unemployment hysteresis and the natural rate hypothesis i introduction rod cross et al university of st andrews ii reflections on hysteresis and the natural rate 1 the irrelevance of the natural rate lawrence summers harvard university 2 on the history of hysteresis rod cross university of st andrews iii the characteristics of the unemployed 1 unemployment vacancies and the long term unemployed peter smith l b s paul levine south bank polytechnic alan budd l b s 2 characteristics of the long term unemployed evidence from the labour force survey stephen creigh department of employment 3 is unemployment irreversible peter r hughes department of employment gillian hutchinson queen mary college london iv analysis of hysteresis effects 1 union activity and wage employment movements assar lindbeck institute for international studies university of stockholm and dennis snower birkbeck college london 2 a simple model of imperfect competition with walrasian features huw dixon birkbeck college london 3 unemployment and worker quality simon price university of bristol 4 screening in labour markets with heterogeneous workers inge schnell university of bonn and l s e iv hysteresis effects and the explanation of aggregate unemployment 1 testing for multiple natural rates of unemployment in the british economy alan carruth university of kent and andrew oswald centre for labour economics l s e 2 why is wage inflation in britain so high stephen nickell university of oxford 3 phillips curve estimates incorporating a natural rate with hysteresis effects david coe o e c d 4 hysteresis and european unemployment olivier blanchard m i t and lawrence summers harvard university 5 the natural rate empirical fact or theoretical straitjacket tim jenkinson merton college oxford iv panel discussion the implications of hysteresis effects for unemployment policy 1 david stanton employment market research unit department of employment 2 charles adams i m f 3 marcus miller university of warwick 4 peter mcgregor fraser of allander institute university of strathclyde

the stability and effectiveness of climate coalitions a comparative analysis of multiple integrated assessment models we report results from a comparison of numerically calibrated game theoretic integrated assessment models that explore the stability and performance of international coalitions for climate change mitigation we identify robust results concerning the incentives of different nations to commit themselves to a climate agreement and estimate the extent of greenhouse gas mitigation that can be achieved by stable agreements we also assess the potential of transfers that redistribute the surplus of cooperation to foster the stability of climate coalitions in contrast to much of the existing analytical game theoretical literature we find substantial scope for self enforcing climate coalitions in most models that close much of the abatement and welfare gap between complete absence of cooperation and full cooperation this more positive message follows from the use of appropriate transfer schemes that are designed to counteract free riding incentives

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

the role of uncertainty and learning for the success of international climate agreements abstract transnational externalities e g transboundary pollution trade contagious diseases and terrorism warrant coordination and cooperation between governments but this proves often difficult one reason for the meager success is the public good character of many of these economic problems encouraging free riding another reason one might suspect is uncertainty surrounding most environmental problems and in particular climate change this provides often an excuse for remaining inactive paradoxically some recent papers have concluded just the opposite the veil of uncertainty can be conducive to the success of international environmental cooperation in this paper we explain why and under which conditions this can be true however we argue that those conditions are the exception rather than the rule most important we suggest a mechanism for those conditions where learning has a negative effect on the success of cooperation which removes this effect or even turns it into a positive effect our results apply beyond the specifics of climate change to similar problems where cooperation generates positive externalities

are those paid more really more productive the case of experience this study uses computerized personnel microdata on the white male managerial and professional employees at a major u s corporation to address the following question can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time our answer to this question based on both cross sectional and longitudinal information is that performance plays a substantially smaller role in explaining cross sectional experience earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience earnings profile this response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates relative productivity in the year of assessment we present a great deal of evidence which strongly supports this assumption

industry specific capital and the wage profile evidence from the national longitudinal survey of youth and the panel study of income dynamics using data from the national longitudinal survey of youth 1979 96 and the panel study of income dynamics 1981 91 i seek to determine whether there is any net positive return to tenure with the current employer once we control for industry specific capital including total experience in the industry as an additional explanatory variable i show that the return to seniority is markedly reduced using gls while it virtually disappears using iv gls at both the one digit and three digit levels therefore it seems that what matters most for the wage profile in terms of human capital is industry specificity not firm specificity

up or out contracts a signaling perspective a firm will typically gather information concerning its own workers that is not available to other potential employers while other firms will attempt to reduce this information asymmetry by observing the actions of the initial employer i argue that this process can be important in environments characterized by up or out contracts in that the retention decision can serve as a signal of productivity the article investigates this argument in an environment where up or out contracts are employed because they provide workers with an incentive to accumulate general human capital and where learning takes place in a diffuse fashion

promotions and wage growth this article presents evidence that internal mobility defined as a promotion or other position change is an important source of wage growth it accounts for approximately 15 of wage growth over the life cycle for white and black men but less for women the incidence of promotions and other position changes appears tied to the wage level better paid workers are more likely to be promoted the life cycle incidence of internal mobility looks similar to that for conventionally defined job mobility most moves are made early in the career mobility declines both with time in position and with experience

the value of a statistical life evidence from panel data abstract we address long standing concerns in the literature on compensating wage differentials the econometric properties of the estimated value of statistical life vsl and the wide range of such estimates we confront prominent econometric issues using panel data a more accurate fatality risk measure and systematic application of panel data estimators controlling for measurement error endogeneity latent individual heterogeneity possibly correlated with regressors state dependence and sample composition yields vsl estimates of 4 million to 10 million the comparatively narrow range clarifies the cost effectiveness of regulatory decisions most important econometrically is controlling for latent heterogeneity less important is how one does it

a theory of wage and promotion dynamics inside firms we show that a framework that integrates job assignment human capital acquisition and learning captures several empirical findings concerning wage and promotion dynamics inside firms including the following first real wage decreases are not rare but demotions are second wage increases are serially correlated third promotions are associated with large wage increases fourth wage increases at promotion are small relative to the difference between average wages across levels of the job ladder fifth workers who receive large wage increases early in their stay at one level of the job ladder are promoted quickly to the next

cooperation and subgame perfect equilibria in global pollution problems with critical threshold the paper examines the issue of international pollution control under a dynamic framework involving heterogeneous countries and a critical threshold we propose an appealing specification for this type of problem and its novelty is illustrated by the fact that countries use linear strategies in equilibrium although their utility and damage functions are highly convex the stock of pollution under cooperation is always lower surprisingly emissions are always higher in distant periods under the cooperative scenario and we show through examples that this is a significant finding rather than some marginal effect it is also shown that the efficient allocation of pollution abatement is driven only by the respective technologies of the countries finally a dynamic transfer scheme allowing to implement the cooperative solution is proposed

building risk into the mitigation adaptation decisions simulated by integrated assessment models this paper proposes an operationally simple and easily generalizable methodology to incorporate climate change damage uncertainty into integrated assessment models iams first uncertainty is transformed into a risk measure by extracting damage distribution means and variances from an ensemble of socio economic and climate change scenarios then a risk premium is computed under different degrees of risk aversion quantifying what society would be willing to pay to insure against the uncertainty of the damages our estimates show that the premium for the risk is a potentially significant addition to the standard average damage but highly sensitive to the attitudes toward risk in the last research phase the risk premium is incorporated into the climate change damage function of a widely used iam which shows consequently a substantial increase in both mitigation and adaptation efforts reflecting a more precautionary attitude by the social planner interestingly adaptation is stimulated more than mitigation in the first half of this century while the situation reverses afterwards

worker allocation hierarchies and the wage distribution economists have traditionally viewed the allocation of workers among jobs through the concept of comparative advantage this paper investigates hierarchical production models which display an absence of comparative advantage in order to demonstrate that for hierarchical production there is a second allocating factor which plays an important role two results are found first the allocation of workers among jobs tends to match high ability workers with positions which value ability highly second despite the fact that the models display an absence of comparative advantage i e the standard theoretical explanation for why wage distributions might be skewed the models wage distributions are skewed to the right relative to the underlying ability distributions

bargaining over environmental budgets a political economy model with application to french water policy in decentralized water management with earmarked budgets financed by user taxes and distributed back in the form of subsidies net gains are often heterogeneous across user categories this paper explores the role of negotiation over budget allocation and coalition formation in water boards to provide an explanation for such user specific gaps between tax payments and subsidies we propose a bargaining model to represent the sequential nature of the negotiation process in water districts in which stakeholder representatives may bargain upon a fraction of the budget only the structural model of budget shares estimated from the data on french water agencies performs well as compared with reduced form estimation empirical results confirm the two stage bargaining process and provide evidence for systematic net gains from the system for agricultural water users

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

the strategic dimension of financing global public goods abstract one challenge in addressing transboundary problems such as climate change is the incentive to free ride transfers from multilateral compensation funds are often used to counteract such incentives albeit with varying success we examine how such funds can change the incentive to free ride in a global public goods game in our game self interested countries choose their own preferred course deciding their voluntary public good provision whether to join a fund that offers compensation for providing the public good and the volume of compensatory payments we show that i total public good provision is higher when those contributing are given more compensation and ii non participation in the fund can be punished if the remaining members decrease their public good provision sufficiently we then examine three specific fund designs in the first the compensation paid to each country is equal to the percentage of above average total costs for public goods provision this design is best able to deter free riding and can establish the social optimum as the equilibrium in the second the compensation paid to each country is a function of the marginal cost of their public good provision here there are significant incentives to free ride in the third case the monetary resources provided by the fund are fixed a design frequently encountered in international funds this design is the one least able to deter free riding

uncertainty learning and heterogeneity in international environmental agreements this paper concerns the formation of international environmental agreements under uncertainty about environmental damage with different models of learning complete learning partial learning or no learning the results of the existing literature are generally pessimistic the possibility of either complete or partial learning generally reduces the level of global welfare that can be achieved from forming an iea relative to no learning that literature regards uncertainty as a parameter common to all countries so that countries are identical ex ante as well as ex post in this paper we extend the literature to the case where there is no correlation between damage costs across countries each country is uncertain about a particular parameter in our case the benefit cost ratio drawn from a common distribution but ex post each country s realized parameter value is independently drawn consequently while countries remain identical ex ante they may be heterogeneous ex post we show that this change reinforces the negative conclusions about the effects of partial learning on international environmental agreements but under certain conditions moderates the negative conclusions about the effects of complete learning

can international environmental cooperation be bought in this paper a two stage game of international environmental agreement formation with asymmetric countries is analytically solved the equilibrium of the game makes it possible to determine the size and composition of a stable agreement two cases are studied in the first case countries differ only in abatement costs while in the second case they differ in environmental damages in both cases two different institutional settings one without transfers and another with transfers are considered the results establish that the asymmetry assumption has no important effects on the scope of cooperation in comparison with the symmetric case if transfers are not used or abatement costs represent the only difference among countries however when the only difference is in environmental damages the level of cooperation that can be bought through a self financed transfer scheme increases with the degree of asymmetry

stability of international climate coalitions a comparison of transfer schemes abstract this paper studies the impact of pragmatic and optimal transfer schemes on the incentives for regions to join international climate agreements with an applied model that comprises twelve world regions we investigate i a benchmark without transfers ii scenarios with allocation based rules where coalition members receive tradable emission permits proportional to initial or future emissions iii scenarios with outcome based rules where the coalition surplus is distributed proportional to emissions and iv a scenario based on an optimal sharing rule where the coalition surplus is distributed proportional to outside option payoffs we find that well designed transfer schemes can stabilise larger coalitions and increase global abatement levels in our applied setting we find that for allocation based and outcome based rules only small coalitions are stable and in the case of grandfathered emission permits there is no stable coalition at all some obstacles associated with grandfathered emission permits can be overcome by incorporating the expected growth of emissions in developing countries in the distribution of emission permits for the optimal transfer scheme we find that larger coalitions which include key players such as the united states and china can be stable but no transfer scheme is capable of stabilising the grand coalition

international cooperation for sale abstract this paper shows that strong asymmetry among countries warrants a change in the rules of the game of global public goods provision with the consequence that cooperation by some countries is bought by others and aggregate welfare is increased perhaps substantially side payments on their own have virtually no effect on the outcomes that can be sustained by self enforcing cooperative agreements but when the rules of the game are changed by strong asymmetry when some countries are effectively committed to being non signatories to an agreement eschewing money transfers side payments become the vehicle for increasing participation in a cooperative agreement

the role of comparative advantage and learning in wage dynamics and intrafirm mobility evidence from germany this article measures the importance of job level assignment based on comparative advantage and learning about workers ability in explaining intrafirm wage and mobility dynamics using survey data from the german socio economic panel the results reveal the importance of nonrandom selection of workers into the rungs of the firm s job ladder measured and unmeasured ability play important roles in workers rank assignment with unmeasured ability being more important at higher levels of the hierarchical job structure there is some evidence of learning effects for workers below age 35 generating mobility between upper and executive levels

the economic effects of climate change greenhouse gas emissions are fundamental both to the world s energy system and to its food production the production of co2 the predominant gas implicated in climate change is intrinsic to fossil fuel combustion specifically thermal energy is generated by breaking the chemical bonds in the carbohydrates oil coal and natural gas and oxidizing the components to co2 and h2o one cannot have cheap energy without carbon dioxide emissions similarly methane ch4 emissions an important greenhouse gas in its own right are necessary to prevent the build up of hydrogen in anaerobic digestion and decomposition one cannot have beef mutton dairy or rice without methane emissions climate change is the mother of all externalities larger more complex and more uncertain than any other environmental problem the sources of greenhouse gas emissions are more diffuse than any other environmental problem every company every farm every household emits some greenhouse gases the effects are similarly pervasive weather affects agriculture energy use health and many aspects of nature which in turn affects everything and everyone the causes and consequences of climate change are very diverse and those in low income countries who contribute least to climate change are most vulnerable to its effects climate change is also a long term problem some greenhouse gases have an atmospheric life time measured in tens of thousands of years the quantities of emissions involved are enormous in 2000 carbon dioxide emissions alone and excluding land use change were 24 billion metric tons of carbon dioxide tco2

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

participation games and international environmental agreements a non parametric model abstract we examine the size of stable coalitions in a participation game that has been used to model international environmental agreements cartel formation rd based on these examples a consensus has emerged that in this kind of game the equilibrium coalition size is small except possibly when the potential benefits of cooperation are also small in this paper we develop a non parametric approach to the problem and demonstrate that the conventional wisdom is not robust in a general setting we identify conditions under which the equilibrium coalition size can be large even when potential gains are large contrary to previously examined leading special cases we show that reductions in marginal abatement costs in an international environmental game can increase equilibrium membership and we provide a measure of the smallest reduction in costs needed to support a coalition of arbitrary size

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

technological acceleration skill transferability and the rise in residual inequality this paper provides a quantitative theory for the recent rise in residual wage inequality consistent with the empirical observation that a sizable part of this increase has a transitory nature a feature that eludes standard models based on ex ante heterogeneity in ability an acceleration in the rate of quality improvement of equipment like the one observed from the early 1970s increases the productivity quality differentials across machines jobs in a frictional labor market this force translates into higher wage dispersion even among ex ante equal workers with vintage human capital the acceleration reduces workers capacity to transfer skills from old to new machines generating a rise in the cross sectional variance of skills and therefore of wages through calibration the paper shows that this mechanism can account for 30 percent of the surge in residual inequality in the u s economy or for most of its transitory component two key implications of the theory faster within job wage growth and larger wage losses upon displacement find empirical support in the data

interpreting bargaining strategies of developing countries in climate negotiations a quantitative approach despite the efforts made during the last climate conferences cops countries participating in the negotiation process are still far from reaching an agreement on the implementation of a new post kyoto climate regime the growing role played by developing countries in negotiations is one of the main causes behind the deadlock further attention should therefore be paid to the composition of the alliances formed by developing countries in order to better understand the key structural features driving their bargaining positions by applying a cluster analysis this paper aims to investigate the role played by heterogeneity in specific characteristics of developing countries in explaining divergent costs and benefits associated with alternative climate negotiation outcomes by clustering developing countries according to their economic geographic environmental energy and social characteristics the paper presents some considerations on climate political economy strategies in these countries with respect to existing bargaining coalitions