aggregate scale economies market integration and optimal welfare state policy abstract using a two sector two country model with aggregate scale economies and unionisation we show that optimal welfare state policy entails positive levels of unemployment benefits under free trade and capital mobility in this setting economic integration does not reduce the revenue raising capacity of governments and thus does not lead to a race to the bottom in social standards instead trade and capital flows interact with welfare state policies in increasing welfare even when each government acts independently non cooperatively in determining its optimal welfare payment cooperation is shown to improve upon non cooperative outcomes by raising both the generosity of the welfare state and aggregate welfare

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

accounting rates of return many economic studies provide empirical evidence regarding cross sectional differences in firm profitability in most of these studies firm profitability is measured by an accounting rate of return net income dividend by the book value of assets hereafter arr rather than an economic rate of profit franklin fisher and john mcgowan define the firm s economic rate of profit irr as that interest rate which equates the present value of its net revenue stream to its initial outlay 1983 p 82 fisher and mcgowan examine the analytic relation between a firm s arr and its irr in a series of examples and conclude that the arr is such a bad surrogate for the irr that the results of arr based empirical studies are likely to be totally misleading p 91 william long and david ravenscraft 1984 have criticized the theoretical work of fisher and mcgowan because the nature of the analytic relationship between the arr and the irr in the context of highly simplified hypothetical examples may not be indicative of the nature of the relationship in empirical settings their criticism adopts the utilitarian view that the arr has to be treated as a suitable surrogate for the irr as long as no preferable alternative measure of profitability is available for empirical work this view has merit as long as the measurement error which is contained in the arr is random rather than systematic unfortunately the nature and extent of the measurement error which is contained in the arr in a particular empirical setting can only be determined unequivocally if the irr is unequivocally known in such a case of course there would be no need to rely on the arr at all due to this unhappy circle empirical research on firm profitability has continued to rely on the arr despite the fact that many persons reasonably believe that the results of such research may be totally misleading fisher and mcgowan g c harcourt 1965 while others reasonably believe that the results are reliable enough to form a basis for policy decisions long and ravenscraft recent work by y ijiri 1978 1979 1980 and by myself 1982 has shown that conditional irr estimates can be obtained from data in firms financial statements while these irr estimates are conditional they do abstract from certain extraneous factors that influence arrs and that differ across firms consequently the conditional irr estimates are free from some of the sources of measurement error which are known to contaminate the arr thus the conditional irr estimates can be used to provide evidence on whether these sources of measurement error have or have not affected the outcome of prior studies in which profitability was measured by the arr such evidence can help to objectively resolve the conflict between the opposing views on the reliability of arr based profitability research this paper uses conditional irr estimates to examine the properties of the measurement error in the arr in a study of the relationship between firm profitability and firm size the remainder of the paper is organized as follows in section i the theoretical work of fisher and mcgowan is used professor of accounting university of iowa iowa city ia 52242 i gratefully acknowledge the comments of william albrecht dan dhaliwal gary fethke franklin fisher scott linn william r kinney jr and the participants of a workshop at the university of florida on earlier versions of this paper 1 some authors for example william long and david ravenscraft 1984 have used the sales margin ratio earnings sales as a measure of profitability however if one views profitability as return per unit of sacrifice the sales margin ratio is not a profitability measure since it ignores the sacrifice or investment required to generate a dollar of sales consequently this paper does not attempt to shed any insight into prior studies that have relied on the sales margin ratio as a measure of profitability

estimation of scale economies underlying growth and productivity the empirical implications of data aggregation estimation of scale economies underlying growth and productivity patterns is typically based on aggregated data raising questions about the potential for aggregation biases this paper provides empirical evidence on the existence and patterns of such biases we use a cost based model to estimate short long run and internal external scale effects for u s manufacturing data at different aggregation levels our results suggest that aggregation biases in such a model are not substantive also internal scale economies seem more appropriately represented by the aggregate data whereas more disaggregated data appears preferable for estimation of external or spillover effects that occur between industries or sectors

production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

increasing returns home production and persistence of business cycles abstract this paper presents a business cycle model with a propagation mechanism capable of generating persistence of output growth comparable to that observed in the us data the key is that in this model consumption and labor move together not only at the impact of a shock but also for a few periods after that this can happen if there are sufficient increasing returns to make the equilibrium indeterminate the exact degree of increasing returns is estimated so that the distance between the spectra of the model and us output growth is minimized

cyclical fluctuations in strike activity using a set of data on contracts and strikes for the period 1970 81 the author distinguishes among the roles of aggregate business conditions labor market conditions and product market conditions in the determination of strike incidence and duration strike incidence is found to be highest in industries that are depressed relative to the rest of the economy but in regions with low unemployment this finding is consistent with the theory that the cost of a strike to a firm increases with the demand for its product and the cost of a strike to the union increases with unemployment another finding however is that strikes are longest in industries that are booming relative to the rest of the economy

wage changes and intrafirm job mobility over the business cycle two case studies despite the many reasons to expect sluggish wage adjustment recent evidence suggests that real wages are quite procyclical growing more rapidly during economic expansions than during recessions and that this wage procyclicality pertains even to workers who stay with the same employer one possible explanation for these findings is the old hypothesis that a portion of firms cyclical adjustment of labor costs is achieved not by changing the wages paid in particular jobs but by changing the quality of labor assigned to those jobs the authors analysis of interwar personnel data from the ford motor company and the a m byers company supports that hypothesis the authors recognize that case studies of only two firms cannot be definitive but they conclude that cyclicality in workers job assignments deserves further attention

the effect of unions on the structure of wages a longitudinal analysis this paper studies the effects of unions on the structure of wages using an estimation technique that explicitly accounts for misclassification errors in reported union status and potential correlations between union status and unobserved productivity the econometric model is estimated separately for five skill groups using a large panel data set formed from the u s current population survey the results suggest that unions raise wages more for workers with lower levels of observed skills in addition the patterns of selection bias differ by skill group among workers with lower levels of observed skill unionized workers are positively selected whereas union workers are negatively selected from among those with higher levels of observed skill despite a large and sophisticated literature there is still substantial disagreement over the extent to which differences in the structure of wages between union and nonunion workers represent an effect of trade unions rather than a consequence of the nonrandom selection of unionized workers over the past decade several alternative approaches have been developed to control for unobserved heterogeneity between union and nonunion workers 2 one method that has been successfully applied in other areas of applied microeconometrics is the use of longitudinal data to measure the wage gains or losses of workers who change union status unfortunately longitudinal estimators are highly sensitive to measurement error even a small fraction of misclassified union status changes can lead to significant biases if the true rate of mobility between union and nonunion jobs is low this sensitivity led lewis 1986 to essentially dismiss the longitudinal evidence in his landmark survey of union wage effects in this paper i present some new evidence on the union wage effect based on a longitudinal estimator that explicitly accounts for misclassification errors in reported union status the estimator uses external information on union status misclassification rates along with the reduced form coefficients from a multi variate regression of wages on the observed sequence of union status indicators to isolate the causal effect of unions from any selection biases introduced by a correlation between union status and the permanent component of unobserved wage heterogeneity recognizing that unions may raise wages more or less for

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

the analytical derivation and empirical test of a tax adjusted fundamental value model in implementing the theory of current valuation for fixed assets accountants encounter a range of difficult estimation problems many of these problems arise because fixed assets yield their productive potential over many accounting periods theoreticians regulators users and preparers have sought to overcome difficulties in estimating values for owned used assets by estimating the historical cost or the current cost of a new asset and applying a depreciation factor that adjusts for diminished productive capacity the resulting depreciated cost estimate then serves as a proxy for the economic value of the owned used asset previous research has demonstrated that this depreciated cost estimate of economic value is sensitive to both the valuation model and the assumed depreciation schedule see for example greenball 1969 beaver and dukes 1973 beaver and landsman 1983 mohr and dilley 1984 swenson 1987 and kim and moore 1988 the purpose of our study is to extend prior research by examining the interactive

panel attrition from the panel study of income dynamics household income marital status and mortality this analysis is concerned with the determinants of panel attrition from the panel study of income dynamics and with its consequences for estimation of dynamic behavioral models which exploit the panel or longitudinal information household income dynamics marriage formation and dissolution and adult mortality risk we develop and estimate joint models of attrition and one or more of these substantive processes and allow for correlation across the equations through random effects although we find evidence of significant selectivity in attrition behavior the biases that are introduced by ignoring selective attrition are very mild

comparing four models of aggregate fluctuations due to self fulfilling expectations abstract this paper compares four equilibrium business cycle models with increasing returns to scale production technologies that allow for aggregate fluctuations due to self fulfilling expectations necessary and sufficient conditions for the existence of stationary sunspot equilibria are derived numerical examples demonstrate that the degree of increasing returns necessary for the existence of stationary sunspot equilibria lies in the upper range of available empirical estimates the paper also shows that persistent fluctuations are not a necessary property of these four models when the only source of fluctuations is changes in people s expectations about the future path of the economy journal of economic literature classification numbers e32 d43

impact of information technology capital on firm scope and performance the role of asset characteristics this research draws on transaction cost and resource based theory to examine how information technology it capital moderates the relationship between different types of assets and firm scope both vertical integration and diversification the analysis suggests that it capital enables firms with narrowly valuable assets to be less vertically integrated and less diversified and enables firms with broadly valuable assets to be more vertically integrated and more diversified the moderating influence of it capital on the relationship between different types of assets and firms vertical and product market scope is consistent with transaction cost as well as resource based traditions abstract from author

the hump shaped behavior of inflation and a dynamic externality we propose a general equilibrium model that explains the empirical evidence of the hump shaped response of inflation to a monetary policy shock the model replaces backward looking indexation a la christiano et al 2005 nominal rigidities and the dynamic effect of a shock to monetary policy journal of political economy 113 1 1 45 with a dynamic externality into the production function of firms the model armed with sticky wages and variable capital utilization has two offsetting effects on real marginal cost over the business cycle first increasing factor prices raise real marginal cost in response to an expansionary monetary policy shock in the intermediate run second a dynamic externality reduces real marginal cost in the short run because it raises productivity in response to an increase in output following the shock overall the resulting short run decrease and intermediate run increase in marginal cost replicate the hump shaped behavior of inflation under purely forward looking price and wage phillips curves

cyclical productivity in europe and the united states evaluating the evidence on returns to scale and input utilization this paper studies procyclical productivity growth at the industry level in the united states and three european countries france germany and the netherlands industry specific demand side instruments are used to examine the prevalence of non constant returns to scale and unmeasured input utilization for the aggregate us economy unmeasured input utilization seems to explain procyclical productivity however this correction still leaves one in three us industries with procyclical productivity this failure of the model can also be seen in europe and is mostly concentrated in services industries

measuring the cyclicality of real wages how important is the firm s point of view there is a growing consensus among economists that real wages in the postwar united states have been procyclical greatly bolstering technology driven theories of business cycles at the expense of more classical models this paper makes the point that technological movements in firm s labor demand curves should be tested with a wage that is deflated by the firm s own price of output with appropriate controls for intermediate inputs and with respect to the cyclical state of the firm s own industry as opposed to the state of the aggregate economy failure to control for these factors is found to lead to substantial overrejection of the classical model in detailed industry data with controls for changes in worker composition i find that a vast majority of sectors have paid real product wages that vary inversely that is countercyclically with the state of their industry

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

of empty boxes returns to scale revisited this paper highlights the bias in returns to scale or price cost markup coefficients when estimated from the inverse of a production relationship coefficients estimated from the inverse are larger than when estimated directly and the size of the bias increases as the price cost markup or the scale elasticity of the underlying production function gets smaller an instrumental variables estimator although consistent still exhibits a small sample bias if more than one instrument is used for comparison direct estimates of scale elasticities are provided for two digit sic private business sectors and for four digit manufacturing sectors little evidence is found for increasing returns to scale in the manufacturing sector

complementarities and comovements short run interindustry comovement may be due either to common shocks or to complementarities that progagate shocks across sectors this paper assesses the importance of input output linkages aggregate activity spillovers and local activity spillovers to comovement in postwar u s manufacturing i find that input output linkages and local activity spillovers are important to comovement while aggregate activity spillovers are not important i find that complementarities are important to aggregate volatility even after i remove observable aggregate shocks from the data local spillovers are particularly important explaining between 15 and 36 percent of manufacturing employment volatility the importance of local spillovers stems from the fact that industries that cluster together in space also comove through time contrary to the marshallian idea that industries with negatively correlated fluctuations should cluster together in order to stabilize local demand

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

externalities endogenous productivity and poverty traps abstract we present a version of the neoclassical model with an endogenous industry structure we construct a distribution of firms productivity that implies multiple steady state equilibria even with an arbitrarily small degree of increasing returns to scale while the most productive firms operate across all the steady states in a poverty trap less productive firms operate as well this results in lower average firm productivity and total factor productivity the distributions of employment by firm size across steady states are consistent with the empirical observation that poor countries have a higher fraction of employment in small firms than rich countries differences in output and total factor productivity across steady states are increasing in the degree of returns to scale the capital share and the frisch elasticity of labor supply

time to build and aggregate fluctuations abstract this paper studies the contribution of time to build to the explanation of business cycle phenomena using a simple version of the neoclassical model the analysis shows that it is not evident that multiperiod construction is crucial to the theory of fluctuations

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

sunspots and the business cycle in a finance constrained economy abstract this paper examines the cyclical properties of a finance constrained economy populated by two classes of households with heterogeneous preferences and featuring social increasing returns to scale the model exhibits indeterminacy for externalities mild enough so that the labor demand curve is downward sloping furthermore simulation results show that endogenous fluctuations driven by expectations are quantitatively relevant in opposition to standard real business cycles and sunspot models with single type of households our finance constrained economy reveals to be able to mimic both an acyclical pattern of the real wage and strong procyclical movements of aggregate consumption journal of economic literature classification numbers e2 e32

vulnerable seniors unions tenure and wages following permanent job loss in contrast to nonunion workers reemployment wages of workers displaced from unionized jobs decline with tenure on the lost job this finding cannot easily be explained by firm or industry specific human capital accumulation deferred pay policies standard matching models or a correlation between tenure and reentry rates into unionized jobs possible explanations include negative selection of senior union workers and a negative causal effect of unionism on workers alternative skills despite a much flatter predisplacement tenure wage profile displaced union workers wage losses increase with tenure at a rate comparable to or higher than those of nonunion workers

tobin s q and the importance of focus in firm performance using tobin s q as a measure of performance we seek to estimate the relative importance of industry focus and share effects in determining firm performance our methods are analogous to those of richard schmalensee and like him we find that industry effects account for the majority of the explained variance however we also find that firm effects exist in the form of focus effects that is narrowly diversified firms do better than widely diversified firms we interpret this finding as consistent with profit maximization by firms with different factor endowments

the wage curve a review in the wage qurve david g blancflower and andrew j oswald argue that there is a fundamental negative relation between wages and the unemployment rate in a worker s local labor market blancflower and oswald use large scale micro data sets to estimate this relation for the united states britain and 10 other countries i review their empirical methods and findings and provide some further evidence on the nature of the wage curve relationship in the united states i conclude that there is a strong statistical correlation between rates of pay and local unemployment although the interpretation of this correlation remains unresolved this abstract was borrowed from another version of this item

wage contract settlements in u s manufacturing a bstruactusing a large scale longitudinal micro data base this paper tests for the determinants of union wage settlements in manufacturing alternative specifications of wage change relationships were tested in data covering the years 1957 to 1980 among the most important determinants of union wage changes were the expected inflation rate inflationary surprises in indexed agreements incomes policy dummy variables and spillovers from key national agreements catch up effects from lagged inflationary surprises were not important in determining the size of new settlements

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

customer and supplier driven externalities the purpose of this paper is to provide empirical evidence helpful for distinguishing different types of externalities we pursue this by extending the productionfunction framework of robert e hall 1990 and caballero and lyons 1990 1992 to exploit two key dimensions of the data disaggregate input output relationships and differences between estimates emphasizing time series versus cross sectional aspects of the data we obtain three main results first from the within estimates using annual data which emphasize the time series properties common across sectors we find a strong reduced form relationship between industry productivity and the activity level input growth of customers in sharp contrast supplier activity levels are insignificant the second result derives from between estimates which emphasize the cross sectional dimension of the data here we find the opposite is true there is a strong reduced form relationship between industry productivity and the activity level of suppliers but no relationship with customer activity levels we interpret the first two results as suggesting that over shorter horizons the linkage between an industry and its customers is pivotal in the transmission of external effects while in the long run external effects are mostly related to intermediate goods linkages the third result concerns the transition from short to long run we find that as the number of periods over which the variables are averaged is incrementally increased from one year toward the full sample period 27 years the significance of customers versus suppliers smoothly reverses itself the remainder of the paper is organized in four sections section i presents the core model and the econometric methods for disentangling the external effects section ii describes the data and estimation section iii presents the main results and our conclusions are presented in section iv

human capital formation and business cycle persistence abstract in this paper we examine the role of the formation of human capital in propagating shocks over the business cycle we show that a two sector equilibrium business cycle model with human capital is able to generate persistence in the growth of output and other aggregate variables comparable to that observed in the post war us data a key feature is the relatively low elasticity of substitution between skilled and unskilled labor in the production of human capital

dynamic effects of permanent and temporary tax policies in a q model of investment abstract this paper incorporates the tax policy analysis of hall and jorgenson into a dynamic optimizing model with adjustment costs to develop a q model of investment this framework is particularly useful for analyzing the dynamic effects on investment of permanent and temporary changes in tax policy it is shown that contrary to the conventional intertemporal substitution argument a temporary investment tax credit need not be nore expansionary than a permanent investment tax credit the role of depreciation allowances in determining the dynamic response of investment to temporary changes in the tax rate is also investigated

indeterminacy home production and the business cycle a calibrated analysis abstract in this paper i present a business cycle model with one market sector that produces a standard good and another that produces a non market or home good the model can have multiple equilibria and therefore cycles driven only by self fulfilling expectations with low externalities to market production in particular an upward sloping aggregate labor demand as e g in farmer and guo j economic theory 63 1994 42 72 is not required for indeterminacy the effect of technology shocks is also studied in all cases the time series that are generated have properties that are comparable to the real us postwar series

q and the tax bias theory abstract a growing body of literature analyzes the variation in q the ratio of financial market value to asset current replacement cost and makes inferences about attributes such as monopoly power profitability managerial performance etc these studies ignore potential biases embedded in q that result from non neutral tax policies this study examines the association between q and tax biases and establishes that differences in accumulated depreciation tax shields explain significant variation in q the implication that q should be adjusted for tax biases before use in empirical research is examined further adjusting q for tax biases at least with the factors herein leads only to minor changes in econometric analyses

can a real business cycle model pass the watson test abstract watson 1993 measures of fit for calibrated models journal of political economy 101 6 1011 1041 proposes a procedure for evaluating the fit of a dynamic equilibrium business cycle model under watson s criterion the standard real business cycle rbc model fails dramatically in reconciling the dynamics of the model with the data this inability to account for the dynamics of us aggregate data remains a major challenge to rbc theory this paper demonstrates that reasonable modifications can bring rbc theory into closer conformity with the data the empirical results indicate that when habit formation on leisure choice and employment externality are incorporated into the analysis the striking spectral density differentials documented by watson virtually vanish at business cycle frequencies

economic vs accounting depreciation abstract in this paper we present and estimate a model of economic depreciation consistent with producer s optimization the estimated economic depreciation which is a function of the rate of utilization and level of maintenance is about half of that used according to tax accounting depreciation the difference between the economic and tax rates of depreciation results in a subsidy and earlier capital replacement the implicit maximum net tax subsidy expressed as a proportion of the acquisition price of the asset is 13 3 for a sample of canadian trucking firms

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

endogenous markups intensity of competition and persistence of business cycles in order to study the propagation mechanism of business cycles in particular to investigate how the intensity of competition affects market structure and output persistence over business cycles this paper presents a real business cycle model with imperfect competition and increasing returns to scale this analysis considers the markups of price over cost to be endogenous with endogenous markups two standard forms of oligopolistic competition bertrand and cournot are considered results show that 1 the propagation mechanism in the sense of output persistence is greater under cournot 2 the propagation mechanism is unequivocally greater with imperfect competition regardless of whether markups are endogenous or not and 3 under imperfect competition the propagation mechanism is greater with endogenous markups than with exogenous markups overall these results suggest that more intense competition produces lower persistence in output growth and thus a weaker propagation mechanism in a calibration exercise these differences were also found to be quantitatively important

computers productivity and input substitution i introduction the last two decades has been a puzzling time for many productivity analysts while computer prices fell at extraordinary rates and firms invested hundreds of billions of dollars in new computer equipment aggregate productivity growth remained sluggish this computer productivity paradox has generated a large literature that examines the economic impact of the computer revolution 1 this paper offers a simple solution to the computer productivity paradox by making careful distinction between computers as an output from one sector and an input to other sectors data for 35 manufacturing and service sectors for 1947 1991 show that sectoral differences are crucial in understanding the impact of computers aggregate analysis is inappropriate since it obscures basic distinctions between a shifting production function in the computer producing sector multi factor productivity growth and movements along production functions in the computer using sectors substitution and capital accumulation once these differences are isolated the growth impact of computers is readily observable the computer producing sector experienced fundamental technological progress and now produces cheaper better computers the sectoral data show this as rapid multi factor productivity mfp growth for 1973 1991 although aggregate mfp growth remains below historic averages the computer producing sector has clearly done its part mfp growth in this sector is many times the economy average and has contributed over one third of aggregate mfp growth for 19811991 the sectoral detail shows that the slowdown in aggregate productivity would have been much more severe were it not for such large mfp gains in the computer producing sector for the other sectors of the economy computers affect growth in a more traditional although less glamorous way when the price of real computing power fell so dramatically in the 1970s and 1980s firms responded by substituting away from relatively expensive labor and non computer capital and investing heavily in cheap computers for these sectors the computer revolution affects output growth not by raising mfp but by inducing firms to accumulate computers at extraordinary rates real computer services for example grew in excess of 20 per year in 14 out of 35 sectors for 1973 1991 although virtually all sectors are rapidly accumulating computer equipment computers remain small in levels in 1991 for example computer investment was only 10 of private fixed investment so the growth contribution of computers remains small relative to sectoral aggregates of labor and non computer capital the rapid rates of accumulation however are clearly making computers a more important source of growth across sectors with this heavy investment also came the wide spread expectation that computers would fundamentally alter the way firms operate and lead to higher mfp the reality has been very different as the most computer intensive sectors show steep declines in mfp growth after 1973 with three quarters of all computers concentrated in three service sectors trade fire and other services however this finding must be interpreted with caution as griliches 1994 notes output in these sectors is largely unmeasurable and thus mfp growth will be understated nonetheless it is quite reasonable that even computer using sectors where output is easier to measure show no mfp gains computer investment creates a capital input that enters the production function like any other purchased input since constant quality deflators embody productivity improvements in investment the direct impact is seen through the rapid capital accumulation only if the adoption of computers leads to production externalities or spillovers would computer investment also increase mfp growth the data however show no evidence of this ii computers and growth the national statistics most clearly show the computer revolution in the investment data

indeterminacy and endogenous fluctuations with arbitrarily small externalities abstract in this paper we study the occurrence of local indeterminacy endogenous fluctuations and bifurcations in a simple non monetary 2 period overlapping generations economy in which people do not consume when young with capital labor substitution elastic labor supply and productive externalities we show that in contrast with the local dynamics generated by many one sector models of capital accumulation studied in the current literature local indeterminacy and therefore stationary stochastic equilibria driven by self fulfilling beliefs sunspots as well as multiple stationary equilibria are pervasive phenomena when the elasticity of input substitution is large and when the size of externalities is arbitrarily small we also demonstrate that when externalities are arbitrarily small the cobb douglas production function often used for its analytical tractability in many models is structurally unstable it is always associated with uniqueness of the steady state but any small perturbation of the elasticity of input substitution leads to the existence of two stationary equilibria which may be close to each other with the consequence that the dynamics may be qualitatively very different from those originated in the unit elasticity case journal of economic literature classification numbers e32 c62

a comparison of the cyclical behavior of union and nonunion wages in the united states this paper presents an extensive analysis of the behavior of union and nonunion wages over the business cycle using quasi panels developed from the current population survey in an attempt to resolve or reconcile competing claims about the cyclical behavior of union and nonunion wages union wages were roughly as procyclical as nonunion wages were prior to the early 1980s substantial reductions in union wage procyclicality since then are associated with reductions in the procyclical exercise of bargaining power

real business cycle models and the forecastable movements in output hours and consumption the authors study the movements in output consumption and hours that are forecastable from a vector autoregression and analyze how they differ from those predicted by standard real business cycle models they show that actual forecastable movements in output have a variance about one hundred times larger than those predicted by the model the authors also find that forecastable changes in the three series are strongly positively correlated with each other on the other hand for parameters whose implications are plausible in other respects the model implies that output consumption and hours should not all be expected to move in the same direction copyright 1996 by american economic association

unions wages and skills studies uniformly conclude that union wage effects are largest for workers with low measured skills longitudinal analysis using 1989 90 1994 95 cps matched panels produces union premium estimates equivalent across skill groups following appropriate sample restrictions and control for worker specific skills nlsy evidence on aptitude scores confirms that union workers with high measured skills have relatively low unmeasured skills differential selection by skill class and skill homogeneity in union workplaces result from employer and employee sorting in response to wage standardization union organizing where skills are homogeneous and unionized employers reluctance to hire the most as well as least able workers

tracing the effects of agricultural commodity prices and food costs we estimate a system of product and input demand equations for food processing industries to trace the links among farm commodity prices food processing costs and food prices disembodied technical change which likely reflects increasing consumer demand for convenience and product variety has sharply reduced agricultural materials demand relative to most other food processing inputs this implies weakening impacts of farm price shocks on food prices but improving quality and falling relative prices for agricultural inputs in combination with increasing factor substitution has counteracted these forces to encourage greater usage of agricultural inputs in food processing and limit these trends food prices today often appear less responsive to farm price shocks than in the past a development sometimes attributed to failures in market institutions however powerful long run technological and social changes leading to adaptations in production processes and food consumption patterns have also altered the demand for primary agricultural materials by changing the structure of food processing industries the social shifts surrounding the expanded role of women in the labor force represent one striking example of such changes the fraction of married women in the labor force less than one third in 1960 rose sharply through the next three decades before stabilizing at around 61 in the 1990s such demographic shifts increased the demand for food products requiring less home preparation time which in combination with enhanced technology has led to more in plant processing of agricultural materials and likely a growing share of nonagricultural inputs in

contracts job experience and cyclical labor market adjustments longitudinal estimates of the variability of individual wages hours and weeks worked over the course of changing demand states are provided for all workers generally and for workers of varied levels of job experience emphasis is placed on that part of job experience represented as years on current job a commonly used proxy for the magnitude of firm specific skills interpretation of resulting estimates in the context of the labor market contracting literature is attempted generally significant procyclical patterns are found for real weekly wages weekly hours and weeks worked the extent of weekly wage variability is much greater than is generally suggested in the literature furthermore workers with greater tenure exhibit greater cyclical wage and hours variability and less weeks variability finally empirical distinctions are drawn separately for white collar and blue collar as well as union and nonunion workers

task assignment over the business cycle in this article i evaluate the hypothesis that firms respond to negative demand shocks by assigning workers to tasks that require less skill than the tasks they normally carry out using changes in employment in state industry cells as a measure of demand conditions facing individual firms i provide evidence in favor of the hypothesis furthermore the skill requirements of the tasks carried out by workers are procyclical the results are consistent with a specific capital model where employers move workers between tasks so that layoffs are concentrated on workers with low levels of firm specific human capital

the q theory of investment with many capital goods the q theory of investment which relates investment to the ratio of market to replacement value of capital has attracted considerable attention in a recent series of papers for instance a q variable has been used as an independent variable in empirical investment equations estimated by george von furstenberg 1977 von furstenberg et al 1980 burton malkiel et al 1979 and others these papers however leave somewhat unclear the theoretical rationale for using q as an investment determinant this has motivated work by hiroshi yoshikawa 1980 lawrence summers 1981 michael salinger and summers 1981 and fumio hayashi 1982 who show that under certain conditions the rate of investment of a sharevalue maximizing firm is indeed a function of q this is an important result because it shows that investment equations with q an independent variable are not ad hoc constructions rather they are grounded in a theory of the firm with an appealing behavioral hypothesis viz value maximization an important assumption underlying this research is that capital can be treated as a homogeneous good of course this is an extremely common assumption in the analysis of investment and is not particularly more bothersome in the q theory context than elsewhere nonetheless there are certain situations where it may be desirable or even essential to be able to study investment disaggregated by type of capital good thus the purpose of this paper is to examine whether and how the q theory can be extended to this more general case 1 intuitively one would expect some difficulty with the q theory in the many capitalgood context as already noted by james tobin and william brainard 1977 p 243 and by salinger and summers p 12 one way to see why is to recall the tobin brainard distinction between marginal and average q as hayashi writes

market structure and market value while the use of market models to determine the sources of economic profits is quite new at least two empirical studies considering the market structure and market value relation have appeared to date interestingly they conflict thomadakis 1977 found a close positive relation between the four firm concentration ratio and relative excess valuation measured as the difference between the market value of the firm and the book value of tangible assets all normalized by sales as a result thomadakis argued that industry concentration plays a role in the determination of excess profits from currently held assets and those expected from the firm s investment options p 185 in contrast lindenberg and ross 1981 reported no significant relation between concentration and tobin s q ratio measured as the ratio of the market value of the firm to the replacement cost of tangible assets this result disputes thomadakis s findings and a purely structuralist interpretation of economic profits according to lindenberg and ross market power may or may not be evident in highly concentrated markets since high q s can occur in concentrated or unconcentrated markets and conversely low q s indicating no significant market power can occur in markets that have high degrees of concentration p 28

the determinants of u s labor disputes we present a bargaining model of union contract negotiations in which the union decides between two threats the union can strike or it can continue to work under the expired contract the model makes predictions about the level of dispute activity and the form disputes take strike incidence increases as the strike threat becomes more attractive because of low unemployment or a real wage drop we test these predictions by estimating logistic models of dispute incidence and dispute composition for negotiations from 1970 to 1989 we find support for the model s key predictions but these associations are weaker after 1981

tracing externalities as sources of indeterminacy abstract this paper offers further inquiry into sources of indeterminacy in general equilibrium we take a more agnostic approach than previous work as we allow for a more general interpretation of externalities in particular we identify the origin of scale economies as being from either labor or capital we find that in the one sector model it is primarily the externalities associated with labor that generate the result however in the two sector model indeterminacy can be ultimately traced back to the externalities from capital in the investment sector

an analysis of sample attrition in panel data the michigan panel study of income dynamics by 1989 the michigan panel study on income dynamics psid had experienced approximately 50 percent sample loss from cumulative attrition from its initial 1968 membership we study the effect of this attrition on the unconditional distributions of several socioeconomic variables and on the estimates of several sets of regression coefficients we provide a statistical framework for conducting tests for attrition bias that draws a sharp distinction between selection on unobservables and on observables and that shows that weighted least squares can generate consistent parameter estimates when selection is based on observables even when they are endogenous our empirical analysis shows that attrition is highly selective and is concentrated among lower socioeconomic status individuals we also show that attrition is concentrated among those with more unstable earnings marriage and migration histories nevertheless we find that these variables explain very little of the attrition in the sample and that the selection that occurs is moderated by regression to the mean effects from selection on transitory components that fade over time consequently despite the large amount of attrition we find no strong evidence that attrition has seriously distorted the representativeness of the psid through 1989 and considerable evidence that its cross sectional representativeness has remained roughly intact

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

the effect of implicit contracts on the movement of wages over the business cycle evidence from the national longitudinal surveys a 1991 study by paul beaudry and john dinardo found evidence of internal labor markets that augment incumbent workers wages when the external labor market is tight when unemployment is low and shield their wages when it is slack current wages they found depend on the tightest labor market conditions observed since a worker was hired not current labor market tightness or labor market tightness at the time of hiring this paper replicates and extends that research using data from six cohorts of the national longitudinal surveys that together span more than three decades as well as an estimation framework more robust than that in the original study the author finds strong support for beaudry and dinardo s key prediction supplementary regressions confirm other implications of the theory as well recently at least the effect of implicit contracting on wages has been similar for men and women

the economic determinants of technology shocks in a real business cycle model abstract creative destruction due to new technologies causes both long run growth and short run business fluctuations new technologies push the economy on a higher productivity level but also imply partial obsolescence of old production units obsolescence induces an adjustment period during which growth rates gradually fall at some endogenously determined point research for the next technology starts once the new technology is discovered a technology shock occurs and the next cycle starts this is shown in a continuous time rbc model with risk averse agents where savings can be used for financing deterministic capital accumulation and stochastic r d for new technologies

real wages and the business cycle the objectives of this review are threefold 1 to characterize the empirical literature on the cyclical behavior of real wages 2 to identify the sources of the differences in results across studies and 3 to enumerate key factors that determine the cyclicality of real wages given a host of measurement and methodological issues drawing firm conclusions is difficult but several generalizations can be made the estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage composition effects play an important but complicated role as well

union wage concessions in the 1980s the importance of firm specific factors this paper evaluates the effects of firm performance and firm characteristics on concession outcomes over the years 1980 87 across similar firms the author finds concessions were inversely related to stock price and employment growth concessions were also most likely in small firms in firms paying high wages and in firms with relatively low union coverage the effect of firm performance and firm characteristics on the likelihood of concessions was uniform across concessions of differing severity and was stable in magnitude over the eight year period

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

nominal contracting theories of unemployment evidence from panel data this paper examines economywide and sector specific responses of real wages to nominal shocks using micro panel data from the national longitudinal survey of young men the observed response patterns provide no support for nominal contracting theories of unemployment which predict that nominal surprises should be negatively correlated with real wages in fact both inflation and money growth surprises are found to be essentially uncorrelated with real wages either a real business cycle model or a model with rigidities in commodity prices could be consistent with these results copyright 1993 by american economic association

profiting from agglomeration evidence from the salmon aquaculture industry asche f roll k h and tveteras r profiting from agglomeration evidence from the salmon aquaculture industry regional studies even though most celebrated clusters seem to be in high cost areas many econometric studies represent agglomeration externalities as increased primal productivity or reduced cost while this certainly can be consistent with some observed agglomeration effects it may be insufficient for the growth of a cluster the key condition for this is that profitability is higher the paper tests for agglomeration effects using a profit function approach this may be particularly important for firms in high cost clusters where revenue effects can be as important as productivity and cost effects the paper tests for both intra and inter industry agglomeration externalities using firm level data

on the stability of the two sector neoclassical growth model with externalities we study a class of two sector growth models with sector specific externalities in which one sector produces consumption and the other sector produces investment the novelty is that investment allocated to the consumption sector is an imperfect substitute for investment allocated to the investment sector we show analytically that in this case local indeterminacy near the steady state is impossible for every empirically plausible specification of the model parameters more specifically we show that a necessary condition for local indeterminacy is an upward sloping aggregate labor demand curve in the investment sector which requires a counterfactual strength of the externality we show numerically that an elasticity of substitution of plausible size implies determinacy near the steady state these findings differ sharply from the standard result for two sector models that if the investments allocated to the two sectors are perfect substitutes then local indeterminacy occurs for a wide range of plausible parameter values

computing productivity firm level evidence we explore the effect of computerization on productivity and output growth using data from 527 large us firms over 1987 1994 we find that computerization makes a contribution to measured productivity and output growth in the short term using one year differences that is consistent with normal returns to computer investments however the productivity and output contributions associated with computerization are up to five times greater over long periods using five to seven year differences the results suggest that the observed contribution of computerization is accompanied by relatively large and time consuming investments in complementary inputs such as organizational capital that may be omitted in conventional calculations of productivity the large long run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s

the union nonunion wage differential over the business cycle evidence from psid abstract there is some prior evidence lewis 1963 mellow 1981 freeman 1984 to support the notion that union wage premium is counter cyclical this phenomenon may be a product of union wage rigidity which results from a long term union contracts and b union reliance on layoffs due to seniority dominance rather than work share practices in response to worsening economic conditions and efficiency wage considerations this paper within a pooled cross section time series framework empirically tests for the presence of perceived counter cyclical nature of the union nonunion wage differential using the psid data from 1979 1984 results from this study do support the presence of counter cyclical union wage premium during the time period studied

union wage determination in canadian and u s manufacturing 1964 1990 a comparative analysis the author analyzes nominal and real wage changes in unionized manufacturing firms in canada and the united states over the years 1964 90 he finds more differences between the countries patterns of wage determination in the years 1964 79 than have commonly been recognized in the 1980s the nominal wage determination structure changed more sharply in the united states than in canada real wage determination changed little in the united states before 1986 while after 1986 observed real wage growth was significantly smaller than what would have been predicted based on patterns of bargaining in earlier years in canada real wages in the 1980s were significantly higher than they would have been if the previous patterns of wage determination had persisted both the nominal and real wage change results suggest that unions in u s manufacturing fared poorly in wage bargaining in the 1980s by comparison with their canadian counterparts