growth and unemployment this paper analyses the effects of growth on long run unemployment using a search model of equilibrium unemployment where growth arises explicitly from the introduction of new technologies that require labour reallocation for their implementation the analysis uncovers and compares between two competing effects of growth on unemployment the first is a capitalisation effect whereby an increase in growth raises the capitalised returns from creating jobs and consequently reduces the equilibrium rate of unemployment the second is a creative destruction effect whereby an increase in growth reduces the duration of a job match thereby raising the equilibrium level of unemployment both directly by raising the job separation rate and indirectly by discouraging the creation of job vacancies this paper asks the question of how the rate of economic growth affects unemployment in the long run the main consideration that leads us to think that this is an interesting question has to do with the re allocative aspect of growth in the long run faster economic growth must come from a faster increase in knowledge to the extent that the advancement of knowledge is embodied in industrial innovations it is likely to raise the job destruction rate through automation skill obsolescence and the bankruptcy associated with the process of creative destruction in short increased growth is likely to produce an increased rate of job turnover and the search theories of lucas and prescott 1974 and pissarides 1990 imply that an increased rate of job turnover will result in a higher natural rate of unemployment this conclusion is also consistent with the empirical results of davis and haltiwanger 1990 which show that periods of high unemployment tend to be periods of high job turnover at the establishment level it suggests the possibility of a positive longrun tradeoff between growth and unemployment at least over some range there has been relatively little attention paid to our question in the literature on longrun determinants of unemployment for example the recent empirical examination by layard nickell and jackman 1991 of unemployment rates among oecd countries did not even consider the rate of economic growth as a possible explanatory variable this is consistent with the seminal theoretical work of phelps 1968 which implies that the natural rate of unemployment is independent of the rate of productivity growth the only

representative democracy and capital taxation abstract in this paper we study a political model of capital taxation voters who differ in their relative shares of capital and labor income choose tax policy under majority rule we compare two political regimes direct democracy where the voters vote directly on the policy and representative democracy where they elect a representative who then chooses policy in both regimes some form of commitment by the voters is necessary to avoid excessive taxation of capital but the necessary commitment under representative democracy corresponds closely to that provided by the actual institutions of most democracies

equilibrium in the labor market with search frictions christopher a pissarides delivered his prize lecture on 8 december 2010 at aula magna stockholm university this abstract was borrowed from another version of this item

bureaucrats or politicians part ii multiple policy tasks abstract policies are typically chosen by politicians and bureaucrats this paper investigates first the normative criteria with which to allocate policy tasks to elected policymakers politicians or non elected bureaucrats politicians are preferable if there is uncertainty about social preferences and flexibility is valuable or if policy complementarities and compensation of losers is important bureaucrats are preferable if time inconsistency and short termism is an issue or if vested interests have large stakes in the policy outcome we then compare this normative benchmark with the case in which politicians choose when to delegate and show that the two generally differ

the determinants of equilibrium unemployment in britain a lot of energy is currently being expended in trying to understand what has been happening to unemployment in britain and the rest of the developed world in this paper we look at this question in the british context by trying to confront some possible explanations with the data since the data we use are quarterly over rather a short period we are setting the explanations a very hard test most explanations tend to be rather casual and the theories underpinning them ill developed thus for example the so called real wage argument is based on the idea that real wages affect labour demand and that the equilibrium real wage bears some relatively stable relationship to output per head but how stable is not clear thus whether or not we can expect a well defined stable ceteris paribus dynamic relationship between real product wages as a proportion of output per head and unemployment is equally unclear so if such a relationship does not show up in a quarterly regression model this may not be that serious for the theory nevertheless we must look for the relationship for how else are we ever to discriminate between a plethora of conflicting views the primary emphasis in this paper is on the secular factors affecting unemployment rather than the cyclical variables consequently we shall not be concerned with developing a coherent theory of cyclical fluctuations and in the empirical work we shall control for the cycle simply by making use of those exogenous or predetermined variables which other work in this field suggests are important 2 the remainder of the paper is set out as follows the next section is concerned with specifying a model which generates a definition of equilibrium unemployment the outline of this model is a pair of equations determining the flows into and out of unemployment and these are specified in section ii which looks closely at the possible variables involved section iii then deals with the results and presents some general conclusions

the ins and outs of european unemployment in this paper we study the contribution of inflows and outflows to the dynamics of unemployment in three european countries the united kingdom france and spain all countries are interesting in their own right and in the comparison with each other britain s labour markets were strictly regulated up to the mid 1980s but they have been liberalized since then france is still a regulated economy compared with britain with unemployment averaging about 8 spain has had the biggest rise in unemployment in europe reaching 24 in the mid 1990s but policy reforms and fast growth since then brought it down to a level below france s we compare performance in these three countries making use of both administrative and labor force survey data we find that the impact of the 1980s reforms in britain is evident in the contributions of the inflow and outflow rates the inflow rate became a bigger contributor after the mid 1980s although its significance subsided again in the late 1990s and 2000s in france the dynamics of unemployment are driven by the outflow rate virtually entirely which is consistent with a regime with strict employment protection legislation in spain however both rates contribute significantly to the dynamics perhaps as a consequence of the prominence of fixed term contracts since the late 1980s

productivity and unemployment over the business cycle abstract the low correlation between cyclical unemployment and productivity over the post war period hides a large sign switch in the mid 1980s from significantly negative the correlation became significantly positive using a search model of unemployment with nominal rigidities and variable labor effort i show that technology shocks can generate a positive unemployment productivity correlation whereas non technology shocks i e aggregate demand shocks tend to do the opposite in this context i identify two events that can quantitatively explain the increase in the correlation i a sharp drop in the volatility of non technology shocks in the mid 1980s and ii a decline in the response of productivity to non technology shocks which from procyclical became acyclical in the last 25 years

the ins and outs of uk unemployment this study shows that in the uk increases in unemployment in a recession are driven by rises in the separation rate a new decomposition of unemployment dynamics is devised that does not require unemployment to be in steady state at all times this is important because low uk transition rates one quarter the size of the us imply substantial deviation of unemployment from steady state near cyclical turning points in periods of moderation the job finding rate is shown to have most influence on uk unemployment dynamics evidence comes from the first study of monthly data derived from individuals labour market spells recorded in the british household panel survey from 1988 to 2008

an economic rationale for public education the value of commitment abstract this paper offers an explanation for the widespread phenomenon of uniform public schooling which is viewed here as a way for the government to precommit itself to restraints on future income redistribution such precommitment is likely to enhance accumulation of human capital to bolster economic growth and under certain circumstances to constitute a preferred choice for a majority of voters

tax competition and revelation of preferences for public expenditure this paper considers a federal country composed of local jurisdictions that differ in their inhabitants tastes for public goods and which finance local public expenditure through a source based tax on capital income the taste for public goods is the private information of local governments the central government seeks an optimal policy in which grants to local governments are conditioned on local tax rates the uninformed central government seeks both to allocate capital efficiently among jurisdictions and to induce jurisdictions to provide an efficient mix of private and public consumption it is shown that there persist at this constrained optimum both some misallocation of capital and some violation of the samuelson rule for optimal public good provision in every jurisdiction c 1998 academic press

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

the sources of protectionist drift in representative democracies abstract we analyze a two country two good model of international trade in which citizens in each country differ by their specific factor endowments the trade policy in each country is set by the politician who has been elected by the citizens in a previous stage due to a delegation effect citizens generally favor candidates who are more protectionist than they are the one candidate per country equilibria exhibit a protectionist drift owing to this delegation effect in addition we find an additional source of protectionist drift that we call the abstention effect not only do candidates wish to delegate to more protectionist colleagues but these more protectionist colleagues who can win election prefer still more protectionist candidates than themselves therefore they have an incentive to abstain that is not run for election we show that because of this abstention effect there exists a range of electable citizens all of whom are more protectionist than the median voter s most preferred candidate we extend the analysis allowing two candidate equilibria and the possibility that there are costs and benefits of holding office

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

optimal taxation and fiscal constitution abstract assuming a world with excessive taxes the focuses of this paper are political mechanisms that ensure efficiency enhancing restraints on taxes in particular it is shown that supermajority requirements to approve tax increases as currently used in some us states is the means of attaining this objective their relationship to another such mechanism prevalent in earlier centuries that of franchise restrictions is discussed

the cyclicality of labor market flows a multiple shock approach abstract in this paper we aim to establish some stylized facts about the relative contributions of the job finding and separation rates to unemployment dynamics depending on the nature of structural shocks the shocks in our bayesian structural var model are identified using a sign restriction approach and capture shifts in the three conditions determining labor market equilibrium in matching models the beveridge curve and the job creation and job destruction conditions using both us and french data we identify an aggregate shock to match profitability the aggregate profitability shock a shock specific to existing jobs the reallocation shock and a shock to the efficiency of the matching process the matching efficiency shock we find that the relative contributions of the job finding and separation rates are notably different across shocks in both countries but are similar across countries for each type of shock labor market dynamics appear to be transatlantic despite well known institutional differences however it must be emphasized that the reaction of the labor market variables to the matching efficiency shock seems more muted in the us than in france

endogenous taxation an overlapping generations approach this paper develops an overlapping generations framework of endogenous taxation there are three types of heterogeneity among individuals age productivity and bequest motives the heterogeneity gives rise to a redistributive conflict and therefore to different preferences over fiscal policy linear taxes are levied on consumption expenditure wage income and capital income these tax rates and the provision of a public good become endogenous through a majority voting rule the dynamic politico economic equilibrium is examined both in and outside the steady state the focus is on the underlying characteristics of the economy that gives rise to a particular fiscal structure copyright 1996 by royal economic society

privacy and time consistent optimal labor income taxation abstract incomplete information is a commitment device for time consistency problems in the context of time consistent optimal labor income taxation privacy can lead to a pareto superior outcome and increases the effectiveness of public education as a second best policy

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

the political economy of wealth and interest we study the relationship between wealth redistribution and the allocation of firm ownership the economy s wealth distribution affects the equilibrium interest rate and the allocation of entrepreneurial rents when wealth determines agents ability to borrow this leads to an unconventional voting behaviour of the politically decisive middle class the political preferences of middle and upper class voters coincide when redistribution only has an adverse interest rate effect middle class voters vote with the lower class if redistribution gives access to entrepreneurial rents technology may strongly affect political outcomes greater inequality amplifies the interest rate effect and may lead to less redistribution

would you like to shrink the welfare state a survey of european citizens welfare state reform a survey of what europeans want the fundamental problems facing european welfare states high unemployment and unsustainable public pensions plans in particular have been in the political debate for years so why have we seen so little reform to find out we surveyed the opinions of citizens in france germany italy and spain on their welfare states and on various reform options this is what we found first most workers underestimate the costs of public pensions though they are aware of their unsustainability second the status quo is a majoritarian outcome a majority of citizens opposes cuts to social security and welfare spending but also opposes further increases since population ageing without reform implies an automatic expansion our results suggest that most citizens would favour reforms that stabilize but do not shrink the current welfare states third many would welcome changes in the allocation of benefits a large number of workers in italy and germany would be willing to opt out of public pensions and replace them with private pensions though the details of how this scheme is formulated matter for its popularity and many italians and spaniards would welcome an extension of the coverage of unemployment insurance fourth conflicts over the welfare state are mainly shaped by the economic situation of the respondent while political ideology plays a limited role disagreements are found along three dimensions young versus old rich versus poor and outsider versus insider in terms of labour market status from a practical point of view this suggests that there is scope to bundle reforms strategically in order to build a large and mixed coalition of supporters tito boeri axel borsch supan and guido tabellini

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

on the driving forces behind cyclical movements in employment and job reallocation theory restricts short run job creation and destruction responses and cumulative employment and job reallocation responses to allocative and aggregate shocks we formulate these restrictions and implement them for postwar data on u s manufacturing allocative shocks are the main driving force behind cyclical movements in job reallocation but their contribution to employment fluctuations varies greatly across alternative identification assumptions also the data compel one or both of the following inferences aggregate shocks greatly alter the shape and not just the mean of the cross sectional density of employment growth rates allocative shocks cause short run reductions in aggregate employment

dynamics of worker flows and vacancies evidence from the sign restriction approach this paper establishes robust dynamic features of the worker reallocation process in the us labor market i use structural vars with sign restrictions which take the form of restricting the short run negative relationship between vacancies and unemployment i e beveridge curve despite the weakness of these restrictions they reveal a clear unambiguous pattern that when unemployment increases and vacancies drop i both the separation rate and gross separations rise quickly and remain persistently high ii the job finding rate and vacancies drop in a hump shaped manner and iii gross hires respond little initially but eventually rise these results point to the importance of job loss in understanding us labor market dynamics this pattern also holds with respect to different kinds of shocks that induce the same beveridge curve relationship this paper also considers the disaggregate model which uses data disaggregated into six demographic groups and incorporates transitions into and out of the labor force i show that the separation rate continues to play a dominant role among prime age male workers while for other groups changes in the job finding rate are more important copyright 2009 john wiley sons ltd

sustainable plans and mutual default this paper presents a simple general equilibrium model of optimal taxation in which both private agents and the government can default on their debt as a benchmark we consider ramsey equilibria in which the government can precommit to its policies at the beginning of time but in which private agents can default we then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we adapt abreu s 1988 optimal trigger strategies to completely characterize the entire set of sustainable equilibria in particular we show that when there is sufficiently little discounting and government consumption fluctuates enough the ramsey allocations and policies in which the government never defaults can be supported by a sustainable equilibrium by way of an example we show that the larger the variance of government consumption the easier it is to support good outcomes we also show for moderate discount factors that in the best sustainable equilibrium tax rates are more volatile and debt is smaller than in the ramsey equilibrium

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

business cycle measurement with some theory a method to evaluate cyclical models not requiring knowledge of the dgp and the exact specification of the aggregate decision rules is proposed we derive robust restrictions in a class of models use some to identify structural shocks in the data and others to evaluate the class or contrast sub models the approach has good properties even in small samples and when the class of models is misspecified the method is used to sort out the relevance of a certain friction the presence of rule of thumb consumers in a standard class of models

committees as substitutes for commitment in this article policies are negotiated in a committee by playing a dynamic voting game with an endogenous default or status quo policy i show that joining a committee by maintaining a strong agenda setting power is a way for a decision maker to commit to a policy that in absence of committees is not time consistent the disciplinary role of the endogenous status quo and the heterogeneity of preferences within the committee are two crucial ingredients to obtain this result as a motivating example this article focuses on the time consistency of monetary policy

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the politics of intergenerational redistribution this paper studies the political economic equilibrium of a two period model with overlapping generations in each period the policy is chosen under majority rule by the generations currently alive the paper identifies a politically viable set of values for public debt any amount of debt within this set is fully repaid in equilibrium even without commitments by issuing debt within this set the first generation redistributes revenue in its favor and away from the second generation the paper characterizes the determinants of the equilibrium intergenerational redistribution and identifies a difference between debt and social security as instruments of redistribution

lobbying and welfare in a representative democracy this paper studies the impact of lobbying on political competition and policy outcomes in a framework which integrates the citizen candidate model of representative democracy with the menu auction model of lobbying positive and normative issues are analysed on the positive side lobbying need have little or no effect on policy outcomes because voters can restrict the influence of lobbyists by supporting candidates with offsetting policy preferences on the normative side coordination failure among lobbyists can result in pareto inefficient policy choices in addition by creating rents to holding office lobbying can lead to excessive entry into electoral competition

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

dynamics of part time employment to an aggregate shock a sign restriction approach abstract this paper provides new stylized facts about the responses of the part time employment share the transition probability from full time to part time and the one from part time to full time jobs to a negative aggregate shock the recessionary aggregate shock is identified within a sign restriction var framework by imposing a short run negative co movement between unemployment and vacancies the negative aggregate shock pushes the part time employment share up the latter increase is mainly due to a rise in the probability at which full time work is transformed into part time work without an intervening spell of unemployment given that such transitions mainly take place at the same firm worker pair these findings indicate that us firms use in addition to the creation destruction process within employment reallocation to adjust their labor input in recessionary episodes

time inconsistency in environmental policy tax earmarking as a commitment solution tax earmarking imposes a constraint on government policymaking and may be desirable if i t solves a time inconsistency problem in tax policy in a two period economy in which the policy decisions regarding taxes public goods provision and pollution abatement are taken by a majority elected individual we show how the time inc onsistency problem in environmental policy arises we demonstrate that the commitment equilibrium under no earmarking rules cannot be as fully implemented as a no commitment equilibrium under earmarking rules however th e earmarking rules do act as a partial commitment mechanism

the politics of 1992 fiscal policy and european integration the internal market in europe will greatly increase the international mobility of resources how will this affect fiscal policy in different countries we consider taxation of capital in a two country model where a democratically chosen government in each country chooses tax policy higher capital mobility changes the politico economic equilibrium in two ways on the one hand it leads to more tax competition between the countries this economic effect tends to lower tax rates in both countries on the other hand it alters voters preferences and makes them elect a different government this political effect offsets the increased tax competition although not completely

unemployment insurance and short time compensation the effects on layoffs hours per worker and wages we analyze two unemployment insurance systems in one unemployed workers receive benefits while those on reduced hours do not as in north america at least until recently in the other short time compensation is paid to workers on reduced hours as in europe the first system causes inefficient temporary layoffs for some parameters the latter does not but implies inefficient hours per worker some evidence is presented regarding these effects despite policymakers recent enthusiasm for short time compensation the clear implication of this project is that changes should come on the tax not benefit side of the system

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

nonlinear capital taxation without commitment we study efficient nonlinear taxation of labor and capital in a dynamic mirrleesian model incorporating political economy constraints policies are chosen sequentially over time without commitment our main result is that the marginal tax on capital income is progressive in the sense that richer agents face higher marginal tax rates

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

demographics and the politics of capital taxation in a life cycle economy this article studies the effects of demographics on the mix of tax rates on labor and capital it uses a quantitative general equilibrium overlapping generations model where tax rates are voted without past commitments in every period and characterized as a markov equilibrium in the united states the younger voting age population in 1990 compared to 1965 accounts for the observed decline in the relative capital tax rate between those two years a younger population raises the net return to capital leads voters to increase their savings and results in a preference for lower taxes on capital conversely aging might increase capital taxation

building a composite help wanted index abstract this paper builds a measure of vacancy posting over 1951 2009 that captures the behavior of total print and online help wanted advertising and can be used for time series analysis of the us labor market

unemployment and vacancies with sectoral shifts recent analyses of unemployment vacancy series suggest that aggregate shocks rather than sectoral shocks are the primary factors responsible for unemployment fluctuations this inference follows from two widely held beliefs sectoral shocks induce only positive unemployment vacancy comovements while negative comovements are necessarily the result of aggregate demand shocks this paper describes an equilibrium matching model that identifies plausible circumstances in which neither assumption is correct thus suggesting that unemployment vacancy data are inconclusive interestingly this model s novel results are due to standard features in the contracting literature firms experience relative price shocks and negotiate contracts that prescribe temporary layoffs copyright 1994 by american economic association

job search and savings wealth effects and duration dependence this article studies a risk averse worker s optimal savings and job search behavior as she moves back and forth between employment and unemployment we show that job search effort is negatively related to wealth under the assumption of additively separable utility consequently job search exhibits positive unemployment duration dependence because wealth is drawn down to smooth consumption as the spell progresses finally given optimal search savings still provide imperfect insurance against income fluctuations precautionary savings are built up during employment spells and run down during unemployment spells but the consumption path will not be perfectly smooth over states

delegation effects in representative democracies do they foster extremism abstract we analyze the political equilibria of a model of representative democracy with strategic delegation where the policy which maximizes ex ante the welfare of a citizen is not in general the one he would select ex post if he were elected we show that these effects give rise to an abstention effect which is likely to lead to the unopposed election of extremist representatives and prevents policy convergence in two candidate elections

the ins and outs of unemployment an analysis conditional on technology shocks we analyze how unemployment job finding and job separation rates react to neutral and investment specific technology shocks neutral shocks increase unemployment and explain a substantial portion of it volatility investmentspecific shocks expand employment and hours worked and contribute to hours worked volatility movements in the job separation rates are responsible for the impact response of unemployment while job finding rates for movements along its adjustment path the evidence warns against using models with exogenous separation rates and challenges the conventional way of modelling technology shocks in search and sticky price models

employment efficiency and sticky wages evidence from flows in the labor market i consider three views of the labor market in the first wages are flexible and employment follows the principle of bilateral efficiency workers never lose their jobs because of sticky wages in the second wages are sticky and inefficient layoffs do occur in the third wages are also sticky but employment governance is efficient i show that the behavior of flows in the labor market strongly favors the third view in the modern u s economy recessions do not begin with a burst of layoffs unemployment rises because jobs are hard to find not because an unusual number of people are thrown into unemployment

job security provisions and employment european countries have enacted various job security provisions over the last 30 years employers are required to pay workers on separation or to give advance notice of termination in anything less than a perfectly functioning market there are effects of the provisions on employment incumbents are more likely to retain their jobs but new workers are less likely to be hired an examination of the european data suggests that severance pay requirements reduce employment

goods and asset market interdependence in a risky world this paper explores the link between international asset markets and international trade in goods to determine whether trade along these dimensions tends to be complementary or plays the role of substitutes international financial markets permit agents in different countries to pool away the idiosyncratic portion of risk while in the absence of international financial markets countries will pursue other means to insure against unanticipated disturbances the author shows that the endogeny of resource allocations to market completeness leads to a relationship of complementarity between trade in goods and trade in assets copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

why do firms offer employment protection this paper derives optimal employment contracts when workers are risk averse and there are employment and unemployment risks without income insurance consumption rises during employment and falls during unemployment optimal employment contracts offer severance compensation and sometimes give notice before dismissal severance compensation smooths consumption during employment and dismissal delays insure partially against the unemployment risk because of moral hazard during the delay consumption falls to give incentives to the worker to search for another job no dismissal delays are optimal if exogenous unemployment compensation is sufficiently generous

the redistributive roles of unemployment insurance and the dynamics of voting abstract public unemployment insurance is analyzed as the majority voting equilibrium policy of a dynamic stochastic economy abstracting from incentive effects we focus on redistribution some results are because of the distribution of heterogeneous employment opportunities public insurance may be democratically chosen even if complete private markets exist and because of the dynamics even when agents are intrinsically homogeneous the equilibrium benefit level or duration benefit schedule deviates from what has been described as optimal in the literature the effects of differences in the average frequency or duration of unemployment on equilibrium taxes and benefits are investigated with some unanticipated results

political influence and the dynamic consistency of policy garfinkel department of economics university of fornia 3151 social science plaza irvine ca 92697 lee artment of economics university of california 3151 soscience plaza irvine ca 92697 and international monfund 700 19th street nw washington dc 20431 we k without implicating avinash dixit amihai glazer chel grossman luisa lambertini stergios skaperdas an ymous referee and seminar participants at the university alifornia los angeles california state universityerton and the 1998 winter meetings of the econometociety for helpful comments on previous drafts of this r which had been circulated under the title political ipline and the dynamic consistency of policy the s expressed in this paper are those of the authors and ld not be attributed to the international monetary fund see torsten persson and guido tabellini 1990 for a ul survey of this literature

the effect of distributive goals on the time inconsistency of optimal taxes abstract in the context of a two period n consumer model of optimal wage and interest taxation this paper asks whether the government s distributive goals can inhibit its incentives to renege on its announced policies inconsistent interest tax increases may be moderated by distributed goals if they create an unacceptable utility distribution in the economy this result is developed for a general case its implications for welfare and savings are illustrated with numerical examples

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

the citizen candidate model with imperfect policy control strategic delegation and polarization we present a modified citizen candidate model where the implemented policy arises from a compromise between the government and an unelected external power we show that the two candidate equilibria of this model differ significantly from the original however small the cost of candidacy the distance between the candidates policies both ideal and implemented remains strictly above a threshold moreover there may be one candidate equilibria in which the only candidate is not the one most preferred by the median voter both results point out that even with negligible cost of entry there are limits to strategic delegation

the cyclicality of the separation and job finding rates in france abstract in this paper we shed light on the relative contribution of the separation and job finding rates to french unemployment at business cycle frequencies by using administrative data on registered unemployment and labor force surveys we first investigate the fluctuations in steady state unemployment and then in current unemployment in order to take into account the unemployment deviations from equilibrium both data sets lead to quite similar results both rates contributed to unemployment fluctuations during the nineties 50 50 split while in the last decade the job finding rate was more significant and explained around 65 of the french unemployment fluctuations in particular the last business cycle episode including the last recession exacerbated the role of the job finding rate we then show that the predominant role of the job finding rate in the last decade holds when the economy is hit by aggregate business cycle shocks moving unemployment and vacancies along the beveridge curve

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

markets and regulatory hold up problems abstract many regulatory programs such as environmental regulation are effective only if firms make irreversible investments that reduce the cost of compliance a firm potentially subject to regulation may therefore behave strategically by not investing thereby forcing the regulator to void the proposed regulation we show that such incentives which resemble a hold up problem may not be overcome when government s only tool is the imposition of an emissions tax the hold up problem can be overcome by the issuance of tradeable permits a time consistent equilibrium exists with all firms investing and the government imposing regulations even if no permits are traded and their market price is low indeed an observation of no trade may indicate that pollution abatement is great

corporate lobbying and commitment failure in capital taxation this paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies we show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks thus lobbying can mitigate the capital levy problem nevertheless these industries invest less in long run equilibrium than more flexible ones we then consider the effects of relaxing legal restrictions on corporate lobbying when the deadweight costs of lobbying fall taxes on sunk capital tend to fall but political contributions may rise as lobbyists compete more intensively for political favors on balance a ban of lobbying may therefore cause investment to rise or fall this abstract was borrowed from another version of this item

the political economics of not paying taxes this paper considers redistributive as well as political consequences of tax avoidance when tax avoidance is possible the official tax rate does not necessarily correspond to what individuals actually pay this affects both redistributive outcomes as well as political attitudes towards taxation depending on the avoidance technology different political equilibria emerge when the avoidance possibilities are limited the classical conflict between rich and poor is sustained if the tax avoidance technology is more effective however the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate comparing the model predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations

efficient unemployment insurance this paper constructs a tractable general equilibrium model of search with risk aversion an increase in risk aversion reduces wages unemployment and investment unemployment insurance has the opposite effect insured workers seek high wage jobs with high unemployment risk an economy with risk neutral workers achieves maximal output without any unemployment insurance but an economy with risk averse workers requires a positive level of unemployment insurance to maximize output therefore moderate unemployment insurance not only improves risk sharing but also increases output

the replacement problem in frictional economies a near equivalence result we examine how technological change affects wage inequality and unemployment in a calibrated model of matching frictions in the labor market we distinguish between two polar cases studied in the literature a creative destruction economy where new machines enter chiefly through new matches and an upgrading economy where machines in existing matches are replaced by new machines our main results are i these two economies produce very similar quantitative outcomes and ii the total amount of wage inequality generated by frictions is very small we explain these findings in light of the fact that in the model calibrated to the us economy both unemployment and vacancy durations are very short i e the matching frictions are quantitatively minor hence the equilibrium allocations of the model are remarkably close to those of a frictionless version of our economy where firms are indifferent between upgrading and creative destruction and where every worker is paid the same market clearing wage these results are robust to the inclusion of machine specific or match specific heterogeneity into the benchmark model jel j41 j64 o33

political uncertainty and the earmarking of environmental taxes abstract far from being used to secure a double dividend by reducing distorting taxes revenues from environmental taxes seem quite often to be earmarked to particular spending programs in the us for example a range of such taxes feed into environmental trust funds such earmarking runs counter to standard notions of good practice in taxing and spending this paper develops and explores an explanation of such apparent inefficiencies in terms of political uncertainty roughly a green incumbent may chose to earmark revenues if the efficiency loss from doing so is outweighed by the value of constraining subsequent and potentially non green policy makers from wasting the funds raised it emerges for example that those most likely to earmark are green politicians who are politically weak and that earmarking then enables such a policy maker to set the corrective tax higher than they otherwise would but nevertheless lower than the pigovian tax

political economy of ramsey taxation abstract we study the dynamic taxation of capital and labor in the ramsey model under the assumption that taxes and public good provision are decided by a self interested politician who cannot commit to policies we show that as long as the politician is as patient as the citizens the chamley judd result of zero long run taxes holds in contrast if the politician is less patient than the citizens the best subgame perfect equilibrium from the viewpoint of the citizens involves long run capital taxation

spending biased legislators discipline through disagreement this paper studies politicians who have a present bias for spending they want to increase current spending and procrastinate spending cuts we argue that legislators bias is more severe in economies with low institutional quality we show that disagreement in legislatures leads to policy persistence and that this attenuates the temptation to overspend depending on the environment legislators decisions to be fiscally responsible may either complement or substitute other legislator s decisions in economies with weak institutions politicians actions are strategic complements thus institutional changes that induce fiscal responsibility are desirable they generate a positive responsibility multiplier and reduce inefficient spending however in economies with better institutions the same institutional change would induce some legislators to free ride on others responsibility and may lead to more inefficient spending