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Preface Acknowledgements Introduction PART I: WORKPLACE PROBLEMS Stress N.Thompson Conflict, Aggression and Bullying N.Thompson & L.Brooksbank Drug and Alcohol Problems I.Madoc Jones Mental Health Problems S.Desai Racism G.Singh Loss, Grief and Trauma N.Thompson & S.Thompson PART II: PROMOTING WELL-BEING Learning and Development J.Bates Leadership P.Gilbert Managing Sickness Absence M.Tehan Women-friendly Workplaces B.Metcalf Spirituality in the Workplace B.Moss PART III: INTERNATIONAL PERSPECTIVES A United States Perspective S.de Mello A Hong Kong Perspective S.Ng An Australian Perspective J.Bottomley A Greek Perspective V.Ioakimidis An Indian Perspective G.Prem Singh Conclusion References Index

There is a growing literature on the subject of workplace well-being, covering a wide range of workplace problems. However, two sets of issues that have received relatively little attention are those of loss and grief and the related subject of trauma. For example, MacDonald (2005), a book published by the Chartered Institute of Personnel and Development, the leading human resource organization in the United Kingdom, makes no reference at all to such matters.

For many people the topic of sickness absence is quite straightforward: people on sick leave fall into one of two categories, those who are ‘genuinely’ ill and who deserve support and those who are ‘malingering’ who deserve contempt, if not actual punishment. The reality of the situation is far more complex than this. In this chapter, we shall see that what constitutes ‘sickness’ or ‘illness’ is subject to debate and competing theoretical understandings, especially when mental illness is the topic under consideration. We shall also see that the reasons for sickness absence are many and varied, and that there are various factors involved at various levels. I shall therefore be arguing that simple solutions are unlikely to work and may actually prove counterproductive. A much more sophisticated understanding is called for, one that connects with the wider field of workplace well-being and the emerging knowledge base about such matters.

In principle, it would seem to be preferable to examine asset demands (and supplies) within the context of a complete multi-asset portfolio model, rather than in single individual equations. The advantage of such an approach is that the allocation of the financial wealth of a sector among a variety of assets (and liabilities) is analysed as an interdependent decision: the demand equations explicitly take into account the fact that a decision to hold funds in a particular form is simultaneously a decision not to hold these funds in an alternative form. Furthermore, by examining the simultaneous response of sets of asset demands to changes in different explanatory variables, it is possible to impose, and to test, additional constraints upon the values that the coefficients in the system should take. For example, if the rate of interest on national savings is raised, it is possible not only to analyse the interest sensitivity of the demand for that asset, but also to see the extent to which the increase in demand is at the expense of the demand for money or other liquid assets. Such information, on the substitutability of different assets, is clearly of use to policy-makers.

The incorporation of proxies for risk and brokerage costs, and other specific tests of the theories outlined in Chapters 2, 3 and 4, are comparatively rare in empirical demand for money studies. Instead, most empirical work has concentrated upon the need to isolate a stable money demand function at the aggregate level, using the key opportunity cost and scale variables discussed in Chapter 5. Most studies published in the 1960s and early 1970s, such as Meltzer (1963), Brunner and Meltzer (1963), Laidler (1966a) and Goldfeld (1973) for the US, and Kavanagh and Walters (1966), Laidler and Parkin (1970) and Goodhart and Crockett (1970) for the UK, were able to find stable and well-determined money demand functions. The precise form of the equations, and the type and period of data used, varied between studies; static long-run equations of the form given in (5.3) were common for annual data, while studies using quarterly data generally estimated short-run equations, such as (5.6) and (5.14), which allowed for adjustment and expectational lags. The results, for the US in particular, were broadly invariant to the precise data period involved and the particular definitions of money, interest rate and scale variable used. Consequently, even though little attempt was made to test for stability in any rigorous manner, nobody seriously questioned the view that stable money demand functions could be isolated. Laidler (1971) was able to claim that, ‘The evidence for Britain certainly points to the existence of a stable demand for money function in that economy. For the United States the evidence is overwhelming, and for Britain it is at the very least highly. suggestive’.1

Mean-variance models are most applicable to asset choice decisions where returns are truly stochastic. When applied to the study of capital-certain assets, the approach is suspect. In particular, when the variances and covariances of the rates of return are small, a mean-variance model implies that most wealth will enter the asset with the highest yield. The diversification of holdings among relatively low risk-low return assets can often only be explained in terms of transactions and liquidation costs, and many studies have considered the portfolio choice problem largely in terms of such factors. This alternative treatment of the demand for money and other assets is often termed the inventory-theoretic approach, because of its similarity to the more general analysis of the demand for inventories; it emanates from the preliminary work of Baumol (1952) and Tobin (1956) on the transactions demand for money. Although these models were developed independently, their conclusions are very similar. In each case, the demand for transactions balances arises from the non-synchronisation of income receipts and expenditures, both of which are perfectly foreseen, and the brokerage costs involved in transferring funds between non-interest-bearing money and interest-earning financial assets, which provide the alternative temporary store of value. The models are important because they attribute a role to the rate of interest in the transactions demand function, a relationship which was ignored by Keynes.

Both the risk-return and transactions cost approaches to portfolio analysis concentrate on particular themes as the basis for asset diversification. This may be deemed to be unduly restrictive; in practice, portfolio holders choose from a large set of assets, with characteristics which can often neither be solely represented by mean-variance space nor differences in liquidity and associated transactions costs. A more theoretically consistent solution lies in the formulation of mixed models, which combine elements of both approaches. However this type of approach is likely to result in demand functions which are not empirically tractable and consequently there have been few attempts to develop such models. Exceptions are the models of Buiter and Armstrong (1978) and Spencer (1984). Buiter and Armstrong utilise the Baumol inventory-theoretic model of money demand, but assume an uncertain return on the bond. The demand for money is shown to depend upon a mixture of transactions and risk-return variables; the former consisting of income and the brokerage fee, and the latter the expected return and the standard deviation of the return on the risky asset.

Variations in sterling M3 are often closely associated with changes in sterling bank lending to UK residents. Such lending increased considerably after the removal of direct controls in the Competition and Credit Control reforms of 1971. The company sector, in particular, reduced its traditional reliance on the capital markets in the 1970s and increasingly began to use bank lending as a source of external finance. It is therefore not surprising to find that the breakdown of the broad demand for money function in the 1970s was accompanied by similar problems in the modelling of bank lending equations. Whereas studies based upon data periods covering the 1950s and 1960s, such as Norton (1969) and Artis (1978), had indicated that reasonably stable bank lending equations could be isolated, Cuthbertson and Foster (1982) found that, when later data periods were considered, the isolation of such functions became more problematical. Their study looked at bank lending to industrial and commercial companies, and in particular how such lending was modelled in versions of three large macro models current in the early 1980s.

In comparison to the plethora of empirical studies on the demand for money function, there have been few attempts to model the non-bank private sector’s demand for long-term government securities (gilts). The issue was analysed by Norton (1969) in a pioneering study, while more recent models of the demand for government bonds are developed in Spencer (1981) and Hoggarth and Ormerod (1985). One of the main issues, analysed by these later studies, is the role and importance of expected capital gains in determining the demand for gilts. In each case, an attempt is made to model the relative return on gilts in each period, defined as the long-term rate of interest plus the ex post capital gain over the period, less the rate of interest obtainable on alternative capital-safe short-term assets.1 Various models are used for this purpose, ranging from simple autoregressive forecasting schemes to more sophisticated ‘structural’ models, which relate the relative return to explicit economic information.

Portfolio analysis is concerned with the development of theoretical models designed to analyse the factors affecting the financial assets held by economic agents, together with the empirical testing of these models. The agents may be individuals and firms, in which case we are concerned with the way in which private sector wealth is allocated between different assets, or alternatively financial institutions where the deposits of customers are allocated among competing assets so as to satisfy the balance sheet identity. Such an approach to asset choice decisions has its roots in early studies of the demand for money. In his formulation of the speculative demand for money, Keynes analysed the way in which individuals allocate their given wealth between interest-bearing bonds and money in the form of cash balances which earns no pecuniary return. The choice is based upon the expected holding-period return on bonds, which not only depends upon the interest income, but also upon expectations about movements in the market rate of interest and hence the price of bonds; these expectations will, in turn, be based on what is perceived to be the ‘normal’ rate of interest. If market rates are low, below the ‘normal’ rate, and therefore expected to rise over the holding period, a capital loss is to be expected on bond holding; individuals will sell bonds and hold their entire portfolio in cash, as long as the interest income from bond holding is not enough to offset this expected capital loss. On the other hand, if market rates are high, above the ‘normal’ rate, and expected to fall over the holding period, individuals will expect capital gains from bond holding; they will accordingly transfer their wealth from cash to bonds.

An alternative approach to the modelling of monetary aggregates is that based upon the notion of ‘disequilibrium money’. Artis and Lewis (1974, 1976) were the first to formulate such a concept, in their attempt to explain the breakdown in the UK money demand function in the 1970s. In the traditional approach to estimating money demand equations, it is implicitly assumed that the actual money supply is always equal to the aggregate short-run demand, so that the money market is continually in equilibrium. Such an assumption is uncontroversial when the money stock is demand determined, as is generally assumed to have been the case in the UK in the 1950s and 1960s. However, the assumption appears to be a less applicable characterisation of the UK money market after 1970, particularly for broad money. Artis and Lewis argue that large independent changes in the UK money supply, in the early 1970s, led to a disequilibrium in the money market in which supply exceeded demand. This expansion in the money stock occurred for a number of reasons. An important factor was the Competition and Credit Control reforms, which created a new spirit of competition in the banking system and abolished the direct controls on bank advances. In addition, budget deficits incurred by the government in the early 1970s were largely financed by money creation.

The mean-variance, or risk-return, approach to portfolio analysis is based upon the premise that the investor in allocating his wealth between different assets takes into account, not only the returns expected from alternative portfolio combinations, but also the risk attached to each such holding. This risk is usually assumed to arise out of uncertainty over future asset prices, and can occur in any asset where the expected holding period is less than the term to maturity. Stocks and shares fall into such a category because prices vary according to market conditions, with the risk of capital losses potentially high. However, even the returns from interest-paying capital-certain money deposits may involve an element of uncertainty over the holding period, if the interest rate is subject to market variability. In formal terms, the mean-variance approach assumes that the investor maximises the expected utility obtainable from his portfolio holding, expressed in terms of expected return and risk, subject to the restriction imposed by his budget constraint. Expected return is measured by the mean of the probability distribution of portfolio returns and risk by the standard deviation or variance of the distribution, which provides a measure of the dispersion of possible returns around the mean value. A large standard deviation implies a high probability of big deviations from expected returns, both positive and negative. Such an approach to portfolio analysis stems from Markowitz’s (1952, 1959) studies of efficient portfolio selection and Tobin’s (1958) paper on liquidity preference.