Wednesday, August 10, 2011

Economics of Riots

Photo Credit: Matthew Lloyd/Getty Images
Well, okay the title is a classic case of an economist overreaching. There may be an economics of riots - it would probably go something like: each additional rioter lovers the probability of any one rioter being caught, lowering the expected cost, which brings in more and more people for whom the benefit from rioting is lower than for those who would start it all off.  But this isn't really informative and not much different from the social psychology literature.

What is interesting is how these things start.  We know the immediate cause - a questionable police shooting - but are the riots also a sign of pent up frustration with a UK economy that is not providing opportunity for youth and if so are we likely to see it in the US as well?

Perhaps thinks the Wall Street Journal Real Time Economics blog:

Last year, the unemployment rate for youths between the ages of 15 and 24 was an average of 18.9% among Organization for Economic Cooperation and Development countries. High unemployment has played a role in protests in Spain, uprisings in the Middle East and North Africa and, many suspect, the riots in the U.K.

The countries face unique challenges, but the outcome is often similar: Unrest among sidelined youths who find themselves with little else to do amid daunting unemployment.

“This is a very big cohort that you ignore at your peril,” said David Blanchflower, a Dartmouth College economist. Older workers “if they’re unemployed go home and watch the television. Unemployed 18-year-olds go out on the street,” he said.

When conditions were poor for everyone, unemployment may have been easier to cope with, Mr. Blanchflower said. But as economies nationwide slowly recover, young people are growing more aware that their situation isn’t improving relative to older generations.

The big risk for youths is that unemployment early on can carry a scarring effect that impacts their future employment and earnings. Even in the U.S., where youth joblessness is mild compared to the 41.6% jobless rate young people faced in Spain last year or the 32.9% rate for youths in Greece, recent graduates could be caught in a trap where they find themselves earning lower wages for decades. And that could hold true even if they do find jobs.

I think this is also a symptom of societies that are growing more and more unequal. And in the UK, the severe austerity measures under Cameron may be adding fuel to the fire.

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