence of a wage discount for jobs found through networks. They found evidence in European countries pointing to the presence of a trade-off between quicker job finding and lower wages, and an aggregate negative productivity effect of social contacts through mismatch. Fontaine (2003) supports the above view pointing out the consequences of the greater use of social networks on welfare. His findings show that when total welfare is taken into account then an increase in the number of individuals in social networks has an ambiguous effect. He observes that while the increase improves matching technology, beyond a given threshold welfare of workers decreases and as such the rise in total welfare is only due to reduction of advertising

cost. Consequently, policies aimed at improving access to social networks should support transfers from firms to workers in order to raise workers‟ welfare.

METHODOLOGY AND ANTICIPATED OUTCOMES

An efficient and effective labour market allows the achievement of swift and accurate matching of jobs with individual job applicants. Actual research however shows that whereas social networks may help people access jobs easily, this may be characterised by slow and poor matching as they might not be in occupations where workers can fully exploit their talents and skills. This may yield to substantial proportions of individuals spending significant periods of time unemployed, or outside the labour force altogether; and another substantial group successfully gaining employment for which they are ill-suited, with the consequence that job turnover rates are high.
However, this might kick-start a positive process of progression from economic inactivity to activity and upgrading through the job hierarchy.

This study aims to explore support measures that would help individuals and their support networks overcome barriers to worklessness. An econometric based analysis of data for event histories and associated transitions would assist in providing a wellfounded background for pre-employment and post-employment interventions that target individuals, partners, peers, friends, family and neighbours. These should prove useful in gauging which characteristics lead to shorter periods in economic inactivity and unemployment, and longer spells in employment.

Various approaches have been adopted over the years in analysing household labour supply, social networks and labour markets. For instance, Ordinary Least Squares

(OLS) and Generalised Method of Moments (GMM) parametric estimates have been used to study the intra-household decisions process. Logistic and linear regression models have been used in the US to undertake studies involving social capital and labour force participation. Studies in Australia have also employed logistic analysis to examine how various measures of social capital relate to individual labour market outcomes including labour force status. We intend to follow a similar approach to those above but extending it to fit our duration type analysis. Thus survival models and sequential logistic models will be used to study the different states that workless individuals pass through and how long they stay or remain in a particular state before moving into work.

To make this work possible data on inactivity and worklessness would be drawn from such sources as the Office for National Statistics (ONS), Neighbourhood Statistics and Nomis websites. Social Capital data might be drawn from diverse sources like the
British Household Panel Survey; British Crime Survey; Poverty and Social Exclusion
Survey and Families and Children Survey. Additionally, we expect to draw upon a large and recent PCT dataset on Social Capital in Hull.

AIM OF THE STUDY

Research shows that interventions that focus on improving the skills and qualifications of workless applicants and applicants from disadvantaged areas are very successful in creating employment opportunities for addressing worklessness and exclusion. The evidence from literature shows that friendship and local based social networks increase labour force participation among young people and also gives them advantage in the labour market.

The main aim of this study would be to identify, examine and analyse the role that individuals, their family and friendship networks could play in job-seeking behaviour in the Hull and Humber Port City Region. It is envisaged that the final outcome of this research will reveal the nature, characteristics and essential features of social capital support networks and the part they can play in curbing the unemployment and economic inactivity in the area, with lessons for other areas.

RESEARCH QUESTIONS

Unemployment and economic inactivity to a large extent has been seen to influence the effectiveness and efficiency of the labour force. This research aims at answering the following questions:

What are the current patterns and trends in unemployment and economic inactivity in the Hull and Humber sub-region and more widely in Great Britain?

What are the current barriers to worklessness and exclusion amongst workless individuals in relatively deprived areas?

What are the nature and structure of the social and support networks existing in the local labour market?

What is the role of family and friendship support networks in connection with decisions to move from worklessness to work?

What is the best way of assessing the impact that family and friendship networks play in shaping the attitudes and behaviour of workless individuals in the sub-region?

Does diversity in social networks increase labour force participation amongst workless individuals due to the variety of information these networks provide?

SIGNIFICANCE OF THE STUDY

This study will complement and contribute to the expansion of knowledge on opportunities identified for addressing the prevailing problem of worklessness and exclusion in Hull and Humber sub-region and the UK as a whole. In a wider sense, it will facilitate our understanding of the relationship, interdependence and interaction between family support networks and their impact on unemployment and economic inactivity in the sub-regions and between the various regions.

This study is also timely in view of current government initiatives like getting the workless off incapacity benefits and into employment. It will help in the formulation of national and local policies that would go a long way to help address not only unemployment and economic inactivity but also poverty, which goes hand in hand with the above issues.

REFERENCES
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References: Aguilera M. B. (2002); „The Impact of Social Capital on Labor Force Participation: Evidence from the 2000 Social Capital Benchmark Survey.‟ Social Science Quarterly Atkinson R. and K. Kintrea (2001) „Disentangling area effects: evidence from deprived and non-deprived neighbourhoods‟, Urban Studies Vol Becker, Gary S. (1965); „A Theory of the Allocation of Time’. The Economic Journal, Vol Becker, Gary S. (1974); “A Theory of Social Interactions”. The Journal of Political Economy, Vol Bentolila, S., Michelacci, C., Suarez, J. (2003), Social Networks and Occupational Choice, London School of Economics, Centre for Economic Performance, mimeo. Chiappori, Pierre-Andre (1988); "Rational Household Labour Supply," Econometrica, January, pp Fontaine, F. (2003), Do workers really benefit from their social networks ?, Maison des Sciences Economiques, Université Paris Panthéon-Sorbonne, Cahiers de la. Fraser, C. and B. Burchell eds. (2001); „Introducing Social Psychology‟, London: Polity Press. Freud, David (2007) „Reducing dependency, increasing opportunity: options for the future of welfare to work‟ Green A. E and R. J. White (2007); “Attachment to place: Social networks, mobility and prospects of young people.” Institute for Employment Research, University of Hannan, C. (1999); „Beyond Networks: Social Cohesion and Unemployment Exit Rates.‟ Institute for Labour Research, University of Essex. Manser, Marilyn and Murray Brown (1980); "Marriage and Household Decision Making: A Bargaining Analysis," International Economic Review, February, pp McElroy, Marjorie B. and Mary Jean Horney (1981); "Nash Bargained Household Decisions," International Economic Review, June, pp Nolan, Michael A. and Michael J. Ryan (2006) „Data Analysis and Collaborative Approaches to IB/Migrant Labour‟, unpublished commissioned report to the Humber Nolan, Michael A. and Michael J. Ryan (2007); „Future Growth Sectors and Clusters in the Hull and Humber Ports City Region: Opportunities for Addressing Office for National Statistics (2007); „Labour Market Statistics‟. March. Performance and Innovation Unit (2002); „Social capital: a discussion paper‟. Perloff, Jeffrey M. (2004); „Microeconomics: International Edition‟. Third Edition. Ritchie, Helen, Jo Casebourne and Jo Rick (2005); ‘Understanding workless people and communities: A literature review.‟ Department for Work and Pensions Research, Samuelson, Paul A (1956); "Social Indifference Curves," Quarterly Journal of Economics, February, pp Social Exclusion Unit (2004); „Jobs and Enterprise in Deprived Areas, London‟: Office of the Deputy Prime Minister. Stone, W., M. Gray and J. Hughes (2003); “Social capital at work: How family, friends and civic ties relate to labour market outcomes.” Australian Institute of family studies Turok, Ivan (2005); „Local Employment Measures in the UK: Overview and Turok, Ivan, Nick Bailey and Andrew McCulloch (2005) „Tackling the 'Scourge of Inactivity ': An Analysis of Flows from Worklessness to Work‟, presentation to a Yorkshire Forward Report (2004); „Economic Inactivity in the Yorkshire and Humber.‟ Prepared by Experian Business Strategy Division.