implications of economic interdependence for endogenous wage indexation decisions this paper shows how economic interdependence affects the indexation decisions of atomistic wage setters in an environment in which monetary authorities do not observe stochastic disturbances before making their policy choices if stochastic disturbances are common across countries interdependence has no effect on equilibrium indexation choices in identical countries however if disturbances are country specific numerical simulations show that interdependence is likely to reduce equilibrium indexation choices relative to a small open economy we also show that indexation choices may be either strategic complements or strategic substitutes but that strategic complementarity becomes more likely as the degree of interdependence rises

pricing in a customer market in standard pricing models movements in demand are partially offset by price responses in a customer market however price markups may decrease with high demand thus price may magnify rather than stabilize demand movements i consider a monopolist selling a good of which first time consumers are uncertain repeat customers know that the product works the monopolist trades the objectives of exploiting past customers and attracting new ones in a period with many new potential customers the monopolist gives more weight to attracting and lowers its markup last i examine some evidence on whether expansions are periods with disproportionately many new customers

downward wage rigidity in a model of equal treatment contracting following insights by bewley 1999a this paper analyses a model with downward rigidities in which firms cannot pay discriminately based on year of entry to the firm and develops an equilibrium model of wages and unemployment we solve for the dynamics of wages and unemployment under conditions of downward wage rigidity where forward looking firms take into account these constraints we show that there is a frontloading incentive that leads to a simple solution in the case of certainty using productivity data from the postwar us economy we analyse the ability of the model to match certain stylised labour market facts

wage indexation and discretionary monetary policy since the early 1970 s both academic researchers and policymakers have devoted considerable attention to the macroeconomic effects of wage indexation however these two groups have focused on different effects starting with jo anna gray 1976 and stanley fischer 1977a formal models emphasize the role of indexation in stabilizing or destabilizing output in contrast informal policy discussions usually focus on the allegation that indexation is inflationary e g arthur okun 1971 mario simonsen 1983 eliana cardoso and rudiger dornbusch 1987 to reduce this gap this paper presents a model of the effects of indexation on inflation and asks whether indexation raises economic welfare when these effects are taken into account until recently it was difficult to formalize the argument that indexation is inflationary because economists lacked models of the sources of inflation this paper applies the insight of robert barro and david gordon 1983a that with discretionary policy the employment gains from surprise inflation tempt the monetary authority to create positive trend inflation as stressed by fischer and lawrence summers 1989 policies that reduce the costs of inflation such as indexation cause barro gordon policymakers to choose higher inflation indeed inflation can rise so much that welfare falls despite greater protection against inflation this effect is appealing because it captures the common argument that indexation weakens policymakers will to fight inflation 1 this is not the end of the story however because wage indexation has a second effect it reduces the employment effects of surprise inflation that is unlike most policies to reduce the costs of inflation such as indexation of interest rates wage indexation steepens the phillips curve in the barrogordon model a steeper phillips curve reduces the temptation to inflate and hence reduces equilibrium inflation since indexation has one inflationary effect lower costs of inflation and one anti inflationary effect a steeper phillips curve the net effect appears ambiguous even if the net effect on inflation is determined the welfare effect may remain unclear if inflation rises the welfare loss might or might not be outweighed by the lower cost of a given amount of inflation 2 these ambiguities cannot be resolved with the barro gordon model alone because the phillips curve and the effect of inflation on welfare are ad hoc it is plausible that indexation affects these relations but the relative strengths of the effects are unclear resolving the ambiguities requires a more structural model in which the effects of indexation are derived rather than assumed this paper studies such a model specifically we use a model of staggered wagesetting based on gray 1976 fischer 1977a b and john taylor 1980 the degree of indexation is an explicit parameter and so we can derive its net effects on inflation and welfare section i of this paper presents our basic model and derives equilibrium inflation in

fair pay and a wage bill argument for low real wage cyclicality and excessive employment variability this article considers a two period optimal contracting model in which firms make new hires in the second period subject to the constraint that they cannot pay discriminate either against or in favour of the new hires in the absence of fully contingent contracts it is shown that wages are less flexible than needed for efficient employment levels with the result that too few hires are made in bad states of the world unemployment is involuntary in an extension to the model there may also be involuntary and excessive layoffs in some states of the world this article investigates the consequences for wage and employment outcomes of assuming that firms follow a fair wage policy by a fair wage policy is meant that workers receive equal pay for equal work irrespective of when they were hired the fair wage restriction is combined with the assumption that wage contracts are not state contingent while both of these features have much empirical support there has been no previous attempt to analyse their interaction it is shown to lead to reduced wage volatility and increased employment variability as well as the possibility of involuntary unemployment the essential idea of the article is simple if the wage paid to new hires is

stochastic inflation and wage indexation the choice between an indexed and an unindexed wage in a labor contract is studied in this paper it is shown that the expected rate of inflation does not affect the attractiveness of indexation that an increase in the uncertainty of inflation and an increase in the worker s risk aversion lead to an increase in the attractiveness of indexation and that an increase in the cost of indexation and an increase in the perfection of the capital market lead to a decrease in the attractiveness of indexation labor contracts often index the money wage to the price level indexation serves as an important means of reducing the variation in the real wage caused by stochastic inflation and it may therefore moderate the impact that stochastic inflation would otherwise have on a worker s consumption and working hours cf gray 1976 fischer 1977 a and azariadis 1978 accordingly indexation may benefit a worker who is averse to risk cf baily 1974 gordon 1974 and azariadis 1975 indexation may also reduce the variation in working hours thereby benefiting a firm that pro

un cola why have cost of living clauses disappeared from union contracts and will they return 1 introduction one of the major changes in collective bargaining in recent decades has been the gradual elimination of cost of living adjustments colas from union contracts in 1976 61 of union workers covered by major collective bargaining contracts had cola provisions but by the end of 1995 when the u s bureau of labor statistics stopped collecting data on collective bargaining settlements cola coverage had fallen to 22 1 although the decline in cola rates has been studied extensively there is no agreement as to which factors are primarily responsible for this decline one view attributes the elimination of colas or escalator clauses to declines in inflationary uncertainty a second view emphasizes the erosion of union power yet another view focuses on structural shifts in the u s economy previous research has not determined the relative importance of these and other hypotheses another reason to reassess cola determination is that the economy has changed since the early research was completed the bulk of studies to examine cola incidence statistically have relied on sample periods that end in 1982 or earlier 2 since then there have been major changes in union strength inflationary uncertainty and other potential determinants of wage indexation including deregulation of certain industries in addition more than 90 of the decline in cola rates has occurred since 1982 it is worthwhile to determine whether the factors deemed to be important in the early studies are still important we provide a comparison with previous research formally assess the contributions of various factors to the erosion of cola rates and provide insights as to likely changes in cola coverage in the future if inflation picks up and with it inflationary uncertainty 3 will cola rates rise to levels not seen since the 1970s what would be the consequences of a rebound in union power of further economic deregulation of likely industrial and demographic shifts in the economy once the major causes of past changes in cola coverage are understood it becomes possible to project the consequences of changes in key economic variables given the concern in macroeconomics with wage indexation and the linkage between wages and prices gray 1976 fischer 1986 ball and cecchetti 1991 schiller 1997 the extent to which cola coverage responds to economic factors has important implications for the economy underlying the empirical analysis is a pooled cross sectional time series model of cola incidence that accounts for industry fixed effects to estimate the model we assemble a panel data set of cola coverage and an array of characteristics for 32 private sector industries over a 22 year period because cola clauses are multiyear in nature the model also recognizes that the percentage of workers covered by cola clauses in a particular year depends on conditions in both the current year and previous years previewing results we find that the major cause of the decline in cola coverage has been the reduction in inflationary uncertainty second in importance has been the erosion of union power both the percentage of the industry s workforce that is unionized and the estimated union wage premium in the industry are highly significant determinants of cola coverage but because the union wage premium has remained largely intact in most industries changes in the premium are much less important than losses in unionization in explaining the overall decline in cola provisions economic deregulation industrial shifts and an increased presence of women in the workforce have had modest effects on cola rates on the basis of our findings a rebound in inflationary uncertainty to the levels experienced in the 1970s would raise cola coverage by 10 percentage points 2 background for workers in long term contracts colas provide at least partial protection from the consequences of unexpected inflation

a model of nominal contracts a model is produced in which labor contracts that prespecify unindexed nominal wage payments arise endogenously these contracts function as a self selection mechanism under appropriately different attitudes toward price level risk which can either arise directly from preferences or be induced by different patterns of asset holdings nominal contracts allow high productivity workers to signal their type by their willingness to accept unindexed contracts this explanation of nominal contracts does not require that money be used in any particular set of transactions and nominal contracts enhance the risk faced by all parties accepting them

on real and sticky price theories of the business cycle after presenting some facts about the growth of government in western industrialized countries possible causes of this development are analyzed from a public choice perspective next some empirically tested theories which seek to explain this growth are discussed finally possible consequences for efficiency and individual liberty are examined it is shown that both the number and size of interest groups age of democracy as stated by mancur olson 1982 and the increasing share of government expenditure in gdp seem to exert a negative influence on the growth rate of gdp copyright 1986 by ohio state university press

nutrition human rights and resources abstract according to international human rights law states are required to devote the maximum available resources to realizing the right to nutrition along with other economic social and cultural rights however the meaning of this phrase has never been adequately described with the result that state compliance with this obligation cannot be measured property it is suggested that there are five types of resources financial human natural technological and informational states must marshall these resources both domestically and internationally and from both public and private sources in order to realize rights like the right to nutrition measurement of state compliance with this obligation can be done by developing indicators of compliance for each of the resource types paired with the human right in question it is suggested that in preparing national plans of action to follow up recommendations of the international conference on nutrition in 1992 states might undertake a systematic assessment of needed resources and establish a system of measurement of progress in achieving them as a step towards identifying state obligations to realize nutritional goals as human rights and facilitate international reporting of compliance with relevant human rights conventions they have ratified

are prices too sticky nominal price rigidity has a negative externality rigidity in one firm s price increases the variability of aggregate real spending which harms all firms this paper investigates whether this externality is large which would imply that stabilization policy can be highly beneficial even if the costs of making prices flexible are small there are three conclusions first both the private cost of price rigidity and the externality are second order in the size of fluctuations second the externality can nonetheless be arbitrarily large third in a simple model the externality is small for plausible parameter values

layoffs with payoffs a bargaining model of union wage and severance pay determination popular characterizations of union preferences assume that the income of laid off union members is exogenous there is evidence however of intra union distribution schemes such as severance payments unemployment insurance retraining arrangements and early retirement schemes this paper develops a model of wage and severance pay determination by a trade union and a firm bargaining in a right to manage framework the important point differentiating the model in this paper from the orthodox union model is that it is efficiency improving in the sense that it makes full insurance possible and marginal productivity is equal to the opportunity cost of labour moreover with redundancy pay on the bargaining agenda both the right to manage and the efficient bargaining union models are characterized by the same efficiency conditions this has implications for empirical research which attempts to distinguish between these two models since the outcome of both models is the same finally the union firm bargaining model can also be compared with the outcome of the implicit contract model with redundancy pay there is an important difference between the two approaches however while the result in this paper derives from an imperfectly competitive labour market where unions and firms bargain over wages and redundancy pay the implicit contract result derives from a perfectly competitive labour market in which competitive forces lead to an efficient outcome

the determinants of wage changes in indexed and nonindexed contracts a switching model wage changes in a sample 1979 86 of canadian wage contracts are analyzed the sample is split into cost of living allowance cola and non cola contracts econometric estimation corrects for sample selectivity bias in non cola contracts the unemployment rate and a proxy for expected inflation are significant expected industry price changes and productivity changes exert smaller but significant effects in cola contracts ex ante inflation coverage ranges between 60 and 100 of expected inflation catch up for previous uncompensated inflation the unemployment rate and expected inflation are also significant a common wage structure across cola and non cola contracts is rejected by the data

toward an economic model of the japanese firm i owe a great deal to professor moses abramovitz who suggested that i write this article i appreciate his constant encouragement and guidance which aided me throughout its preparation i am also indebted to three anonymous referees of the journal and to professors ryutaro komiya and michael riordan for their critical comments and helpful suggestions needless to say i am solely responsible for the views expressed in this paper

unemployment insurance and labor contracts under asymmetric information theory and facts the paper provides evidence to show that many u s labor contracts havelittle or no private unemployment insurance provision a model of an optional contract under asymmetric information with no private unemployment insurance is presented underemployment and involuntaryunemployment may coexist copyright 1986 by american economic association

pay and employment determination in britain what are labour contracts really like the recent growth of unemployment in western economies has prompted new research on the workings of the labour market there has been much interest in particular in the questions what determines the level of real pay and why is it apparently so insensitive to changes in aggregate demand and unemployment european economists now find it hard to take seriously the notion still taught to many undergraduate that wages are determined by the intersection of demand and supply curves roughly half of all british employees belong to trade unions a much higher percentage have their pay fixed by some kind of collective bargain in this country it is negotiations not impersonal com petitive markets which decide what most of us will be paid the difficult problem is that of how to understand this process or to put it differently of how to think up the right model of the world

declining business dynamism what we know and the way forward abstract a growing body of evidence indicates that the u s economy has become less dynamic in recent years this trend is evident in declining rates of gross job and worker flows as well as declining rates of entrepreneurship and young firm activity and the trend is pervasive across industries regions and firm size classes we describe the evidence on these changes in the u s economy by reviewing existing research we then describe new empirical facts about the relationship between establishment level productivity and employment growth framing our results in terms of canonical models of firm dynamics and suggesting empirically testable potential explanations

customer markets credit market imperfections and real price rigidity according to standard theory an increase in demand should raise prices of goods given factor prices empirically however prices appear to be unaffected by short run variations in demand this paper suggests an explanation of this observation if customers react slowly to price changes and credit markets are imperfect prices may be unchanged or even fall when demand increases the reason is that when demand is high profits are high and firms can compete more intensely for customers without increasing their borrowing copyright 1991 by the london school of economics and political science

indexing and inflation abstract much of the opposition to indexation as a means of adapting to ongoing inflation arises from the view that indexation is itself inflationary this paper examines the basic for that view in a simple macroeconomic model in which budget deficits are in part financed through the printing of money it is shown that all aspects of indexing wage indexation bond indexation and tax indexation tend to increase the impact on the price level of any inflationary shock however this association between indexation and inflation is in large part a consequence of the monetary and fiscal policies being followed by the government evidence from a cross section of forty countries on the effects of indexation on the inflationary impact of the oil price shock of 1973 1974 suggests that indexation did not in general increase the inflationary impact of the oil shock the evidence is further consistent with the view that the absence of an excess inflationary effect of indexation is a result of the countries with substantial indexation not having accommodated the oil price shock as much as other countries

rational expectations and price rigidity in a monopolistically competitive market this paper analyses monopolistically competitive markets under incomplete information facing unanticipated disturbances firms determine their prices before they have information about other firms prices and form their expectations about the average price rationally if the market becomes very competitive in the sense that the price elasticity of individual demand is close to infinity then the average price is completely insensitive to short run unanticipated disturbances in the intermediate case if a cost disturbances are uniform and b demand and cost disturbances are correlated then the average price is sensitive to cost and insensitive to demand

on union preferences and labour market models insiders and outsiders this paper constructs a model of trade union behavior in which there is a distinction between insiders and outsiders this is used to examine one of the most troublesome issues in macroeconomic theory namely the extent to which a rise in aggregate demand might generate wage increases rather than growth in employment a generalization of the most widely used union utility function is presented the analysis reveals the conditions under which insiders will agree to let outsiders into employment derives two step wage preferences and proves a new result on wage rigidity copyright 1987 by royal economic society

nominal wage contracts and the persistent effects of monetary policy we consider an efficiency wage model where wages affect turnover and firms choose optimal labor contracts under uncertainty about demand and productivity we show that there may be an equilibrium with nominal wage contracts where monetary shocks affect output furthermore monetary shocks have persistent effects on output because the previous state of the labor market affects the reemployment probability of quitting workers persistence increases if workers have bargaining power with endogenous policy a credibility problem arises naturally in the model equilibrium inflation increases with persistence but decreases with the natural rate of unemployment for given persistence

ambiguity aversion and the absence of wage indexation abstract this paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are instead ambiguity or uncertainty averse decision makers who maximize choquet expected utility we show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain unless the perceived inflation uncertainty is high enough significantly the exercise does not presume any exogenous costs e g transactions costs of including indexation links

human resource building for the promotion of nutrition rights a cross disciplinary challenge abstract the current focus on human development in general global development efforts carries with it a need for building human resources with appropriate intellectual communicative and operational skills for use in analyses decision making and action at all levels human resource building extends beyond conventional disciplinary training and fosters the capability to work together to solve often complex problems for which each discipline does not alone have the answers human resources are needed to bridge the thinking and action between human rights and economic social and cultural development including food and nutrition improvements as human and social development goals and as human rights this paper discusses the opportunities and prospects for human resource building for the promotion of nutrition rights as a mutual challenge for human rights lawyers and institutions and nutrition training institutions the view is put forward that while human resource building for nutrition rights is critical at the community and grass roots levels a commitment to appropriate programmes at academic institutions is needed to ensure the preparation of expertise as well as cadres who can stimulate and backstop activities at these levels and within the civil society as a whole and ensure credibility and sustainability the paper gives some examples of emerging and planned efforts to establish focused nutrition rights training and calls for a networking of like minded institutions within the human rights and nutrition communities for a strengthened performance and impact in training for further nutrition rights theory building standard setting assessment and promotion

nutrition and the convention on the rights of the child abstract nutrition is not a recognized right in any of the major international human rights instruments access to food basic health services and adequate caring practices however are explicitly recognized as rights in the international bill of human rights and other important human rights instruments such as the convention on the rights of the child crc as food health and care are all necessary and in combination will ensure good nutrition nutrition in this sense becomes a right this paper describes the evolution of children s rights and how nutrition has become neglected the crc which encompasses both civil and political rights and social economic and cultural rights and thereby underlines the indivisibility of the international human rights system provides a firm base for the promotion of nutrition as a right the paper further emphasizes that development should ensure both a desirable outcome and an adequate process outcomes can be specified by goals such as improved nutritional status of children a high quality process is characterized by a high degree of participation community ownership sustainability and empowerment outcome focused strategies emphasize the achievement of goals they are relatively easy to monitor but often unsustainable process focused strategies on the other hand emphasize participation and empowerment they are difficult to monitor and they often do not result in any significant outcome both outcome focused and process focused nutrition strategies alone should be avoided a rights based strategy combines the two positive extremes rights require the fulfilment of deontological criteria interalia a high quality process implementation therefore requires a holistic approach which recognizes both the scientific and the ethical aspects of the problem at the theoretical as well as the practical level a rights based strategy goes beyond the fulfilment of needs because the state has obligations to respect protect and fulfil these rights a rights based strategy for nutrition aims at the progressive achievement of nutritional goals and the progressive establishment of a high quality process in fulfilling these obligations

a competitive model of worker replacement and wage rigidity we adapt the models of menzio and moen 2010 and snell and thomas 2010 to consider a labor market in which firms can commit to wage contracts but cannot commit not to replace incumbent workers workers are risk averse so that there exists an incentive for firms to smooth wages real wages respond in a highly nonlinear manner to shocks exhibiting downward rigidity and magnifying the response of unemployment to negative shocks we also consider layoffs and show that for a range of shocks labor hoarding occurs while wages are cut we argue these features are consistent with recent evidence jel e32 j41

is equilibrium indexation efficient this paper investigates the welfare properties of equilibrium indexation in a decentralized economy if indexation is costless so all firms index then the equilibrium degree of indexation is efficient but if indexation is costly and this leads some firms not to index equilibrium indexation is inefficient because indexation has externalities for nonindexed firms firms choose too little indexation if labor demand is more responsive to movements in real money than to movements in real wages the results do not depend on the relative importance of real and nominal shocks

wage premiums and profit maximization in efficiency wage models abstract the standard shirking model of efficiency wages is essentially a continuous time repeated prisoners dilemma game thus to sustain an equilibrium with employment requires sufficient gains from future co operation each division of these gains corresponds to some equilibrium efficiency wages correspond to employees receiving the gains bonds allow firms to receive them in markets well informed about agents pasts employment is independent of the distribution of gains but in anonymous markets with more workers than jobs employment is highest in efficiency wage equilibria efficiency wages thus arise naturally as the unique efficient equilibrium without recourse to assumptions that limit bonding

inflation and wage indexation in the postwar united states this paper examines the relationship between inflation and wage indexation in the postwar united states using data on the prevalence of cost of living adjustments in major collective bargaining agreements the author finds that increases in inflation precede increases in wage indexation but reductions in inflation do not precede reductions in wage indexation there is virtually no evidence that wage indexation affects inflation copyright 1995 by mit press

trade union efficiency and overemployment with seniority wage scales inefficient unemployment of union members depends upon the inability of the union to bargain over employment as well as wages the issue of union membership limitations has received less attention as seen in the survey by oswald i 983 grossman i983 considers endogenous membership size with mixed efficiency results but he imposes a number of severe restrictions on allowable contracts in the current paper we examine the issue of union membership size under very general contracts where unions negotiate over wage rates employment levels and compensation payments to laid off workers and further can negotiate differential treatment of seniority groups these general contracts represent a useful benchmark case recognising that the results will change as various limitations on the contract are imposed the treatment of seniority is crucial and we model this by an overlapping generations approach continuing workers at the firm negotiate the contract to be applicable to the following period new hires over that period in the number stipulated in the contract then gain seniority and negotiate the contract for the period after the formulation of the problem with the exception of the treatment of new hirings is similar to that in the implicit contracting literature and many of the results will be familiar unemployment of union members only occurs when the marginal value product of labour fails below the opportunity cost leisure value

an empirical model of wage indexation provisions in union contracts this paper describes the responses of index linked wage rates to concurrent price increases for a sample of canadian union contracts and then analyzes theseresponses in terms of a simple model of indexation to the aggregate price level the model highlights the importance of aggregate price movements in conveying information about industry specific prices the empirical analysis confirms that industry specific correlations between input and output prices and the consumer price index are important determinants of the flexibility of wages to prices across indexed contracts

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

the indexation of wages and bonds in brazil this paper analyses the dynamic relationship between the degrees of indexation of wages and public bonds in brazil a simple model is constructed to show that both degrees of indexation are determined simultaneously we apply cointegration techniques and estimate error correction representations to assess the temporal causality between them our results provide empirical support for the existence of simultaneity in the degrees of indexation in brazil in the period 1980 93

the wage price spiral this paper rehabilitates the old wage price spiral it shows that after an increase in aggregate demand the process of adjustment of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms to maintain or increase their markups of prices over wages under continuous price and wage setting the process of adjustment would be instantaneous under staggering of price and wage decisions the adjustment takes time the more inflexible real wages and markups are to shifts in demand the higher is the degree of price level inertia and the longer lasting are the effects of aggregate demand on output

insiders and outsiders in wage determination a firm starts with a group of insiders or seasoned workers there is also a large pool of outsiders who are initially less productive but are transformed into insiders after one period of employment the firm gains from having a large pool of insiders some of whom may be laid off in bad years insiders gain from keeping their numbers small if the insiders set their wage unilaterally they will choose a path that in this extreme case prevents employment of outsiders even if future employment prospects are good if the wage path is set by bilateral bargaining the extra advantage to the firm permits employment of some outsiders in some situations

food and agricultural industries opportunities for improving measurement and reporting we measure one component of off farm food and agricultural industries using establishment level microdata in the federal statistical system we focus on services for crop production and compare measures of firm and employment dynamics in this sector during the 1992 2012 time period with county level publicly available data for the same measures based on differences across data sources we establish new facts regarding the evolution of food and agricultural industries and demonstrate the value of working with confidential microdata in addition to the data and results we present we highlight possibilities for collaboration across universities and federal agencies to improve reporting in other segments of food and agricultural industries

how high is the private gain from wage indexation the effects of firm specific shocks on the gain from writing state contingent wage contracts are examine in an extension of the model in gottfries 1992 it is shown that the introduction of firm specific uncertainty increases the gain from indexation to prices only moderately moreover nominal wage contracts should be more prevalent when unemployment benefits are high or unemployment spells are short

cooperation harassment and involuntary unemployment an insider outsider approach the authors present a theory of involuntary unemployment which explains why the unemployed workers outsiders are unable or unwilling to find jobs even though they are prepared to work for less than the prevailing wages of incumbent workers in siders the outsiders do not underbid the insiders since were the y to do so the insiders would withdraw cooperation from them making their work unpleasant with harassment and thereby reducing the prod uctivity and increasing the reservation wages of the underbidders th e resulting labor turnover costs create economic rent which the insid ers tap in wage setting and as a result involuntary unemployment ma y arise copyright 1988 by american economic association

discovering the link between inflation rates and inflation uncertainty a new time series model is used to reassess the strength of the link between inflation uncertainty and the level of inflation in the united states the model provides several statistical measures that can be used to examine different aspects of uncertainty the main finding is that uncertainty about the long rather than short term prospects for inflation moved strongly with the rate of inflation since the early 1970s copyright 1991 by ohio state university press

why not cut pay abstract i interviewed over 300 business people labor leaders business consultants and counselors of unemployed people all in the northeast of the united states during the recession of the early 1990 s in order to learn why wages and salaries declined in only a few firms employers were reluctant to cut pay because they believed doing so would hurt employee morale leading to lower productivity and current or future difficulties with hiring and retention it was thought that these effects would in the end cost more than the savings from lower pay there were few indications that unemployed people had excessive wage expectations on the contrary many unemployed were too flexible and found themselves rejected by firms as overqualified in most companies pay cuts were not a useful alternative to layoffs because pay cuts would not make it worthwhile to retain many employees and because layoffs harmed morale less than would pay cuts the findings support none of the theories of wage rigidity except those of solow and akerlof that emphasize morale

cost of living adjustment clauses in union contracts a summary of results our paper provides an explanation why cost of living adjustment cola provisions and their characteristics vary widely across u s industries we develop models of optimal risk sharing between a firm and union to investigate the determinants of a number of contract characteristics these include the presence and degree of wage indexing the magnitude of deferred noncontingent wage increases contract duration and the trade off between temporary layoffs and wage indexing preliminary empirical tests of some of the implications of the model are described one key finding is that the level of unemployment insurance benefits appears to influence the level of layoffs and the extent of cola coverage simultaneously

underemployment equilibrium with rational expectations in this paper i use some recent work in the microeconomics of imperfect information to construct a macro model the microeconomic theory suggests that atomistically competitive firms face kinked demand curves in this model there is a range of aggregate equilibria consistent with correct information i then show that individual firms can face a free rider problem in trying to move from one equilibrium to another by changing the price level monetary policy is not subject to this problem even if the policy is fully anticipated

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

price dynamics under imperfect information abstract the paper considers the pricing decision of a monopolist firm having demand and costs exposed to nominal and real shocks which include both permanent and transitory changes the firm obtains information through both price and quantity signals and the price equation is found by use of a filtering technique it is shown that imperfect information implies nominal price smoothing where the price adjusts only partially relative to the past price by incorporating new information observed through price and quantity signals

entry and exit of manufacturing plants over the business cycle abstract this paper analyzes the plant level entry and exit over the business cycle we document basic patterns of entry and exit of u s manufacturing plants between 1972 and 1997 we find that the entry rate is more cyclical than the exit rate we also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants our new finding suggests that the selection at the entry margin may be more important than the selection at the exit margin in understanding the plant level dynamics over the business cycle

human rights requirements to social and economic development abstract this paper presents the normative framework of international human rights and the duty of states to cooperate for development starting with the charter of the united nations and proceeding to examine the international bill of human rights and the various international instruments treaties and declarations built upon it by ratifying some of these instruments a large majority of states have undertaken legally binding obligations to ensure freedom from hunger and to promote adequate standards of living including food nutrition and care the paper notes that promotion of human rights and development two purposes that are closely interrelated in the charter of the united nations have since followed two separate trajectories but efforts are now under way to bring them closer together as manifested in particular by the declaration on the right to development adopted by the general assembly of the united nations in 1986 the paper further points out that under international human rights law a comprehensive system of international reporting and monitoring by expert bodies has been developed full transparency has been achieved by ensuring that the state reports are made public and their examination by the international expert bodies are open to anyone interested it is indicated that for reporting in the development field comparable transparency and examination could be developed including for international agencies and other bodies dealing with food and nutrition issues

indexation and incomes policy a study of wage adjustment in unionized manufacturing data from nearly 200 collective bargaining units are used to study the frequency of wage change from 1957 to 1978 it is shown that incomes policies during the kennedy johnson and nixon administrations encouraged changes in the length of time between wage adjustments inflation often thought to be responsible for fluctuations in the coverage of indexing provisions is found to play virtually no role the conclusion is that government intervention in the wageprice process aroused fears that the government will intervene again in the future in the presence of this uncertainty the wage adjustment provisions of collective bargaining contracts were changed

the right to food in the post cold war era abstract this paper reviews how the end of the cold war is affecting acceptance of key international conventions and the policy environment relevant to the realization of the right to food it focuses on the international bill of human rights and finds that ratification of international human rights conventions including those containing the right to food have accelerated from 1989 to 1994 the paper goes on to analyse the policy environment for the realization of the right to food in less developed countries in relation to worldwide sociopolitical processes of fragmentation and integration taking place in the post cold war era specifically civil conflict and cultural chaos liberalizing national and international economics the spread of democratic governance growing use of politically conditioned aid and reallocation of foreign assistance resources it documents and discusses each as an impediment or opportunity to the practical realization of the right to food through improved food and nutrition security the concluding section argues that the prospects for direct implementation of rights to food as national food and development policy have become unfavourable because such policies have been economically unsustainable and because of the declining capacities of government institutions in general at the same time the application of a normative human rights approach is found to be of critical importance for evaluation and promotion of food and nutrition security by the nation state and by transnational and subnational institutions that are growing more powerful in the post cold war era

insider bargaining power starting wages and involuntary unemployment recent analyses of wage bargaining has emphasized the distinction between insiders and outsiders yet one typically assumes that insiders and recently hired outsiders are paid the same wage we con

seniority and distribution in a two worker trade union unlike existing models that rely heavily on assumptions regarding unions distributional preferences we present a simple model in which union seniority layoff rules and rising seniority wage profiles result from optimal price discrimination against the firm surprisingly even when cash transfers among union members are ruled out unions optimal seniority wage profiles are likely to be completely unaffected by their distributional preferences because of a kink in the utility possibility frontier this suggests that the simple technology of price discrimination may play a key role hitherto unappreciated in explaining union policies that affect the relative well being of different union members

global water crisis and future food security in an era of climate change food policy should serve humanity by advancing the humane goals of eradicating extreme poverty and hunger however these goals have recently been challenged by emerging forces including climate change water scarcity the energy crisis as well as the credit crisis this paper analyses the overall role of these forces and population growth in redefining global food security specifically global water supply and demand as well as the linkages between water supply and food security are examined the analysis reveals that the water for food security situation is intricate and might get daunting if no action is taken investments are needed today for enhancing future food security this requires action on several fronts including tackling climate change preserving land and conserving water reducing the energy footprint in food systems developing and adopting climate resilient varieties modernising irrigation infrastructure shoring up domestic food supplies reforming international food trade and responding to other global challenges

trade unions and seniority employment rules abstract some but not all trade union and insider outsider models assume that a seniority employment rule is used we investigate when firm and union members gain from such a rule and the consequences of their adopting one generally providing a seniority wage scale is also used they gain if union membership is not too large relative to demand and union bargaining power not too great moreover when outsiders are hired under a seniority employment rule employment is at the competitive level these results might explain why bargaining over employment is relatively uncommon and typically occurs only in industries with declining employment

efficient union labour contracts under seniority employment rules abstract a firm and worker sign a price contigent wage employment contract under lifo ly off rules a worker may prefer a contract which lays him off at low prices to one under which he is guaranteed employment at all prices

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

insiders outsiders and nominal wage contracts while the consequences of nominal wage contracts have been rather thoroughly analyzed there is no generally accepted theory of why such contracts prevail in this paper i argue that the distinction between insiders and outsiders is important for understanding nominal wage contracts since most employment fluctuations take the form of fluctuations in hiring insiders are normally not affected by them since prices are primarily determined by costs demand shocks have small effects on real wages thus insiders have little incentive to change to more complicated contracts with rigid nominal wages nominal demand shocks have large effects on the employment opportunities of outsiders but outsiders have little influence on labor contracts

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

wages policy and unemployment in australia it is generally accepted among australian economists that high rates of growth of wages at various times over the last decade have made the achievement of full employment and lower rates of inflation more difficult fear of a further acceleration of wage growth has also been a policy constraint it is when one attempts to go further that considerable disagreement becomes evident from a labour market viewpoint there does not seem to be a consensus as to the answers to the two broad questions that should be addressed first how important are wage changes relative to other factors that depress employment and add to the inflation rate second how does government policy impinge on the process that generates wage changes to do justice to both of these in a paper as short as this one is difficult so i shall focus most of the paper on the second question the relationships between government policy and wage changes are particularly important at this time for most of the last decade successive governments have operated a national wages policy which to a large degree has been based on the indexation of wages for past price changes the latest experiment the prices and incomes accord is the centrepiece of the current government s employment and inflation policy and after almost two years of wide community and media support the key principles upon which it is based are suddenly being questioned 1 our prime endeavour therefore will be to build up sufficient understanding of the wage determination process so that some evaluation can be made as to the effectiveness of these national wage policies this turns out to be a remarkably difficult task which generates considerable concern in our mind that the data may not be sufficiently rich to serve as a basis for sound judgments it does appear however that the effect of a given level of unemployment upon wage changes has consistently weakened over the last decade why this should be so is a major unresolved puzzle i offer a loosely constructed theory that is consistent with the facts but it is by no means the only possible explanation section i provides a description of wage setting in australia and some key facts of the economy in section ii the statistical analysis of wage changes focuses on two competing theories one is the phillips curve approach and the other stresses that wage outcomes may be to a significant degree independent of the level of unemployment and may depend instead on utilization rates of labour within the firm section iii considers the efficacy of incomes policies in australia some final comments areoffered in section iv

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

redundancy payments and firm specific training this paper attempts to provide an economic rationale for the existence and pattern of redundancy payments a model of firm specific training with uncertain returns to training and uncertainty about the outside options of workers is constructed for this purpose the central result is that an optimal contract will involve the firm in bearing only a part of the training costs because workers may quit since workers bear part of the cost of training they will have to be compensated by a redundancy payment if dismissed furthermore the optimum level of this redundancy payment will vary across firms with large payments being offered by firms where the returns to training are highly variable these insights into the nature of redundancy payments differ from those of other models where they are viewed either as a transfer fee or as representing the difference between inside and outside wages for contracted workers