optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

a model of demand with interactions among consumers abstract the aim of this paper is to study emergent patterns of demand when there are social interactions between different consumers specifically our concern is with the case in which consumers preferences are influenced by the consumption behaviour of others the analysis recognises three reference groups the first is a peer group of similar consumers with whom the individual interacts on a regular basis and with whom the individual desires to share some consumption activities the second is one or several contrast group s with which the individual seeks actively not to interact and from whom the individual wishes to distinguish himself herself the third is an aspirational group with whom the individual does not interact on a regular basis but wishes that he she did and with whom the individual would like to share consumption activities but cannot in this relatively simple model these groups influence the individual s behaviour the paper derives steady state and dynamic properties of the distribution of consumption over users the degree to which consumption is restricted to a small group of similar agents is determined by the strength of the contrast and aspiration effects these effects also drive the distribution away from the natural distribution i e the one that would prevail were consumers to consider only the properties of the good and not the actions of other consumers the paper discusses the potential application of this modeling framework in a large number of consumption settings

the consequences of minimum wage laws some new theoretical ideas economists generally agree that the effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers however this prediction of worker displacement depends critically on the assumption that the productivity of firms labor is not dependent on the wage in this paper we show that in a conventional efficiency wage model a minimum wage may increase the level of employment in low wage jobs the formal logic of our model is similar to the case of labor demand under monopsony but arises in a model with a large number of employers

the consequences of the minimum wage when other wages are bargained over abstract this paper examines the impact of a binding minimum wage in a situation where unions dominated by skilled workers set wages it is shown that the relationship between the minimum wage the bargained wage and employment of skilled and unskilled workers depends on the magnitude of the elasticity of substitution between skilled and unskilled labor cases where minimum wage hikes increase both overall and unskilled employment are exhibited

pareto improving minimum wage laws by increasing the expected wage in low skill jobs a minimum wage law can reduce the incentive for low skill workers to imitate high skill workers in the signalling process the gain from reduced investment in the signal can more than offset the loss from unemployment among low skill workers so that total output increases moreover with an appropriate poll tax on workers to compensate owners of capital the law can make all workers and owners of capital better off

a regime switching model of cyclical category buying in many categories consumers display cyclical buying they repeatedly purchase in the category for several periods followed by several periods of not buying we believe that the cyclicality is a manifestation of cross category substitution by the consumer caused by variety seeking tendencies as well as by the firm s marketing activities in all relevant categories we propose a markov regime switching random coefficient logit model to represent these behaviors as stochastic switching between high and low category purchase tendencies the main feature of the proposed model is that it divides the stream of purchase decisions of a consumer into distinct regimes with different parameter values that characterize high versus low purchase tendencies in an empirical application of the model to purchases of yogurt buying households we find that as many as 38 3 households display cyclicality between high and low yogurt purchasing tendencies predictions from our proposed model track observed yogurt purchases of households over time closely and the model also fits better than two benchmark models alternating between high and low purchase tendencies may correspond with changing levels of consumer inventory in a substitute category if one ignores this phenomenon a correlation between yogurt inventory and the error term in utility arises leading to biased estimates also we show that cyclicality in buying has a key implication for a firm s price promotion strategies a price reduction that is offered to a household during its high purchasing tendency period will result in greater increases in sales than one that is offered during its low purchasing period this opens up a new dimension for enhancing the effectiveness of promotions customized timing of price reductions

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

why present oriented societies undergo cycles of drug epidemics musto the american disease yale university press new homen 1987 hypothesizes that cycles of drug use arise when the current generation of youth no longer remembers the adverse experiences of their forebears this paper underlines this hypothesis through the results of an optimal control model of drug epidemics that incorporates an endogenous initiation function models the reputation of a drug as being determined by memories of past use and finds the optimal drug treatment strategy interestingly unless the societal discount rate is quite low if memories of past users decay moderately quickly the optimal strategy is cyclic hence not only do we find that those who forget the past are condemned to repeat it but also that for those who forget the past and over value the present it may even be optimal to have their future recreate the past these findings are illustrated by numerical analysis based on empirical data from the current us cocaine epidemic

who pays for the minimum wage this paper analyzes the eects of a large 60 and persistent increase in the minimum wage instituted in hungary in 2001 we propose a new approach to estimating the employment eects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change we infer the number of jobs destroyed by comparing the number of pre reform jobs below the new minimum wage to the excess number of jobs paying at and above the new minimum wage our estimates imply that the higher minimum wage had at most a small negative eect on employment and so the main eect was pushing up wages we then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase contrary to theoretical models that attribute the small employment eects of minimum wage changes to monopsonistic wage setting we find no evidence that the rise in the minimum wage led to lower profitability among low wage employers instead we find that the costs of the minimum wage were largely passed through to consumers

do government food price policies affect the prevalence of obesity empirical evidence from egypt summary obesity has become one of the most serious but neglected global public health problems especially in developing countries i examine the impact of the egyptian food subsidy program on mothers weight it is hypothesized that the program causes a wide disparity in per calorie costs between energy dense and energy dilute foods and thus aggravating the obesity problem the estimated elasticities reveal that mothers bmi is inversely related to the price of subsidized energy dense food and directly to the price of a high diet quality but expensive food items suggesting that the program aggravates obesity by lowering the direct costs of becoming obese

employment effects of minimum and subminimum wages panel data on state minimum wage laws using panel data on state minimum wage laws and economic conditions for the years 1973 89 the authors reevaluate existing evidence on the effects of a minimum wage on employment their estimates indicate that a 10 increase in the minimum wage causes a decline of 1 2 in employment among teenagers and a decline of 1 5 2 in employment for young adults similar to the ranges suggested by earlier time series studies the authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers

using regional variation in wages to measure the effects of the federal minimum wage the imposition of a national minimum wage standard provides a natural experiment in which the treatment effect varies across states depending on the fraction of workers initially earning less than the new minimum the author exploits this fact to evaluate the effect of the april 1990 increase in the federal minimum wage on teenagers wages employment and school enrollment comparisons of grouped and individual state data confirm that the rise in the minimum wage increased teenagers wages there is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment

love hate and murder commitment devices in violent relationships many violent relationships are characterized by a high degree of cyclicality women who are the victims of domestic violence often leave and return multiple times to explain this we develop a model of time inconsistent preferences in the context of domestic violence this time inconsistency generates a demand for commitment we present supporting evidence that women in violent relationships display time inconsistent preferences by examining their demand for commitment devices we find that no drop policies which compel the prosecutor to continue with prosecution even if the victim expresses a desire to drop the charges result in an increase in reporting no drop policies also result in a decrease in the number of men murdered by intimates suggesting that some women in violent relationships move away from an extreme type of commitment device when a less costly one is offered

macroeconomic aspects of exchange rate pass through abstract this paper addresses the cause of the variability in exchange rate pass through we develop a model in which foreign exporters setting prices under uncertainty infer the value of domestic income and prices based upon their observation of the exchange rate and their knowledge of the stochastic structure of the economy this inference problem links pass through to the underlying stochastic macroeconomic structure of the economy rather than the source direction or size of the endogenous exchange rate movement that period the predictions of the model are consistent with pass through experience in the united states during the past decade

minimum wage effects on labor market outcomes under search matching and endogenous contact rates building upon a continuous time model of search with nash bargaining in a stationary environment we analyze the effect of changes in minimum wages on labor market outcomes and welfare although minimum wage increases may or may not lead to increases in unemployment in our model they can be welfare improving to labor market participants on both the supply and demand sides of the labor market we discuss identification of the model using current population survey data on accepted wages and unemployment durations and show that by incorporating a limited amount of information from the demand side of the market it is possible to obtain credible and precise estimates of all primitive parameters we show that the optimal minimum wage in 1996 depends critically on whether or not contact rates can be considered to be exogenous and we note that the limited variation in minimum wages makes testing this assumption problematic

waves in consumption with interdependence among consumers this paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers in particular a consumer in this model recognizes three reference groups a peer group of similar consumers with whom the consumer wishes to share consumption activities a distinction group from which the consumer wishes to distinguish him or herself and an aspiration group to which the consumer does not belong but wishes that he she did and with whom the consumer would like to share consumption activities the interplay of aspiration and distinction can lead to waves in consumption these can happen when for example the avant garde consumption of up market pioneers is copied by other types of consumer as the latter aspire to emulate the former the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption in consequence a particular consumption activity may start up market an then gradually proceed down the social spectrum more complex patterns with continuing cycles in consumption can also be found the paper argues that this model is not only applicable to the consumption behaviour of an elite or would be elite but is relevant in a wide range of consumption settings

a rational expectations equilibrium model of inventories of finished goods and employment abstract a critical roadblock to modeling inventories of finished goods has been the claim that the production and inventory decisions of a perfectly competitive firm are determined independently of each other a basic goal of this study is to specify fundamental preferences of economic agents technologies constraints and market structures that are in a rough way capable of generating patterns of serial correlations and cross correlations between inventories and employment of factors of production that are consistent with those observed in the data the claim is made that the time series for inventories output and employment can in principle be interpreted as emerging from a well specified dynamic stochastic competitive equilibrium in which economic agents are assumed to form rational expectations about variables not included in their information sets inventories and employment will not be related in a direct way if and only if the price elasticity of demand for output is equal to infinity

job queues and wages this paper uses job applications data to investigate the relationship between job queues and wage differentials the main finding is that openings for jobs that pay the minimum wage attract more job applicants than jobs that pay either slightly more or slightly less than the minimum wage this spike in the job application rate distribution suggests that ex ante rents generated for employees by an above market level minimum wage are not completely dissipated by reductions in nonwage benefits in addition we find that highly unionized firms large firms and firms in high wage industries tend to receive relatively many job applicants for openings

comment on minimum wages for ronald mcdonald monopsonies a theory of monopsonistic competition bhaskar and to 1999 develop a model of monopsonistic competition and solve explicitly for equilibrium while a minimum wage set just above the unconstrained optimum leads firms to increase employment it also causes firm exit as profits fall in this note i show that the employment and welfare effects of the minimum wage which bhaskar and to had thought to be ambiguous when firm exit was accounted for are in fact unambiguously positive the model can be adjusted so that the original ambiguous employment effect results a decomposition is developed which allows us to calculate the long run employment effect bhaskar and to 1999 bt from now on develop a model of monopsonistic competition in the labour market which models the employment and welfare effects of a minimum wage not only in the short run as other models such as card and krueger 1995 manning 1995 or rebitzer and taylor 1995 had done but also accounts for firm exit in the long run the long run employment and welfare consequences of the minimum wage which were taken to be ambiguous in the original bt model are shown here to be unambiguously positive using a decomposition of the employment effects of a minimum wage i show that bt s model can be modified in a straightforward way to show that the long run employment effects are ambiguous also i show that the employment effects on an individual firm are the same in partial equilibrium as in general equilibrium where the effects of other firm s wages and firm exit are accounted for

the role of capital depreciation in multi sectoral models abstract this study investigates the role of capital depreciation in economic fluctuations that may appear in multi sectoral models of optimal growth in the standard literature on non linear optimal dynamics it has been assumed that capital depreciates completely within a period this study in contrast deals with the case in which capital depreciates slowly more precisely only by a certain percentage we adopt the standard two sector model with cobb douglas production functions and characterize the dynamics around the stationary state we derive explicit conditions on parameter values under which cyclical optimal paths appear these conditions reveal the complexity that slow depreciation adds to multi sectoral optimal dynamics the economic interpretation of slow depreciation in multi sectoral models is also discussed

evaluating the minimum wage exemption of the long term unemployed in germany the authors evaluate the exemption of long term unemployed job seekers from germany s national minimum wage using linked survey and administrative micro data they rely on a regression discontinui

profit sharing risk sharing and firm size implications of efficiency wages by taking account of output fluctuations this paper constructs a synthesis of profit sharing and efficiency wage models to highlight the role of the risk attitudes of the firm and its employees we show contrary to the traditional efficiency wage theory that in a profit sharing economy unemployment is no longer a necessary device to induce work effort and consequently the labor market equilibrium may be characterized by full employment such a result is more likely to be true when the economy is characterized by small sized firms in addition we also provide a preliminary sketch of the situations in which the firm chooses a profit sharing program or a fixed wage one and discuss how a firm determines its pay parameters and employment in response to output fluctuations

the output inflation relationship abstract this paper shows how the optimal pricing and production policy of a multiperiod profit maximizing firm under demand and output disturbances leads in the aggregate to a positive relationship between production and price deviations from the expected level as depicted by the lucas type supply function the pricing and production decisions are made simultaneously by market agents who base their decisions on the same rational expectations before the disturbances are realized here although the planned production is not affected by the price deviations there is still a contemporaneous positive relationship between them where both production and prices reflect the firm s adjustment to unexpected levels of inventory we show that this positive relationship prevails even when the production decisions are made ex ante based only on expectations before the realization of the random shocks a closed form linear approximation for the supply function is derived which captures the effect of both systematic and unsystematic economic disturbances finally we present an empirical test which supports our assertion that our inventory adjustment mechanism contributes to the creation of the positive relationship between production and price deviations

monopolistic competition relative prices and output adjustment in the open economy abstract this paper explains price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs this leads producers to pre set the price path for several periods the paper derives an optimal pricing rule including the optimal pre setting horizon it does so for a rational expectation equilibrium characterized by staggered unsynchronized price setting for which the degree of staggering is endogenously determined

heterogeneous effects of imperfectly enforced minimum wages in low wage labor markets abstract we present minimum wage effects across different enforcement regimes exploiting state time variation and policy discontinuities at contiguous districts across state borders in india we show that the effect of minimum wages on wages and employment significantly increases with an increase in enforcement in weak enforcement regimes estimated wage effects are negligible and employment effects are negative or null in stricter regimes wage effects are positive and strong and employment effects are positive or null in most specifications these results are consistent with theories on imperfect enforcement in monopsonistic labor markets and are robust to alternative definitions of enforcement and employment and employing instrumental variables for enforcement

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

open economy macroeconomics under imperfect competition a two country model abstract this paper constructs a two country macroeconomic model where prices are set by imperfectly competitive firms and wages by trade unions unemployment benefit is nominally rigid in at least one country the effects of monetary expansion under both fixed and flexible exchange rates and exchange rate changes under fixed rates are considered the results change significantly if it is assumed that in one country unemployment benefit is fully indexed

are wages too low empirical implications of efficiency wage models firms may pay efficiency wages to enhance productivity the conventional presumption is that efficiency wages are inefficiently high because they lead to unemployment that is also inefficiently high government policies that lower wages raise output using a simple and general efficiency wage model this paper finds a necessary and sufficient condition for the opposite conclusion if the condition holds wages are inefficiently low leading to productivity that is also inefficiently low it is the high wage policies that raise output even if they also lower employment published empirical results support the condition no evidence is found for the conventional presumption

state level estimates of minimum wage effects research using state level data to estimate minimum wage effects on employment follows the textbook treatment of minimum wages assuming that minimum wages are binding and that labor markets are competitive we present an alternative method of estimating minimum wage effects using similar data that relaxes these assumptions using a disequilibrium approach applying this approach to the data and sample period used in many earlier state level studies suggests that simple state level reduced form estimates of minimum wage effects on employment depend on the sample used and may badly understate the disemployment effects of a binding minimum wage

real exchange rate effects of monetary shocks under fixed and flexible exchange rates abstract we analyze how the real exchange rate effects of monetary and real shocks depend on the exchange rate regime within a two country rational expectations model with confusion about money and real shocks the model demonstrates that the real exchange rate effect of unanticipated monetary shocks is negatively related to the variance of the domestically created money supply growth and that the effects of increasing domestic money variance on the real exchange rate are less under a fixed rate regime than under a flexible rate regime

product market evidence on the employment effects of the minimum wage we infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry whereas perfect competition implies that employment falls and prices rise after a minimum wage increase the monopsony model potentially implies the opposite we show that estimated price responses are consistent with the competitive model we place fairly tight bounds on the employment response with the most plausible parameter values suggesting that a 10 increase in the minimum wage lowers low skill employment by 2 4 and total restaurant employment by 1 3

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

market power and exchange rate adjustment in the presence of quotas abstract this paper compares the adjustment of prices exchange rates and production across a quota and a tariff regime we study the factors determining the behavior of the quota rent and the pass through of exchange rate adjustment to the domestic prices of importable goods in a semi small economy characterized by monopolistic competitive market structure and short run nominal contracts under a floating exchange rate regime we demonstrate that the pass through is determined by commercial policy by the market power of the various producers and by the marginal propensity to consume out of transitory income

the effect of minimum wage laws on the distribution of employment theory and evidence abstract recent research casts doubt on the view that minimum wage laws reduce employment we show that in a simple model of bilateral search with heterogeneous workers a minimum wage law increases employment however the increased competition from higher productivity workers makes lower productivity workers worse off without making higher productivity workers better off we provide evidence that minimum wage laws shift employment from adults to teenagers and students this raises concerns about the distributional consequences of minimum wages even when they increase employment

myopia and addictive behaviour we present a theory of addictive behaviour which can account for addicts apparent disregard for the future consequences of their current actions the discounting of future utility is increasing in past consumption indicating increasingly myopic behaviour as consumption increases the intertemporal complementarity generated by the endogenous discounting produces multiple steady states which can account for the simultaneous existence of myopic addicts and non myopic non addicts within a time consiste nt expected utility framework the theory also accounts for the probabilistic incidence of addiction and successful rehabilitation and the possibility of recurrence

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

in defense of the finance constraint simple models of monetary trade commonly impose a finance constraint on expenditure it is often suggested that this finance constraint is artificial a result of money s being the only asset of the absence of credit and of the special time structure of such models this paper shows that the finance constraint on aggregate expenditure remains in force when other assets and credit are introduced and when the time structure is generalized to allow overlapping income periods of differing lengths most of the objections to the finance constraint are shown to involve fallacies of composition there are economists to whom a constraint of the form pc m in units t must appear unthinkable r e lucas jr 1980

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

non monotonic health behaviours implications for individual health related behaviour in a demand for health framework a number of behaviours influence health in a non monotonic way physical activity and alcohol consumption for instance may be beneficial to one s health in moderate but detrimental in large quantities we develop a demand for health framework that incorporates the feature of a physiologically optimal level an individual may still choose a physiologically non optimal level because of the trade off in his or her preferences for health versus other utility affecting commodities however any deviation above or below the physiologically optimal level will be punished with respect to health distinguishing between two individual types we study a the qualitative properties of optimal time paths of health capital and health related behaviour b the perturbations of the optimal time paths that result from changes in exogenous parameters and c steady state properties predictions of the model and the implications for empirical analysis are discussed at length some comments on potential future extensions conclude the paper

toward a consumer economy in china implications of changing wage policies for u s cotton exports the effect of a chinese minimum wage increase on china s textile market as well as on the world cotton market is evaluated based on a nonlinear quadratic almost ideal demand system nqaids model of china s textile demand the results suggest that the income elasticity for textiles is around 0 6 in china and that apparel is less price responsive than home textiles and other textile products simulation results suggest that a minimum wage increase would raise chinese domestic textile consumption and lower chinese textile exports most of the decline in textile exports by china is offset by expansion in other countries domestic textile production and results in a slight increase in world cotton mill utilization and higher clothing prices

minimum wages for ronald mcdonald monopsonies a theory of monopsonistic competition recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment we develop a model of monopsonistic competition with free entry to analyse the effects of minimum wages and our predictions fit the empirical results closely under monopsonistic competition we find that a rise in the minimum wage raises employment per firm causes firm exit and may increase or reduce industry employment minimum wages increase welfare if they raise industry employment but welfare effects are ambiguous if employment falls

efficiency wages deferred payments and direct incentives in agriculture empirical evidence from agricultural labor markets is consistent with efficiency wage theory and inconsistent with several alternative explanations according to this theory the higher wage or deferred payment benefits that direct hire growers pay relative to that of farm labor contractors is an efficiency wage growers use this extra compensation to lower their monitoring expenses and reduce shirking by workers copyright 2002 oxford university press

labour supply with habit formation abstract in a model with habit forming labour supply we show that standard myopic utility maximisation of a person weakly addicted to a harmful habit is consistent with empirical results on labour supply

the formal sector wage premium and firm size abstract we show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labor taxes then large high wage firms will be in the formal and small low wage firms will be in the informal sector the formal sector wage premium is thus just a firm size wage differential using data from ecuador we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists

stability and limit cycles in competitive equilibria subject to adjustment costs and dynamic spillovers abstract this paper derives conditions for hopf bifurcations in a general class of competitive equilibria where individual actions i lead to a dynamic spillover or an externality that is found e g in environmental economics and in the endogenous growth literature and ii these actions can be only sluggishly adjusted it turns out that only one and particularly simple to check condition allows for a hopf bifurcation in both instances of perfect foresight and myopic expectations growth of the spillover at the steady state in fact this condition ensures the existence of a bifurcation if the adjustment costs are sufficiently convex

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

the information content of the interest rate and optimal monetary policy optimal monetary policy rules are derived in a rational expectations cum contracting framework monetary policy is redundant if wage setters exploit the incomplete current information embodied in today s nominal interest rate however the monetary authorities can save wage setters the costs of indexing to the interest rate a contemporaneous money supply feedback rule is as effective as wage indexation a lagged rule relevant under a regime of money supply targeting is also as effective if investors use the interest rate both rules have the same implications for the real interest rate as poole s combination policy however the two rules have strikingly different implications for the nominal interest rate

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

is the rational addiction model inherently impossible to estimate the rational addiction ra model is increasingly often estimated using individual level panel data with mixed results in particular with regard to the implied rate of time discount this paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle point dynamics associated with individual level inter temporal optimization problems we report the results of monte carlo experiments estimating ra type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of ra equations

the employment effect in retail trade of california s 1988 minimum wage increase in this article we study the labor market effect of california s 1988 minimum wage increase in the retail trade industry two different approaches to evaluating the minimum wage effects suggest that the textbook economic analysis of minimum wages pertains employment growth in california s low wage retail trade sector appears to have been tempered by the minimum wage increase

the impact of minimum wages on labour market transitions we investigate dierences in labour market transition rates in high versus low minimum wage regimes using canadian data spanning 1979 to 2008 the data include consistent questions on job tenure and reason for job separation for the whole period over the same time frame there were over 140 minimum wage changes in canada we nd that higher minimum wages are associated with lower hiring rates but also with lower job separation rates importantly the reduced separation rates are due mainly to reductions in layos occur in the rst 6 months of a job and are present for unskilled workers of all ages our estimates imply that a 10 increase in the minimum wage generates a 3 9 reduction in the layo rate we present a search and matching model that ts with these patterns and test its implications overall our results imply

monopsony in the labor market this paper surveys recent theoretical and empirical research on monopsony in labor markets broadly defined as upward sloping labor supply to an employer we compare older monopsony models based on small numbers of employers with newer models based on labor market frictions such as moving costs and search we also compare older econometric approaches that focus on static wage concentration relationships with newer approaches that focus on dynamics our review of empirical estimates suggests that monopsony power based on small numbers of employers is probably rare but occasionally large while monopsony power based on frictions is probably widespread but small on average

minimum wage laws what does an employment increase imply about output and welfare abstract card and krueger find empirically that minimum wage laws may increase employment the current paper seeks the analytical implications of employment increasing minimum wages for output and welfare the standard supply and demand model cannot be used for this purpose one needs a model in which employment increasing minimum wages are at least possible such as this paper s efficiency wage model here an employment increase is neither necessary nor sufficient for expected welfare gains for either employed or unemployed workers an employment increasing minimum wage raises output but unambiguously lowers labor force participation and hurts those who remain unemployed

heterogeneous information and the theory of the business cycle the inability to observe the money supply and price level has been an essential ingredient of informational based equilibrium models of cycles here we assume these data are available but show that heterogeneous information about the productivity of capital can lead to a monetary theory of fluctuations in equilibrium each agent s investment depends on the difference between his own productivity and the perceived real rate in the presence of money demand shocks the nominal rate is noisy signal of the real rate this leads to greater fluctuations in output than if all agents had the same information

optimal tax rules and addictive consumption abstract this paper studies implementation of the social optimum in a model of addictive consumption we consider corrective taxes that address inefficiencies due to negative externalities imperfect competition and self control problems our setup allows us to evaluate how such taxes are affected by i market power and ii a requirement for implementation to be time consistent together these features can imply significantly lower taxes we provide a general characterization of the optimal tax rule and illustrate it with two examples

workers as creditors performance bonds and efficiency wages from the standpoint of economic theory the difficulty in regulating workers performance distinguishes labor markets from commodity markets commodities do not respond to incentives workers in contrast can quit steal be hung over refuse to cooperate with other workers or generally work at low effort levels since direct monitoring is often costly and unreliable it may not be the profit maximizing solution to this problem economists have discussed various schemes to make productive behavior incentive compatible for workers the most frequently discussed schemes fall into two broad categories efficiency wages and deferred compensation or bonding schemes these schemes have been suggested as explanations for a wide variety of labormarket features that appear anomalous from the conventional supply and demand perspective efficiency wage models can generate equilibria in which there is involuntary unemployment and in which identical workers are paid different wages in jobs that are otherwise equally attractive george a akerlof and janet l yellen 1985 have argued that they can provide an important component of a model of business cycles deferred compensation schemes have been proposed as explanations for upward sloping age earnings profiles mandatory retirement pensions and hierarchical tournament promotion structures 2 because bonding is costless to firms efficiency wage and bonding strategies are often viewed as mutually incompatible profit maximizing firms should offer efficiency wages only in situations where bonding is impossible one widely held view argues that in labor markets where agency issues arise these problems are effectively solved by various bonding arrangements and moreover that this observation helps to explain otherwise peculiar features of some labor markets as mentioned above it follows that efficiency wages do not generally exist proponents of efficiency wage theory argue that there is considerable evidence of widespread agency problems e g large expenditures by many firms on monitoring and that there are barriers to the use of bonds notably moral hazard on the part of firms or legal constraints efficiency wages cannot therefore be ruled out a priori as an equilibrium solution to these agency problems 3 in this paper we study these issues surrounding efficient worker compensation in a framework that allows heterogeneity among firms and integrates the financial and

minimum wage legislation in a dual labor market the paper studies the equilibrium effects of minimum wage legislation in an economy with coexisting primary and secondary labor markets owing to difficulties in monitoring relative wages and the threat of job loss play a functional role in eliciting effort from primary sector workers minimum wage laws hence affect the primary wage and employment level even if the law only binds in the secondary labor market furthermore interaction between the two sectors can also alter the secondary outcome relative to the standard analysis and has implications for participation decisions and for the level of unemployment

willingness to pay for drug rehabilitation implications for cost recovery objectives this study estimates the value that clients place on methadone maintenance and how this value varies with the effectiveness of treatment and availability of case management we provide the first estimate of the price elasticity of the demand for drug treatment

tests of a rational expectations structural neutrality model with persistent effects of monetary disturbances abstract this paper describes tests of a rational expectations structural neutrality resn model capable of accounting for the persistent effects of aggregate demand shocks the model imposes the identifying restriction that only contemporaneous shocks to aggregate demand affect a vector stochastic process of highly cyclic real variables tests are performed using a well known measure of unanticipated monetary change as the demand disturbance the results suggest that resn models observationally inequivalent from keynesian models can be constructed in such a way as to account for observable relationships between monetary and real variables

the role of information acquisition and financial markets in international macroeconomic adjustment abstract international macroeconomic adjustment to money supply aggregate expenditure and relative demand disturbances is analyzed within a framework which emphasizes the role of information agents are unable to directly observe disturbances and may become fully informed about disturbances only by purchasing information we analyze how relative price and exchange rate adjustment depends on the variances of the underlying disturbances while taking into account the incentive to acquire information we also discuss the conditions which are necessary to preclude a free rider problem whereby uninformed agents are able to extract from observation of financial market conditions the exact information of the information buyers

inventories and sticky prices more on the microfoundations of macroeconomics the role of inventories in making prices sticky is studied by analyzing a dynamic linear quadratic model of a monopoly firm facing stochastic demand but able to store its finished goods in inventory it is shown that in contrast to the usual presumption firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations specifically firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers and will change neither production nor price very much on the other hand firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output the standard assumption about inventory carrying costs that has been used in the literature that they are linear is shown to imply that production is impervious to fluctuations in demand it is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories i e to have unfilled orders the model offers an explanation for stickiness in relative prices however under certain circumstances it may help explain the persistence of inflation this abstract was borrowed from another version of this item

equilibrium adjustment with endogenous information and inventories the paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances improved information about disturbances reduces the extent to which disturbances are unperceived and dampens the use of inventories reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances the analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information in this paper we analyze how endogenous information acquisition and inventory flexibility influence price and output adjustment in a competitive industry we focus on the potential substitutability of information acquisition for inventory flexibility when disturbances are imperfectly perceived by individual firms the analysis highlights the general issue of how market adjustment depends on structural parameters that influence agents incentives to acquire information there are several reasons why information acquisition may play a role in market adjustment first the rapid development of information technology has enabled firms to gather and process data relevant to production and sales decisions from a greater number of external and internal sources this trend has reduced the costs of forecasting and monitoring factors influencing production and demand conditions for the individual firm relative to those of its competitors as well as for the industry as a whole in particular it has permitted quicker awareness of changing customer demand as well as greater control of the flow of inputs and intermediate goods during the production process this implies that the resources devoted to information acquisition and processing have come to play an important role in firm decisions 2 second improved information about demand and cost conditions may affect the function of inventories inventory adjustment allows a firm s production costs to be smoothed in response to anticipated movements in demand and costs and to be buffered against unanticipated disturbances see ashley and orr 1985 thus

why unions reduce wage inequality a theory of domino effects numerous empirical studies show that unions reduce wage differences i demonstrate that their motive might be a mix of fairness and strategy maximizing the use of union bargaining power in the presence of efficiency wages unions can push primarily for raising the lowest wages and still not sacrifice higher wages much if the employers themselves increase higher wages to protect efficiency enhancing wage differences if these domino effects are strong enough then an egalitarian wage policy might even increase the median wage

evidence on the impact of minimum wage laws in an informal sector domestic workers in south africa what happens when a previously uncovered labor market is regulated we exploit the introduction of a minimum wage in south africa and variation in the intensity of this law to identify increases in wages for domestic workers and no statistically significant effects on employment on the intensive or extensive margins these large partial responses to the law are somewhat surprising given the lack of monitoring and enforcement in this informal sector we interpret these changes as evidence that strong external sanctions are not necessary for new labor legislation to have a significant impact on informal sectors of developing countries at least in the short run

a pareto improving minimum wage this paper shows that a graduated minimum wage in contrast to a constant minimum wage can provide a strict pareto improvement over what can be achieved with an optimal income tax the reason is that a graduated minimum wage requires high productivity workers to work more to earn the same income as low productivity workers which makes it more difficult for the former to mimic the latter in effect a graduated minimum wage allows the low productivity workers to benefit from second degree price discrimination which increases their income

anticipated money inflation uncertainity and real economic activity this paper critically examines a number of maintained hypotheses that are necessarily being tested along with the basic notion derived from the rational expectations re formulation of lucas 1972 19 73 that only unanticipated money matters the trend stationary representation of secular real output of lucas and others is replaced by a difference stationary representation found by nelson and plosser 1980 to be consistent with u s historical data the impact of inflation uncertainty on real activity is considered attention is paid to possible mis measurement of agents ex ante anticipated money growth it is found that three alternative measures of anticipated money growth produce a stable impact on growth of output and employment contemporaneous and lagged values of unanticipated money growth have no significant additional explanatory power in the presence of any one of the three measures of anticipated money growth beyond this it is impossible to reject the hypothesis that the initial positive real impact of anticipated money is not temporary inflation uncertainty is found to act as a significant depressant of real economic activity in the presence of all tested combinations of anticipated and unanticipated money growth this abstract was borrowed from another version of this item

comment on david neumark and william wascher employment effects of minimum and subminimum wages panel data on state minimum wage laws in their article published in the minimum wage research symposium in the october 1992 issue of this journal industrial and laborrelations review volume 45 number 1 pp 55 81 david neumark and william wascher claim to find empirical support for three propositions 1 a higher minimum wage leads to a lower teenage employmentpopulation rate 2 the effect of the minimum wage on employment can be seen within a year but becomes stronger after two years and 3 in states with legal subminimum wages a significant fraction of teenage employees are paid a subminimum wage and the availability of a subminimum wage blunts the disemployment effect of the minimum wage the same symposium contains three papers by us that present empirical evidence suggesting conclusions opposite those of neumark and wascher 1 since neumark and