inflation and the fiscal limit abstract we use a rational expectations framework to assess the implications of rising debt in an environment with a fiscal limit the fiscal limit is defined as the point where the government no longer has the ability to finance higher debt levels by increasing taxes so either an adjustment to fiscal spending or monetary policy must occur to stabilize debt we give households a joint probability distribution over the various policy adjustments that may occur as well as over the timing of when the fiscal limit is hit one policy option that stabilizes debt is a passive monetary policy which generates a burst of inflation that devalues the existing nominal debt stock the probability of this outcome places upward pressure on inflation expectations and poses a substantial challenge to a central bank pursuing an inflation target the distribution of outcomes for the path of future inflation has a fat right tail revealing that only a small set of outcomes imply dire inflationary scenarios avoiding these scenarios however requires the fiscal authority to renege on some share of future promised transfers

the female male unemployment rate differential the authors show that bottlenecks in the economy s ability to absorb new entrants do not explain the female male unemployment rate differential in canada the loose attachment of women to the work force explains only one quarter of the differential of overriding importance is the minimum wage if not for minimum wages mature women would have an unemployment rate below that of men relative minimum wages have been falling since 1974 further falls could lead to a negative female male unemployment rate differential and reverse all the standard arguments about a greater female labor force share increasing the natural rate of unemployment

a graceful return of the drachma abstract a country participating in a monetary union is constrained by loss of control over seigniorage revenue once the government reaches its fiscal limit on ordinary taxation it cannot turn to seigniorage for financing we show that a monetary union country can increase its seigniorage revenue by reissuing its own currency even as it fully honors all outstanding debt obligations we use a simple cash in advance model with domestic currency demand motivated by the need to pay taxes to show that this policy effectively redistributes seigniorage revenue away from other monetary union members toward the acting country the magnitude of the seigniorage created by currency reissue is limited both by the relative size of the country and by money demand and therefore by the tax base if this seigniorage revenue is insufficient some additional seigniorage is available by allowing the new currency to grow and depreciate over time and domestic real wages to fall

substitution between unemployment insurance and workers compensation abstract this paper extends the literature on post injury duration of absence from work by developing a model that incorporates substitution between unemployment insurance benefits and workers compensation a theoretical analysis is presented in which the worker maximizes expected utility over four possible states of nature the model is tested empirically using pooled cross section and time series data at the two digit industry level the main findings support the predictions of the model an increase in workers compensation benefits increases the average duration of accidents with an elasticity of 0 9 1 4 while an increase in unemployment insurance payments reduces the average duration of accidents with an elasticity of 0 5 0 7

the economic effects of unemployment insurance in canada an empirical analysis of ui disentitlement this article provides an overview of the canadian unemployment insurance ui program including its evolution salient features relative size and knowledge about its labor market impacts understanding of these impacts is limited and we conclude that an event study approach is a promising way to further this knowledge we examine the effects of the 1976 ui disentitlement of the elderly on their labor force behavior and find evidence of significant adverse selection effects interactions with the public pension system suggest that poverty among the elderly could be best addressed through changes in programs other than ui

scale of production and choice of technique in the engineering industries in developing countries this article examines the relationship between scale of production optimal choice of technique and costs for three engineering industries nuts and bolts iron founding and machine tools in all three industries costs of production fell as the scale of output increased this was associated with switches of technique and the spread of fixed costs over a larger number of units the capital output ratio fell and labour productivity increased with increases in scale while in most cases the capital labour ratio increased the implications of these findings are briefly discussed

measuring hotel performance toward more rigorous evidence in both scope and methods abstract this paper extends the literature on hotel performance in both scope and methods we introduce a model that accounts for heterogeneity in a flexible way and allows for the measurement of both efficiency and productivity the model also accounts for the endogeneity problem in inputs and the issue of unobserved prices we use a large sample of hotel companies that spreads across multiple geographical regions and locations and accounts for some interesting and key determinants of hotel performance we provide more validation to some contradictory findings in the literature we show that large hotels do not necessarily outperform small hotels and that hotel efficiency differs based on location geographical region and type of service the results further indicate that productivity growth is not a driving force in the industry

unanticipated monetary growth output and the price level in latin america an empirical investigation abstract this paper provides statistical evidence on the response of real output and the price level to movements in unanticipated monetary growth for 16 latin american countries in the context of barro s version of the rational expectations natural rate theory arima p d q modeling of the growth rate of m2 is employed for each country and the residuals of the selected model utilized to estimate the parameters of the real output and price level equations careful attention is devoted to the autocorrelation structure of the residuals of the real output and price level equations the empirical results suggest that generally unanticipated monetary growth has positive effects on real output and negative effects on the price level such patterns however do not exhibit an unambiguous symmetric response

are small firms less efficient this paper compares the technical efficiency of small and medium sized enterprises smes with that of large firms and studies the factors influencing technical efficiency for taiwan s electronics industry unlike conventional studies we use two alternative approaches to control for the influence of size effect one is the two stage switching regression to correct for endogenous size effect on technical efficiency and the other is a metafrontier production function for firms in different groups the main results are as follows first the average technical efficiency for large firms is higher than that of smes without considering the size effect and lower when considering the endogenous choice on firm size this study cannot therefore conclude that there is a negative size technical efficiency relationship it however sheds light on the importance of size effect on the size technical efficiency nexus second the estimates on the determinants of technical efficiency show that being a subcontractor has a statistically significant positive influence on smes technical efficiency but the effect decreases with firm size

aggregate implications of factor substitution in industrial processes abstract using a number of recently completed studies of the scope for factor substitution in industrial processes we estimate the total private benefits of systematic adoption cost minimizing technology as compared with capital intensive technology obstacles to the choice of such technology are examined and presented within a benefit cost framework the reasons for some of the current choices of technology are analyzed and policies necessary to alter these are suggested

a study of the impact of sectoral shifts on aggregate unemployment in canada the recent trend in macro economic literature has been to explain cycles in aggregate output and employment in terms of unexpected nominal shocks only in these models the natural rate of unemployment is constant this paper diverges from this approach and following a recent paper by david lilien 1982 considers the impact of real as well as nominal variables the main findings are 1 a significant part of the fluctuations in the canadian unemployment over the 1957 83 period was caused by real shocks to the economy and 2 most of the transmission of the business cycle from the united states to canada is effected through real variables as well une etude de limpact de deplacements sectoriels sur le niveau de ch6mage agrege au canada dans la litterature macroeconomique recente on a eu tendance a expliquer les cycles dans le niveau de la production et de l emploi a peu pres strictement en termes de chocs nominaux non anticipes dans ces modeles le taux de ch6mage naturel est constant ce memoire prend des distances par rapport a cette approche et suit pluto t la direction suggeree par un memoire recent de david lilien qui considere l impact des variables reelles tout autant que celui des variables nominales les resultats principaux sont 1 une portion significative des fluctuations dans le niveau du chomage canadien entre 1957 et 1983 a et causee par des chocs reels subis par l economie 2 le gros de h1 transmission du cycle economique des etats unis vers le canada se fait par le truchement des variables reelles

productivity or politics the determinants of the indonesian tariff structure abstract the paper considers whether the structure of the effective rate of protection across manufacturing sectors in indonesia is better explained by variables that measure economic efficiency or those capturing the potential political influence wielded by those active in various sectors econometric estimates for 1984 indicate that tariffs were made to measure to offset the degree of low productivity in individual sectors political influence does not appear to significantly affect the granting of protection

unemployment hysteresis in canada an approach based on long memory time series models long memory univariate time series models known as arfima are applied to measure shock persistence for canada and the usa both output and unemployment exhibit higher persistence in canada than in the usa the finding that the rate of unemployment in canada exhibits high shock persistence supports the notion of hysteresis in unemployment the analysis of disaggregated canadian unemployment rates indicates that hysteresis is most pronounced for adult male workers the same class of models is used to obtain a generalization of the beveridge nelson decomposition of time series into a permanent and a cyclical component the permanent component of the canadian unemployment rate exhibits a kink in the early 1970s

the rise of unemployment in france whereas the french unemployment rate had remained less than 2 per cent throughout the postwar years up to 1967 it has since increased having been pushed by an irresistible trend to 2 7 per cent in 1972 4 1 per cent in 1975 5 2 per cent in 1978 7 3 per cent in 1981 and 9 7 per cent in 1984 annual averages ilo definitions the size of the labour force had hardly increased before 1962 during the past 20 years its growth has been slowly accelerating but has remained moderate 0 8 per cent per annum between 1975 and 1982 on the other hand employment increased steadily from 1962 up to the first oil shock but has been roughly constant since then see figure 1 my survey of the analysis of these features and of their explanation will follow traditional lines it will first consider the evolution of the labour force as well as changes in the volume structure and nature of the supply of labour the second section dealing with the demand for labour will pay particular attention to changes in the economic and institutional environment of firms section iii will examine what can be said about a possible increase in frictional

lessons of the recession the recession of 1981 82 was the worst since the 1930s the cyclical decline was sharper and deeper in canada than in the united states this paper presents an appraisal of the roles of business cycles abroad and macro economic policies in canada during the recession and the subsequent recovery based on simulations with a macro econometric model the operation of the automatic fiscal stabilizers over this cycle is also examined the extent to which monetary policy and changes in the tax structure can mitigate the effects of deficit reduction measures over the medium term is considered levons de la recession la recession de 1981 82 a e la pire depuis les annees 1930 le cycle s est creuse plus fortement et plus profondement au canada qu aux etats unis ce m6moire evalue a partir de simulations a l aide d un modele macro econometrique les r6les respectifs des cycles economiques dans le reste du monde et des politiques macro economiques au canada dans la conformation de la recession et de la relance qui a suivi on examine le fonctionnement des stabilisateurs fiscaux automatiques tout au long du cycle l auteur examine jusqu a quel point la politique monetaire et les changements dans la structure de la fiscalite peuvent attenuer a moyen terme les effets des mesures adoptees pour reduire le deficit

canadian monetary policy will the checklist approach ever get us to price stability the purpose of this paper is to investigate whether the checklist approach that the bank of canada has followed in one way or another over the last two decades is likely to lead us to the stated objective of price stability the analysis of canadian monetary policy is performed through the estimation of a bayesian var model of a set of important canadian macroeconomic variables in their international context to estimate the model the authors borrowed form c sims 1989 but they also transposed his methodology to take into account canadian features the results suggest that the exchange rate has been high on the checklist of the bank of canada over the years and that rather the bank should concentrate its attention on broad monetary aggregates if it really wants to deliver price stability

logit estimates of strike incidence from canadian contract data logit estimates of strike incidence are made based on a unique and comprehensive data set of 2 437 collective agreements the appropriate level of aggregation since that is where bargaining occurs the results are interpreted through a theoretical framework emphasizing that strikes are more likely when the joint costs of using the strike mechanism are low relative to the cost of alternative mechanisms for achieving the same purposes such functions of strikes are to generate information elicit truth telling establish reputations provide catharsis and solve intraorganizational conflict

productivity and technical choice applications to the textile industry abstract this paper analyzes past choices of technology and present levels of productivity in the philippines cotton spinning and weaving industries detailed engineering and economic information are used to assess the costs of alternative technologies to estimate levels of productivity relative to international standards of best practice and to analyze the sources of productivity short falls high costs of production are due both to inappropriate technological choices and to low productivity in the use of the technologies chosen the major sources of low productivity are lack of sufficient firm level specialization among product varieties and deficient firm level technological capabilities inadequate labor skills are not a major problem the discussion emphasizes the general applicability of the analysis wherever low productivity is likely to be a problem

the impact of controls on wage contract duration incomes policies invariably arouse considerable opposition it is claimed that they are costly to administer that by tinkering with relative prices they riddle the economy with inefficiencies and that they politicise economic life it is also argued that where controls do have an impact on wage rates and prices a point which is by no means universally conceded agents are driven to costly behaviour designed to neutralise effective wage and price ceilings e g wage drift and quality changes it is fair to say however that most of the empirical work on incomes policies has been directed rather narrowly at the question of whether controls affect wage rates earnings or prices somewhat off the beaten track has been the interesting paper by pencavel i982 in which he argued that the existence of costs in revising wage rates calls for a distinction between the frequency and magnitude of wage revisions pencavel i982 also argued that wage controls are sometimes directed toward postponing wage increases in which case they affect the frequency of wage change while at other times they specify permissible ceilings on wage increases designed to affect the magnitude of wage adjustments however even this paper deals with wage issues broadly defined there has been little work done on the impact of controls on other aspects of labour market behaviour the purpose of this paper is to explore the impact of canada s recent experiment with controls on wage contract duration this long neglected variable has received theoretical attention in a number of recent papers including fischer i977 who argued that in a world of overlapping contracts monetary policy is effective despite rational expectations gordon i982 who considered the implications of contracting arrangements for wage flexibility and gray i978 and canzoneri i980 who explored the impact of uncertainty on contract duration an empirical paper by christofides and wilton i983 b confirmed gray s i978 and canzoneri s i980 conclusion that inflation uncertainty reduces the length of wage contracts however no one appears to have examined carefully the impact of controls on this important

fiscal risk in a monetary union diverse fiscal policies which are subject to fiscal limits and stochastic shocks can threaten price stability in a monetary union the fiscal limits arise due to distortionary taxation and political will stochastic shocks are random and could push a fiscally sound policy towards its limit in equilibrium agents refuse to lend along a path which violates the fiscal limits creating a crisis the crisis requires a policy response to restore lending we focus on two responses default and policy switching both of which must be designed to restore fiscal solvency under the assumption that agents know the policy response we show that default poses no risk to price stability but that policy switching does we simulate the model to quantify fiscal risk in the european monetary union with fiscal variables at end of 2009 values we find that the probability of a fiscal crisis in greece and italy countries whose debt relative to gdp had strayed far above the 60 percent limit is positive but small however a small increase in debt can lead to a large increase in risk

how natural is canada s high unemployment rate abstract a reduced form price equation for canada 1956 1984 yields a stable estimate of 4 9 percent for the natural unemployment rate of men aged 25 and over with strong evidence against hysteresis once structural influences are accounted for the resulting profile for the aggregate natural unemployment rate rises smoothly from 5 5 percent in 1961 to a maximum of 8 0 percent in 1977 1978 and then declines rapidly to 6 4 percent in 1985 calculations based on an estimated production structure for the aggregate non energy sector of canada provide additional evidence against the excess real wage hypothesis and for the view that the recent fluctuations in canada s unemployment rate are mostly of the keynesian variety

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

opportunity cost trade policies and the efficiency of firms abstract this paper analyzes the effects of trade policies on the technological effort of a firm entering a new market in the context of a developing country we depart from previous literature by bringing into focus the opportunity cost of technological effort a firm that spends time in acquiring a more efficient technology delays the commercialization of its products thus incurring an opportunity cost in terms of profits forgone protection increases both the opportunity cost and the benefits from technological effort in the case of linear demand function and constant returns to scale technology protection is shown to unambiguously reduce the protected firm s technological effort export subsidy is also shown to reduce technological effort when the potential level of exports under free trade is high

deriving natural rates of unemployment for sub national regions the case of canadian provinces in order to pursue informed stabilization policies it is vital for policy markers to have estimates of how much of the total unemployment rate can be classified as cyclical rather than natural unemployment this paper describes a method for generating regional natural rate estimates and applies this method to the case of canadian provinces results indicate that unemployment insurance generosity and relative minimum wages play an important role in determining natural unemployment rates in canadian provinces one of the enduring characteristics of the canadian labour market has been substantial and peresistent unemployment rate disparities across provinces the results of this study indicate that these disparities are primarily explained by differences in provincial values of structural variables such as unemployment generosity and by differences in provincial sensitivities to these structural variables a furher result is that variation in cyclical unemployment rates is substantially less in the traditio

fostering the capital goods sector in ldcs abstract the conventional arguments in favour of the production of capital goods by ldcs are based on comparative advantage the possibility of designs appropriate to indigenous factor proportions and the externalities conferred on other sectors these and other arguments are inducing the governments of many middle income countries to more intensively foster the development of the machinery sector this paper examines the analytic and empirical bases of the conventional arguments and finds a considerably more complex picture than that contained in earlier studies

the mystique surrounding the central bank s balance sheet applied to the european crisis abstract a central bank s resource constraint bounds the dividends it can distribute by the present value of seignorage which is a modest share of gdp this is in spite of the mystique behind a central bank s balance sheet moreover the statutes of the federal reserve or the ecb make it difficult for it to redistribute resources across regions in a simple model of sovereign default where multiple equilibria arise if debt repudiation lowers fiscal surpluses the central bank may help to select one equilibrium the central bank s main lever over fundamentals is to raise inflation but otherwise the balance sheet gives it little leeway

risk assessment under a nonlinear fiscal policy rule i introduction countries around the world are establishing nonlinear fiscal rules whereby governments respond more aggressively to lower deficits when debt is above some threshold level these policies range from the german style debt break which imposes limits on the deficits to fiscal rules that intensify fiscal consolidation at high debt levels the purpose of this paper is to study the implications of a nonlinear fiscal rule on solvency crisis do nonlinear fiscal rules allay the possibility of future insolvency does the increased responsiveness suggested by the nonlinear fiscal rules need to be exhibited at low levels of debt could fiscal authorities offset the stronger responsiveness at high levels of debt with a weaker responsiveness at low levels of debt without altering the probability of a solvency crisis we build on daniel and shiamptanis 2012 framework where negative shocks such as the 2007 2009 worldwide financial turmoil could lead a government to a position where agents refuse to lend thereby creating a solvency crisis to restore lending monetary and fiscal authorities could implement a policy switch in which the fiscal policy switches to active and the monetary policy to passive and the post crisis equilibrium is characterized by the fiscal theory of the price level ftpl 1 their analysis however utilizes a linear fiscal policy rule and assumes that authorities remain in the ftpl regime once they switch this paper modifies daniel and shiamptanis 2012 dynamic policy switching model to allow for a nonlinear fiscal policy rule that governs the evolution of the primary surplus relative to gdp and to allow the authorities to switch back to the original regime an important feature of the nonlinear fiscal rule is that it naturally yields an endogenous stochastic responsiveness to debt to capture changes in policy over time 2 we also build on bohn 1998 who argues that it is sufficient for a sustainable fiscal policy to satisfy the government s intertemporal budget constraint ibc bohn s analysis however does not incorporate a fiscal limit on the size of debt defined as the maximum level of debt that the country can repay bi 2012 bi et al 2010 2013 cochrane 2011 ghosh et al 2013 this paper can be viewed as an extension of bohn 1998 when a country faces fiscal limits we derive the criteria necessary for a nonlinear fiscal rule to satisfy both the government s ibc and eliminate explosive behavior the final contribution of the paper is empirical we apply the model to canada which is often cited as an example of a small open economy that implemented a significant fiscal adjustment lloyd ellis and zhu 2001 we estimate a nonlinear fiscal rule with annual data from 1970 to 2012 and utilize it to quantify the probability of a solvency crisis the following key results emerge first to eliminate explosive behavior the responsiveness of the nonlinear fiscal rule to debt should be larger than bohn s 1998 criterion second a nonlinear fiscal rule lowers the expected maximum level of debt on the path back to its long run target and also shortens the expected adjustment time third the strong responsiveness suggested by a nonlinear fiscal rule is very important to reduce the probability of a solvency crisis however this strength need not be exhibited until debt is high as long as the government has a stronger responsiveness at high levels of debt the responsiveness at low levels of debt has miniscule impact on solvency risk this paper is organized as follows section ii derives the necessary conditions for global stability and the dynamics leading to a solvency crisis under a nonlinear fiscal rule section iii estimates the policy parameters of the canadian fiscal rule and the probability of a solvency crisis section iv provides conclusions ii model we set up a simple small open economy model with a stochastic endowment

searching for a will o the wisp an empirical study of the nairu in canada abstract this paper demonstrates the uncertainty surrounding estimates of the non accelerating inflation rate of unemployment nairu a reduced form phillips curve is used to develop a generic model of the nairu which nests competing hypotheses about the specific form of the inflation unemployment relationship empirical results for the canadian economy show that the range of prime age male nairu s generated by statistically satisfactory and economically reasonable estimating equations covers almost the entire range of canadian post war prime age male unemployment experience estimates of the nairu depend heavily on the form of the estimating equation the operational definition of key variables and the data sample period

unemployment in canada and the united states reduced form unemployment equations containing aggregate demand structural and frictional variables are estimated for canada and the united states post 1981 increases in unemployment rates are explained almost entirely by aggr egate demand variables although structural sectoral variables make i mportant contributions to changes in the gap between the two countrie s unemployment rates for both countries the results support the fo llowing monetarist propositions monetary variables are the prime determinants of the business cycle exogenous investment shocks are typically of minor importance and macro policy has tended to be dest abilizing

innovation accounting for the impact of fluctuations in u s variables on the canadian economy innovation accounting is conducted on a nine variable vector autoregression estimated using u s and canadian monthly data for january 1971 to december 1983 this reveals inter alia a positive impact of the u s interest rate on the canadian rate with the role the exchange rate plays in cushioning this impact being clearly apparent a positive effect of the u s money supply on both u s and canadian interest rates a positive albeit muted response of canadian production to a shock in u s production and a persistent influence of u s prices on production negatively and prices positively in canada are also detected l impact des fluctuations dans les variables americaines sur l eonomie canadienne une analyse utilisant la technique d innovation accounting les auteurs utilisent la technique d innovation accounting dans le cadre d un systeme a neuf variables estime comme autoregression vectorielle a l aide de donnees mensuelles canadiennes et americaines couvrant la periode de janvier 1971 a decembre 1983 cette analyse revl un effet positif de la masse monetaire americaine a la fois sur les taux d interet canadiens et americains une reaction positive mais en sourdine du niveau de production au canada a un choc dans le niveau de production americaine et une influence persistence des niveaux de prix americains sur le niveau de production au canada influence negative ainsi que sur les niveaux de prix canadiens influence positive we should like to thank gordon anderson douglas clarke john kennan john kuszczak angelo melino and stanely winer for a number of helpful discussions earlier versions of the paper were presented at the meetings of the canadian economics association in vancouver in june 1983 at the winter meetings of the econometric society in san francisco in december 1983 and in a session of invited papers at the meetings of the canadian economics association in guelph in june 1984 our discussants jacques raynauld in vancouver thomas doan and stephen king in san francisco and allan gregory in guelph offered many useful comments as too did the members of the money macro workshop at the university of western ontario alan harrison also thanks the economics department at the university of warwick for its hospitality and the social science and humanities research council of canada for financial support canadian journal of economics revue canadienne d economique xviii no 4 november novembre 1985 printed in canada imprime au canada 0008 4085 85 784 98 1 50 canadian economics association this content downloaded from 40 77 167 14 on fri 16 sep 2016 06 02 12 utc all use subject to http about jstor org terms impact of fluctuations in us variables 785

causes of the current stagflation since 1975 labour slack has been unusually high in the oecd countries and yet inflation has not diminished the less favourable mix of unemployment and rate of change of inflation which we call stagflation is explained by a fall in the feasible rate of growth of real wages unmatched by a reduction in the constant term in phillips curve to investigate this mechanism conventional wage and price equations are estimated for 19 countries and then used for simulation stagflation has been caused in roughly equal amounts by rising relative import prices and by the fall in the rate of productivity growth in the basic model the phillips curve is assumed not to adapt to falls in feasible real wage growth but in a final section an adaptive wage equation is estimated which confirms that the process of adaptation is slow

canadian regional cycles the quebec ontario case revisited canadian economists have devoted some attention to the study of regional cycles in the quebec ontario case the wid ening hypothesis has emerged as the empirical consensus this hypot hesis states that the gap between the two regional economies increase s in a recessionary period this paper reexamines this question using recent data and bayesian vector autoregression models the results o btained monthly data on total employment 1966 84 do not support th e prevailing position a u s recession rapidly and strongly affects the ontario economy while the impact on quebec is much weaker conseq uently a recession narrows the gap between the two provinces

hysteresis in unemployment evidence from 48 u s states i introduction one central idea in macroeconomics is the equilibrium unemployment rate hypothesis 1 in many macroeconomic models which allow for some degree of price stickiness fluctuations in demand and supply may lead to deviations of the actual unemployment rate from its equilibrium value these deviations in turn trigger changes in the inflation rate there is nothing in the equilibrium unemployment rate literature which even vaguely suggests such a rate is constant indeed many studies have analyzed the factors which cause the equilibrium unemployment rate to change over time or across areas for example summers 1986 presents evidence of an increased normal u s unemployment rate since the mid 1960s and argues that this increase has in large part resulted from high and growing noncompetitive wage differentials barro 1988 addresses the issue of persistence of unemployment in various countries over a number of time periods and relates measures of persistence to variables that matter theoretically for the economy s speed of adjustment blanchard and summers 1986 1987 propose the so called hysteresis hypothesis of unemployment hysteresis is the term used to describe the long lasting influence of history on the natural rate a recession potentially has permanent effects if it changes attitudes and or characteristics of the unemployed and particularly the long term unemployed furthermore the latter may exert less pressure on the wage setting because they will become outsiders in the labor market the insiders union members or currently employed workers have much incentive to keep wages from falling 2 the hysteresis hypothesis of unemployment has important policy implications it suggests that high unemployment if left by itself may persist and continue to be a serious problem in the economy even in the long run this possibility leaves more room for active government policies to fight recessions and manage the economy the fact that the actual unemployment rate may not fluctuate around some natural rate suggests the possibility of nonstationarity in the unemployment series this relationship can be illustrated with a simple model from wyplosz 1987 or brunello 1990 consider the following phillips curve 1 mathematical expression omitted where p sub t is the current inflation rate e sub t i p sub t is the expected inflation rate of time t given information at time t 1 u sub t is the current unemployment rate mathematical expression omitted is the natural unemployment rate beta is the slope of the phillips curve and xi sub t is an error term the possibility of hysteresis arises when the natural rate is a function of past unemployment rates this can be expressed as follows 2 mathematical expression omitted where c and alpha are constants and zeta sub t is an error term substituting 2 into 1 yields 3 u sub t c alpha u sub t 1 epsilon sub t where epsilon sub t 1 beta e sub t 1 p sub t p sub t xi sub t zeta sub t hysteresis requires the parameter alpha in 3 to be equal to one 3 it implies that once disturbed the unemployment rate tends to wander around without returning to a mean value in this case the unemployment rate and also the natural rate contain a unit root in contrast when alpha is between zero and one the natural rate evolves towards its steady state level c 1 alpha and the weak version of the natural rate hypothesis holds as long as alpha is larger than zero there is persistence in unemployment rate in the sense that past unemployment affects the natural rate we however seek to test for the existence of hysteresis the extreme version of persistence finally when the parameter alpha equals zero the natural rate stays at a constant level c

a discussion of belgian unemployment combining traditional concepts and disequilibrium econometrics with a gdp of less than 100 billion and exports of more than 60 billion belgium comes perhaps closer than any other country to being a small open economy consequently trends in world trade and export performance have a major impact on domestic activity whereas the impact of domestic fiscal policy is damped by import leakages table 1 presents a few figures confirming these observations

modelling the dynamic relationship between wages and prices in finland the purpose of this paper is to discuss finnish wage price dynamics with emphasis on the collective wage bargaining mechanism the results indicate that the dynamics of the system can be adequately described by means of a linear difference model with a rather sparse amount of lags completed by error correction mechanisms to ensure proper long term behavior specification of the collective wage bargaining procedure turns out to be a very important part of the model building another noteworthy feature is the stabilization period in 1968 69 during which a different data generating mechanism was in operation the results do not provide any evidence in favor of the argument that wage indexation prior to stabilization would have had a sizeable effect on the wage price mechanism in finland

accounting for unemployment a labour market perspective i examine whether prolonged high unemployment in canada can be attributed to various structural causes rather than to demand deficiency as found by macro econometric models the answer is largely negative neither the dispersion of sectoral growth rates nor excessive and rigid real wages can convincingly account for most unemployment contentions to the contrary are based upon inappropriately partial analyses enduring shifts in industrial structure have if anything been declining labour mobility is high much unemployment lasts too long to be frictional fuller quantitative understanding of the nature of unemployment can be achieved only in a more general framework

is unemployment insurance addictive evidence from the benefit durations of repeat users the author finds evidence that the past occurrence of a spell of insured unemployment lengthens the duration of future spells descriptive statistics from canadian administrative data covering mid 1971 to early 1990 suggest that unemployment insurance ui claimants tend to spend a longer and longer time collecting benefits with each additional claim they make this finding contradicts the implication of static neoclassical models that successive ui spells should be of the same length the author hypothesizes that the stigma attached to receiving unemployment benefits erodes with each new ui claim an individual files

wage rigidity and unemployment in oecd countries real wage rigidity is often blamed for causing unemployment in the wake of adverse real shocks like changes in productivity or the terms of trade likewise nominal wage rigidity is blamed for causing unemployment in the wake of adverse nominal shocks like falls in nominal demand 1 however there has been relatively little systematic discussion of how these concepts should be defined some authors e g sachs 1979 have defined real wage rigidity as the opposite of nominal wage rigidity with the us nominally rigid and europe really rigid 2 the rigidity of european real wages has then been used to explain why europe has experienced a greater increase in unemployment since 1973 than the us but in this discussion real wage rigidity has not been measured in a way which would in fact predict how much unemployment would result from a given real shock the discussion has focused on the degree of nominal inertia in the system but the unemployment cost of real shocks does not depend primarily on the degree of nominal inertia but rather on the effect of unemployment in the phillips curve

duration and concentration of unemployment this paper examines labour market turnover as a determinant of unemployment in canada the distribution of completed spells of unemployment is generated from gross flow data by using hazard functions unemployment is found to be more concentrated in long spells than can be expected under markov processes difficulties in access to jobs are also revealed in a high proportion of unemployment spells not ending in jobs but in withdrawals from the labour force the incidence of multiple spells of unemployment is also high on balance the characterization of unemployment and the policy conclusions differ markedly from those emphasized by the turnover literature duree et concentration du ch6mage ce memoire examine le roulement sur le marche du travail comme une force determinante du ch6mage au canada la distribution de la longueur des periodes de ch6mage est etablie a partir des donnees brutes par le moyen de fonctions de risque on trouve que le chomage a tendance a se concentrer bien davantage en periodes plus longues que ne le suggererait un modele markovien le serieux des difficultes que les travailleurs ont a se donner acces a un emploi est revele par la proportion des periodes de ch6mage qui se termine non pas par un emploi mais par un retrait de la main d oeuvre active l incidence de plusieurs periodes de chomage est tres forte d un facon generale les diagnostics et les politiques recommendees par la litterature specialisee qui met l accent sur le roulement sur le marche du travail comme force determinante ne semblent pas etre supportes par les resultats des auteurs

wage gaps factor shares and real wages the relationships which link real wages capital intensity and factor shares are tested as a prelude to tests of the relationship between wage rigidities and labour market institutions evidence from seven countries indicates that the evolution of factor shares is well explained by changes in capital intensity which is itself well explained by product wages and technical progress a key implication is that changes in full employment capital labour ratios have been the dominant reason for the longer run decline of profit shares in europe and japan relative to the united states it follows that changes in cyclically adjusted factor shares provide little or no information regarding the gap between the actual real wage and its full employment value

the beveridge curve and regional disparities in canada the beveridge curve establishes an inverse relationship between the unemployment rate and the vacancy rate it has been documented and discussed at length by blanchard and diamond 1989 for the united states the unemployment vacancy relationships of the canadian economy and its regions are considered this analysis reveals some important distinctions in the behaviour of the regional baveridge curves and some interesting similarities at the aggregate level the observations are not strikingly different from those of blanchard and diamond for the us economy

trait making for labour intensive technology in sub saharan africa abstract empirical evidence indicates that the use of labour intensive techniques in african industry would create not only more employment but also more value added relative to competing capital intensive alternatives the evidence also indicates however that it is the latter rather than the former techniques which tend to dominate much of the industrial sector in sub sahara we argue here that this apparently paradoxical situation can be understood once one takes into account the amount of institutional change or institutional trait making that would need to accompany the introduction of labour intensive techniques on a large scale using a number of concepts advanced by hirschman and drawing mainly on cases from the road construction industry in africa we describe exactly which traits need to be made and how this can best be accomplished

unemployment insurance meets the classical labor supply model abstract through making average income dependent on the breakdown of non employment into frequency and duration the classical labor supply model with unemployment insurance has important implications for labor force participation the duration of employment and unemployment and modes of worker behavior that are by and large consistent with empirical knowledge

bargaining power and wage employment contracts in a unionized industry input and output data are used in conjunction with negotiated wages and employment to estimate a fully specified bargaining model between a labour union the international woodworkers of america and representatives from the british columbia wood products industry bargaining powers are modelled as functions of exogenous variables believed to have influenced the parties relative strike costs the estimated bargaining powers are plotted over time and compared to the proportion of rents captured by each party parameters of the union utility function and the firms technology are also estimated and hypothesis tests are conducted on various aspects of the model there are still relatively few studies in which fully specified models of bargaining between labour unions and firms are estimated this reflects both the extensive data requirements and the complexity of the models involved a fully specified model includes a representation of the firms objectives and technological constraints the union s goals and constraints and the bargaining structure furthermore even when micro data are available usually more than two parties are involved i e firms will negotiate with several unions and each union will have to deal separately with the many firms operating within the industry this complicates the modelling of the bargaining setting considerably in this study data on the wood products industry in british columbia canada are analyzed during the period under study 1963 1983 negotiations in this industry were highly centralized in fact the bargaining setting can be described as a bilateral monopoly between the international woodworkers of america iwa a powerful and stable union and the forest industrial relations an employer association representing firms in the industry this data set includes information on outputs and nonlabour inputs thus allowing the calculation of profits and the joint determination of output and other inputs along with employment and wages a structural model with four dependent variables wages employment output and a materials and supplies input is estimated firms are assumed to maximize profits and union objectives are modelled by a ces utility function with employment and the difference between union wages and alternative wages as arguments given a representation for the firms technology and the union preferences a

sectoral shifts and aggregate unemployment additional empirical evidence 1990 sectoral shifts and aggregate unemployment additional empirical evidence applied economics vol 22 no 3 pp 331 346

sectoral shifts and canadian unemployment in this paper lilien s 1982 hypothesis that sectoral shifts in employment raise aggregate unemployment is tested using canadian quarterly data lilien s framework is extended to investigate regional labour market rigidities and to distinguish between industry shifts that are correlated with changes in aggregate activity and those which are exogenous to the overall level of activity the robustness of the results to various changes in model specification is also investigated i find that in canada exogenous shifts in employment between sectors do not have a significant effect on the aggregate unemployment rate this abstract was borrowed from another version of this item

input substitution in manufacturing for three ldcs translog estimates and policy implications demand and subsititution elasticities from a translog cost model are estimated for the manufacturing sectors of india pakistan and bangladesh conventional formulae for the standard errors of the estimated elasticities are checked by a bootstrap experiment and their validity is confirmed for the moderate sized samples of india and pakistan the elasticity estimates indicate a high degree of substitutability among capital labour and energy resources in manufacturing sectors of these countries the result yields important policy implications for employment expansion through changing relative resource prices and the ability of these three economies to adjust to energy price shocks without serious impairment to economic growth

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

fiscal regimes and fiscal sustainability in sri lanka this paper employs the regime switching model based fiscal sustainability test which relaxes the linear fiscal reaction function approach there is evidence of a regime switching fiscal rule in sri