the design of the university system abstract this paper compares the organisation of the university sector under unregulated private provision with the structure which would be chosen by a welfare maximising government it studies a general equilibrium model where students attend university to earn higher incomes in the labour market and universities teach them and carry out research each university chooses its tuition fee to maximise the amount of resources it can devote to research research bestows an externality on society government intervention needs to balance labour market efficiency considerations which would tend to equalise the number of students attending each university with considerations of efficiency on the production side which suggest that the most productive universities should teach more students and carry out more research we find that government concentrates research more that the private market would but less than it would like to do if it had perfect information about the productivity of universities it also allows fewer universities than would operate in a private system

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

the analytics of the pricing of higher education and other services in which the customers are inputs many services provide outputs that depend partially on the customers as inputs the presence of other customers often contributes to the output experienced by each purchaser higher education is the premier example others are legion we provide a simple model that addresses the questions of competitive pricing and allocative efficiency for these types of services prices that charge customers for what they get on net output minus input from the firm both are competitive and support efficient allocations these prices internalize the apparent external effects of customers on each other few examples of such prices exist in the real world

vacancies unemployment and the phillips curve abstract the canonical new keynesian phillips curve has become a standard component of models designed for monetary policy analysis however in the basic new keynesian model there is no unemployment all variation in labor input occurs along the intensive hours margin and the driving variable for inflation depends on workers marginal rates of substitution between leisure and consumption in this paper we incorporate a theory of unemployment into the new keynesian theory of inflation and empirically test its implications for inflation dynamics we show how a traditional phillips curve linking inflation and unemployment can be derived and how the elasticity of inflation with respect to unemployment depends on structural characteristics of the labor market such as the matching technology that pairs vacancies with unemployed workers we estimate on us data the phillips curve generated by the model while we can reject the baseline new keynesian phillips curve in favor of the search frictions specification we show it is still too stylized to fully describe the dynamics of firms marginal costs

the political economy of higher education admission standards and participation gap we build a political economy model allowing us to shed light on the empirically observed simultaneous increase in university size and participation gap parents differ in income and in the ability of their unique child they vote over the minimum ability level required to attend public universities which are tuition free and financed by proportional income taxation parents can invest in private tutoring to help their child pass the admission test a university participation gap emerges endogenously with richer parents investing more in tutoring a unique majority voting equilibrium exists which can be either classical or ends against the middle in which case parents of both low and high ability children favor a smaller university four factors increase the university size larger skill premium enjoyed by university graduates smaller tutoring costs smaller university cost per student larger minimum ability of students but only the former two also increase the participation gap a more unequal parental income distribution also increases the participation gap but barely affects the university size

can the risk shifting employment model explain fluctuating employment it is shown by numerical examples that for the simple two states of the world version of azariadis original model of implicit labour contracts enormous fluctuations in output price are required to generate layoffs the paper then modifies the simple model replacing the perfectly competitive product market specification with a sales constraint this modification makes a significant difference the combination of sales constraints and risk shifting is shown to have the potential to explain layoffs since this sales constraint is unmotivated by micro analysis its inclusion does not satisfy the original aim of the risk shifting employment model to explain layoffs as based on micro foundations a secondary aim of the paper is to make the workings of the risk shifting employment model easier to understand by introducing a new diagrammatic analysis based on a contract curve

implicit contracts moral hazard and unemployment this paper considers a firm whose marginal revenue product of labor is a random variable we derive the form of an optimal long term contract between workers and the firm under the assumption that labor s marginal product is observed by the firm but not by the workers we show that the existence of asymmetric information causes unemployment to be greater than in a situation where information about labor s marginal product is public or where employment is determined in spot markets in particular unemployment can occur when the marginal product of labor exceeds the reservation wage

inflation and social consensus in the seventies it is widely believed that the two oil price shocks of the i 970s played a major role in the increase in inflation in industrial countries while this hypothesis is consistent with the timing of changes in inflation at the global level it seems to break down when applied to individual countries cross sectionally for example over the period i973 9 switzerland had an average inflation rate of 4 7 while in neighbouring italy inflation averaged i5 6 over the same period furthermore inflation in the pre opec period i97i 2 was actually higher in switzerland than in italy it seems that a supply shock explanation of inflation in the seventies also requires an explanation of why different countries responded so differently to a similar set of shocks at the world level the purpose of this paper is to offer such an explanation and to test the hypothesis with a cross sectional equation accounting for differences in average inflation rates over the period i973 9 in eighteen oecd countries this time period includes the year of the first opec shock i 973 and the following six years up to the time of the second opec shock the hypothesis to be tested is set in the framework of a model similar to that of brunner et al i 980 the key features of the brunner model are that the adjustment of real wage expectations is subject to lags and that labour supply is positively related to the difference between the perceived real wage and the expected or target real wage given these two assumptions a negative supply shock gives rise to a period of stagflation whose intensity will be greater the slower is the speed of adjustment of real wage expectations the model of this paper extends the brunner model in three ways first across countries the speed of adjustment of real wage expectations or targets is assumed to depend positively on the degree of social consensus as proxied negatively by an indicator of average long run strike activity second the model allows for the possibility of inflation inertia or systematically incorrect inflation expectations as well as a sluggish adjustment of real wage expectations third the model incorporates the hypothesis that money supply growth will vary across countries according to variations in inflationary pressures as perceived by governments the first section of the paper provides a discussion of the rationale for the key proposition regarding strikes and social consensus as well as a brief discussion of the role of wage bargaining institutions section ii develops a theoretical model which yields a reduced form cross sectional equation relating the average i 973 9

incentives and careers in academia theory and empirical analysis we study career concerns in italian academia we mould our empirical analysis on the standard model of contests formalised in the multi unit all pay auction the number of posts the number of app

fixed and flexible wages evidence from panel data using data for the years 1968 84 from the michigan panel study of income dynamics this study analyzes differential flexibility in nominal wages by tenure and occupation the results show that short run sensitivity to both unemployment and inflation is confined largely to low tenure workers and that the cyclical upgrading and downgrading of employment opportunities makes a significant contribution to flexibility in nominal wages the findings are consistent with a model in which long term commitments insulate the wages of senior workers from short run swings in economic conditions and in which nominal wages are largely noncyclical but employment opportunities shrink and expand

profitability and profit sharing claims that profit sharing is a purely distributive wealth confiscation scheme without incentive effects due to free rider problems are based on neglect of cooperation and interaction in the workforce when these activities are difficult to monitor directly group incentives such as profit sharing can increase efficiency and maintain a superior nashequilibrium with strictly individual optimization with simultaneous wls tobit estimates we find here strong effects of profit sharing and worker ownership shares on residual owners return on capital in medium sized metal working firms in west germany complementing earlier results on productivity

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

the macroeconomic implications of profit sharing some empirical evidence the macroeconomic implications of profit sharing some empiricals paper attempts an empirical assessment of weitzman s proposition that profit sharing provides an antidote to stagflation taking japan as an example of a profit sharing economy the author shows that it does not have either lower cyclical variability of output or lower inflation than other industrial countries the authors then reject the propositions that in a profit sharing economy 1 aggregate demand shocks have a smaller effect on output deviations and 2 import price shocks and wage push have a smaller effect on inflation therefore one should be wary of the claim that the japanese case supports weitzman s model copyright 1987 by royal economic society

hospital profits the effects of reimbursement policies this paper provides a theoretical and empirical analysis of the effect of cost based reimbursement cbr on hospital costs and charges it takes issue with previous analyses which have treated cbr as paying economic costs plus a mark up and have concluded that the mark up is too small to significantly distort hospital decision making the basic thesis here is that if reimbursement is based on costs accounting costs become a price to cost paying patients and will be optimized to maximize revenue a hospital serving both cost and charge paying private patients can set two price schedules accounting profits ratio of charges to costs are not a measure of economic profit but of relative prices to these two groups of patients in the absence of constraints from regulation or patient co payment the optimum level of accounting costs would be infinite in practice the medicare reimbursement formula links allowable costs to charges received from charge paying patients this formula creates incentives for the hospital to raise charges above the single price profit maximizing monopoly level this inflationary effect of the medicare formula does not presuppose that medicare pays less than full cost the empirical analysis of hospital laboratory costs and charges generally supports the predictions for other departments the conclusions are consistent but more tentative because of data limitations overall evidence suggests minimal cross subsidy between cost and charge paying patients comparisons of cost and charge levels in for profit voluntary non profit and government hospitals are presented but it is emphasized that inferences about relative efficiency and profitability cannot be drawn from accounting data given the incentives created by cbr

the cost structure of american research universities 1597 this study estimates translog variable cost functions for 147 american doctorate granting universities accounting for three major products of these institutions undergraduate and graduate instruction and research explicit measures of research output and quality are employed evidence is found for considerable economies of scale for the average institution as well as economies of scope related to the joint production of undergraduate and graduate instruction the public or private ownership of an institution is not significant for the explanation of variable costs the intensity of state regulation in the public sector does not have a significant impact on production efficiency copyright 1991 by mit press

on the job search sticky prices and persistence abstract models of the monetary transmission mechanism often generate empirically implausible business fluctuations this paper analyzes the role of on the job search in the propagation of monetary shocks in a sticky price model with labor market search frictions such frictions induce long term employment relationships such that the real marginal cost is determined by real wages and the cost of an employment relationship on the job search opens up an extra channel of employment growth that dampens the response of these two components because real marginal cost rigidity induces small price adjustments on the job search gives rise to a strong propagation of monetary shocks that increases output persistence

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

tests of production smoothing in selected japanese industries abstract using monthly physical quantity data on production sales and inventories for 29 selected japanese industries it is found that the usual variance decompositions are generally consistent with the production smoothing model at both seasonal and nonseasonal frequencies however the estimated seasonal coefficients in production and sales are highly correlated which should not be the case if firms smooth production in the face of anticipated seasonal movements in sales a further test of the model which implies production should follow a random walk with drift provides mixed results but particularly negative results at the seasonal frequencies

enterprise unionism the japanese system at work trade unions japanese unions at work the japanese labour market has worked quite well over recent decades whereas the european economies have produced more and more unemployment a popular hypothesis is that this difference can be attributed to unions while in europe unions are strong and centralized and do not care about the individual firm the japanese unions are enterprise unions which deal directly with and understand the heal management employers in japan in turn consult unions and employees on all relevant management decisions this corporatism finally ensures that workers are more motivated and have a higher productivity it is the central conjecture of this paper that the presence of unions increases the voice of the employees significantly by using innovative new firm data it is shown that this is actually the case hence japanese enterprise unions are not harmful but foster information sharing and contribute to the performance of the enterprise toshiaki tachibanaki and tomohiko noda

why u s wage and employment behavior differs from that in britain and japan if a poll were to be conducted among american academic economists to select the most mystifying economic phenomenon of our time surely the sticky nominal wage rate would emerge at or near the top of the list the slow and partial response of the nominal wage rate to changes in aggregate nominal spending has been a central postulate of macroeconomic theory for the past 45 years from keynes general theory down to the standard postwar textbook keynesian paradigm to the more modern fixed wage price models of robert barro and herschel grossman i976 and edmond malinvaud i977 unwilling passively to accept nominal wage rigidity as an unexplained assumption many labour market theorists have followed the lead of costas azariadis i975 and martin baily i974 in building models to explain rigid wages and layoff unemployment as the rational outcome of a profit maximising calculus as i pointed out in an early critique of the azariadis baily model i976a their assumptions cannot explain cycles in employment but rather why workers would want fixed incomes i e a fixed wage rate and fixed employment soon thereafter barro i977 went one step further and argued that contract theory is a facade which cannot explain why workers would choose a rigid wage and variable employment in preference to the classical equilibrium quantity of employment that equates the marginal product of labour with the marginal value of time now an examination of the evidence has led me to the realisation that rigid wages cannot provide the underpinnings for a universally valid theory of the business cycle simply because wages are not universally rigid i document below with postwar quarterly data that the share of fluctuations in the manufacturing wage bill taking the form of nominal wage changes as compared to changes in hours worked is five to ten times greater in britain and japan than in

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

trends in unemployment wages and productivity the case of japan along with the high savings ratio the functioning of the labour market is one of the most important factors behind the macroeconomic performance of the postwar japan which foreign observers have christened the miracle of the rising sun in the first place the nature of the japanese labour market is important for the long run trend of japanese economic growth because labour and its quality are crucial factors for economic development the high quality of a well disciplined workforce as well as the migration of labour from rural to urban areas has contributed much to the rapid growth of the japanese economy second the nature of the labour market has influenced the pattern of japanese business cycles by buffering demand fluctuations the slow response of firms demand for labour combined with the fast response of the labour force participation ratio has prevented a sharp increase in the unemployment rate during recessions relatively flexible nominal and real wages have also enabled the japanese economy to adjust quite smoothly to supply shocks notably after the second oil crisis in this paper we shall review trends in unemployment wages and productivity in the postwar japanese economy and relate them to its macroeconomic performance we shall also summarize the current literature concerning features of the labour market evaluate quantitative estimates of trends in labour statistics and explore future prospects

comment on robert m solow insiders and outsiders in wage determination solow s paper is concerned with explaining persistent unemployment in a fluctuating economy where labour is heterogeneous and employment decisions are linked through time this surely is an important problem it is also about time that we start thinking about the labour market as consisting not only of n identical clones but of individuals with different skills education and experience can the skilled or the experienced keep the unskilled from getting jobs and would it be in their interest to do so the latter question is easier to answer and the argument can be laid out in terms of a simple diagram fig 1

fiscal policy and the current account deficits and trade jose vinals does the balance of payments act as an external constraint on the design of domestic economic policy in practice most governments believe it does yet popular discussion is sometimes confused this paper begins by evaluating the nature of the external constraint and the extent to which it can adequately be measured by the current account of the balance of payments it is often argued that a fiscal expansion will increase employment it is also widely held that a fiscal expansion necessarily leads to a deterioration of the current account while these propositions may hold in specific circumstances neither is generally true the theoretical basis of the two propositions is examined and compared with recent international experience when important changes in fiscal stance occurred the popular presumptions are confirmed by recent experience in the us the uk and germany but france is a counterexample to the first and spain to the second the important policy implication is that one can identify both in theory and in practice clear circumstances in which expansionary fiscal policy is appropriate and will not be thwarted by external considerations

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

institutions of higher education as multi product firms economies of scale and scope a multiple output cost function is estimated for institutions of higher education in the united states employing data for 1981 82 the authors flexible fixed cost quadratic function includes three outputs undergraduate teaching graduate teaching and research grants and one input price average faculty salaries results indicate the existence of scope economies at least up to a point for both public and private institutions of higher education ray economies of scale are more pronounced in the private sector and product specific economies of scale are observed only in the public sector for research and graduate teaching copyright 1989 by mit press

r d production structure and rates of return in the u s japanese and german manufacturing sectors a non separable dynamic factor demand model abstract the focus of this paper is an analysis of the production structure the demand for factor inputs and the rates of return in the manufacturing sector of three major industrialized countries the united states japan and germany the analysis is based on a dynamic factor demand model with two variable inputs labor and materials and two quasi fixed inputs capital and rd also for all countries the speed of adjustment for capital is found to be higher than that for r d

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

learning about monetary policy rules when labor market search and matching frictions matter abstract this paper examines the implications of labor market search and matching frictions for determinacy and e stability of rational expectations equilibrium ree in a sticky price model with interest rate policy when labor adjustment takes place solely at the extensive margin forecast based policy that meets the taylor principle is likely to induce indeterminacy and e instability regardless of whether it is strictly or flexibly inflation targeting when labor adjustment takes place at both the extensive and intensive margins the strictly inflation forecast targeting policy remains likely to induce indeterminacy but it generates a unique e stable fundamental ree as long as the taylor principle is satisfied therefore the presence of search and matching frictions changes the determinacy properties of a strictly inflation forecast targeting policy and alters its e stability properties when only an extensive margin is present but not when labor adjustment takes place at both margins

trade unions and economic efficiency in this paper i shall investigate a role for trade unions in increasing economic efficiency this role is enabling an improvement in the allocation of riskbearing between a firm and its employees the essential idea is straightforward if employers and employees are both risk averse the optimal wage contract will not leave one party bearing all the risk if state contingent contracts are possible grossman and hart 1981 give several reasons for firms being risk averse that firms are indeed risk averse would seem to follow from the fact that employees bear substantial risks few firms offer a job for life at a guaranteed real wage employees bear the risks of layoff redundancy and changes in the real value of their earnings with transactions costs in finding and moving to another job which may be substantial in periods of high unemployment these are real risks yet the states of the world in which these eventualities are to occur are rarely specified in any legally enforceable form indeed it is hard to imagine that they ever could be both because of the problem of envisaging all the relevant states of the world the bounded rationality of simon 1979 and because of the problem of defining those states in such a way that the courts could in the event of a dispute decide which state had occurred in the absence of legal enforceability of state contingent contracts the analysis depends on whether or not decisions about production must be made before a firm knows which state has occurred if they do not have to be then it is not essential to negotiate any contract before the firm knows the state but it may still be desirable from a risk sharing point of view to have a long term contract covering different possible states for that case hall and lilien 1979 and grossman and hart 1981 have argued that some degree of state contingency may be achieved by negotiating a contract which allows the firm in the light of the state which occurs to choose between limited combinations of employment and wages the firm may for example be permitted to reduce wages under the contract but only at the expense of reducing employment so that it is only in its interest to do so if marginal productivity is low this can overcome some of the moral hazard problems arising when states are observed only by firms but as grossman and hart show only at the cost of pareto inefficiency in the employment contract at an empirical level it may explain provisions for compulsory overtime at premium rates this type of contract will work only in the case in which the firm observes the state of the world before making employment decisions but given that

a model of rationing and labour supply theory and estimation a number of authors most prominently clower 1965 and leijonhofvud 1968 have interpreted keynes s theory of unemployment as a disequilibrium model nominal price and wage rigidity prevent the labour market from clearing the actual level of employment is given by the minimum of the effective demand for labour and the effective supply general disequilibrium models of income and employment determination have been developed by barro and grossman 1976 and malinvaud 1977 the model has been extended to the open economy by dixit 1978 and to a two period rational expectations context by neary and stiglitz 1979 the econometric implications of the disequilibrium approach have been developed by goldfeld and quandt 1972 maddala and nelson 1974 and rosen and quandt 1978 among others in summary the disequilibrium approach has provided a fruitful context for analysing macroeconomic behaviour in a competitive walrasian system the notional supply of labour is defined as the amount of labour a worker wishes to provide when he can buy and sell as much as he would like in all markets subject only to his budget constraint and given prices and wages the notional supply of labour then is given by l where 1 c attains the indirect utility function

hours layoffs and unemployment insurance funding theory and practice in an international perspective the strikingly different behaviour of important economic aggregates in the united states and other industrial countries has received surprisingly little attention from economists among recent exceptions however gordon i 982 has shown that wages and hours of work are much more flexible in the united kingdom and japan than in the united states such relative hours variability is confirmed in a macro analysis by capdevielle and alvarez i98i and at micro level by sengenberger and kohler i982 the latter authors are concerned with labour market adjustment within the u s and west german automobile industries between i 97 i and i 980 estimates of the german workeroutput elasticity are found to be less than half that of the united states while the german hours elasticity is twice the united states figure at the national aggregate level capdevielle and alvarez also reveal much greater employment variability in the united states than in most other oecd countries in the years following the i973 74 opec supply shock much in line with these employment hours observations moy and sorrentino i98i argue that after

labor market dynamics with endogenous labor force participation and on the job search abstract studies that incorporate endogenous labor force participation and search and matching frictions in a real business cycle model report that the model generates counterfactual dynamics 1 labor force participation is very volatile and strongly procyclical 2 unemployment is weakly procyclical or acyclical 3 unemployment and vacancies are positively correlated to improve the model s performance i enrich the model with on the job search as a mechanism to dampen the movements of participation and keep vacancy creation high for longer periods the proposed model successfully generates weakly procyclical participation strongly countercyclical unemployment and the beveridge curve the model also succeeds in matching the statistics for labor force participation and job to job flows

granger causality real factor prices and employment a re appraisal with uk data this paper reports the results produced by applying tests for granger causality of post war u k real wage and employment data the results suggest that real wages granger cause employment with no feedback this result is robust to the inclusion of real materials prices the results are not robust to changes in the sample period real wages and employment appear independent with data up to 1977 4 the oscillations of real wages between 1976 and 1978 when a stern wage policy was implemented and dismantled are responsible for these different results this explains the contradictory results reported in previous studies

what matters most teaching or research empirical evidence on the remuneration of british academics this paper examines the impact of productivity on pay within academia drawing upon a detailed dataset of academics from five old established universities results outline the importance of publication grant receipt and teaching quality in the determination of pay a large financial penalty to time out of the profession is revealed which with productivity variables explains away the gender salary gap the relationship between teaching and research is investigated and we find some evidence in support of the hypothesis that productive researchers are successful teachers results on reservation salary suggest that the best academics are willing to stay within the profession

pricing production and persistence though built with increasingly precise microfoundations modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks as recently stressed by chari kehoe and mcgrattan 2000 this is an ironic finding since taylor 1980 and other researchers were motivated to study sticky price models in part by the objective of generating large and persistent business fluctuations we trace this lack of persistence to a standard view of the cyclical behavior of real marginal cost built into current sticky price macro models using a fully articulated general equilibrium model we show how an alternative view of real marginal cost can lead to substantial persistence this alternative view is based on three features of the supply side of the economy that we believe are realistic an important role for produced inputs variable capacity utilization and labor supply variability through changes in employment importantly these real flexibilities work together to dramatically reduce the elasticity of marginal cost with respect to output from levels much larger than unity in ckm to values much smaller than unity in our analysis these real flexibilities consequently reduce the extent of price adjustments by firms in time dependent pricing economies and the incentives for paying fixed costs of adjustment in state dependent pricing economies the structural features also lead the sticky price model to display volatility and comovement of factor inputs and factor prices that are more closely in line with conventional wisdom about business cycles and various empirical studies of the dynamic effects of monetary shocks federal reserve bank of philadelphia boston university nber and frb richmond this paper builds on earlier joint work with alexander l wolman on this topic we wish to thank brian boike for providing excellent research assistance and also to thank the referees and the editor for making numerous useful suggestions the views expressed in this article are those of the authors and do not necessarily represent those of the federal reserve bank of philadelphia the federal reserve bank of richmond or the federal reserve system

counterinflationary policy in a unionised economy with nonsynchronised wage setting a model of the determination of wages and employment in a unionised economy with nonsynchronised wage setting is presented in this paper it is shown that a monetary deflation can lead to prolonged unemployment even though the unions act rationally and with full information about the change in policy the model generates a statistical phillips curve in which the rate of change of money wages depends on the anticipated growth rate of the money supply and on disequilibrium unemployment conventional incomes policies are shown to have desirable social effects but run counter to the perceived self interest of the trade unions and are therefore likely to be resisted taxes on wage increases have desirable long run effects but do not appear able to reduce the transitional unemployment costs of monetary deflation

implicit contracts with asymmetric information and bankruptcy the effect of interest rates on layoffs this paper develops a model in which a firm writes labour contracts with workers and debt contracts with creditors firms have more information than do the owners of the factors of production and they are also subject to limited liability we show that if the limited liability constraint is binding then the employment level is inefficient relative to a situation of symmetric information the firm is then embedded into a partial equilibrium model in which the real rate of interest is exogenously determined we show that increases in the real rate of interest increase the inefficiency of the optimal employment contract and lead to layoffs in more states of nature than would occur at lower real interest rates recent literature in the area of implicit contracts has shown considerable interest in the assumption of asymmetric information henceforth a i papers by azariadis 1982 green and kahn 1982 and grossman and hart 1981 have all shown that a i will interfere with optimal risk sharing but although these models produce non walrasian outcomes it is not clear that they are capable of explaining the observed variations in employment over the business cycle in the absence of a link between the level of employment and other macroeconomic variables these new versions of contract theory are open to the charge that they are presenting a complicated explanation of frictional unemployment one potential link between variations in output and variations in intertemporal prices is suggested by models which explicitly allow for the possibility of bankruptcy sappington 1983 has shown that bankruptcy will generate inefficient outcomes even between risk neutral agents and farmer 1984 has shown that if sappington type contracts are incorporated into a macroeconomic structure then the resulting model predicts that bankruptcies will vary countercyclically over the business cycle although bankruptcy is important however it is unlikely that bankruptcies alone will account for all of the output loss during a recession the purpose of this paper is to show that the assumptions of a i and limited liability will generate a model in which the employment level is inefficient and in which the magnitude of this inefficiency varies systematically with the expected real rate of interest this model predicts that the observed increase in the incidence of layoffs during recessions is directly attributable to the effects of high interest rates on aggregate supply some evidence of the phenomenon to be explained is presented below

aggregate pattern of time dependent adjustment rules i a game theoretic analysis of staggered versus synchronised wage setting this paper studies the benefits of staggered wage setting in reducing strategic conflicts it is shown that when wage setters interact strategically and dynamically they prefer moving alternatingly because by doing so they are able to commit temporarily not to offset the effects of each other s action it is also shown that synchronization represents a better arrangement when agents are able to coordinate these results are consistent with the presence of nonsynchronous and decentralized wage decisions in the united states and the united kingdom and the presence of synchronous bargaining in shunto and coordination in wage determination in japan copyright 1996 by royal economic society

the governance and performance of universities evidence from europe and the us we test the hypothesis that universities are more productive when they are both more autonomous and face more competition using survey data we construct indices of university autonomy and competition for both europe and the united states we show that there are strong positive correlations between these indices and multiple measures of university output to obtain causal evidence we investigate exogenous shocks to us universities expenditures over three decades these shocks arise through the political appointment process which we use to generate instrumental variables we find that an exogenous increase in a university s expenditure generates more output measured by either patents or publications if the university is more autonomous and faces more competition exploiting variation over time in the stakes of competitions for us federal research grants we also find that universities generate more output for a given expenditure when research competitions are high stakes we draw lessons arguing that european universities could benefit from a combination of greater autonomy and greater accountability greater accountability might come through increased reliance on competitive grants enhanced competition for students and faculty promoted by reforms that increase mobility and yardstick competitions which often take the form of assessment exercises philippe aghion mathias dewatripont caroline hoxby andreu mas colell and andre sapir

what shapes are overtime premium schedules some evidence from japan the uk and the us we provide estimates of the shapes of overtime premium schedules for three contrasting economies based on two digit industries through time at one end of the spectrum the united kingdom has no legislation concerning the minimum premium rate while at the other the united states mandates a high minimum premium of 1 5 times the straight time hourly rate in between these extremes japan sets a minimum premium of 1 25 we concentrate in particular on the question of whether the premium rises in average hours

profit sharing and its effect on income distribution and output a kaleckian approach this study investigates how profit sharing influences the economy by using a kaleckian model unlike existing research i endogenise the profit share the analysis shows that profit sharing decreases or increases the equilibrium capacity utilisation rate depending on whether the productivity enhancing effect of profit sharing is weak or strong moreover the presented numerical simulations show that the profit sharing effects on income distributions differ according to the relative strength of the productivity enhancing effect of profit sharing

labor market search the taylor principle and indeterminacy abstract in a sticky price model with labor market search and matching frictions forecast based interest rate policy almost always induces indeterminacy when it is strictly inflation targeting and satisfies the taylor principle indeterminacy is due to a vacancy channel of monetary policy that makes inflation expectations self fulfilling the effect of this channel strengthens as the sluggishness of the adjustment of employment relative to that of consumption increases when this relative sluggishness is high the taylor principle fails to ensure determinacy regardless of whether the policy is forecast based or outcome based whether it is strictly or flexibly inflation targeting or contains policy rate smoothing

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

reallocation shocks persistence and nominal rigidities abstract we reconsider the role of reallocation shocks in a simple new keynesian model with search and matching frictions the sign of the conditional correlation between unemployment and vacancies depends on the degree of price rigidity and on the persistence of the shock therefore a non negligible role for reallocation shocks in driving business cycle fluctuations cannot be ruled out on theoretical grounds

efficient tuition fees and examinations we assume that students observe only a private noisy signal of their ability and that universities can condition admission decisions on the results of noisy tests if the university observes a private signal of each student s ability which is soft information then asymmetries of information are two sided and the optimal admission policy involves a mix of pricing and pre entry selection based on the university s private information in contrast if all test results are public knowledge then there is no sorting on the basis of test scores tuition alone does the job of implementing an optimal degree of student self selection these results do not depend on the existence of peer effects the optimal tuition follows a classic marginal social cost pricing rule jel d82 h42 i22 j24

theoretical foundations for sticky wages abstract the paper compares three different types of theoretical explanation of sticky wages they are implicit contracts efficiency wage models and insider outsider models it then reconsiders keynes rationale for sticky wages which focuses on relative wage issues finally the paper considers possible directions for future research

unemployment and business cycles we develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates including labor market variables in sharp contrast to leading new keynesian models we do not impose wage inertia instead we derive wage inertia from our specification of how firms and workers negotiate wages our model outperforms a variant of the standard new keynesian calvo sticky wage model according to our estimated model there is a critical interaction between the degree of price stickiness monetary policy and the duration of an increase in unemployment benefits

on the job search and cyclical unemployment crowding out vs vacancy effects incorporating on the job search otjs into a real business cycle model has been shown to increase the cyclical volatility of unemployment using a particularly simple model of otjs we show that the increased search of employed workers during expansions induces firms to open more vacancies but also crowds out unemployed workers in the job search resulting in an ambiguous overall effect on unemployment volatility we show analytically and numerically that the difference between the employer s share of the match surplus with an employed versus an unemployed job seeker determines the degree to which otjs increases unemployment volatility we use this result to re consider some related papers of otjs and explain the amplification of volatility they obtain finally we show that a plausible calibration of the otjs model allows us to reproduce most significant features of the us labor data

excess labour and the business cycle a comparative study of japan germany the united kingdom and the united states against the background of firm specific human capital theory this paper investigates empirically the relative propensity of manufacturing industries in japan germany the united kingdom and the united states to hold excess labour over the business cycle both stock and utilization dimensions of the labour input are integrated into the study throughout discussion is linked to earlier research that has analysed the relative international performance of the japanese labour market

inflation dynamics and labor market specifications a bayesian dynamic stochastic general equilibrium approach for japan s economy i introduction inflation dynamics have been investigated using dynamic stochastic general equilibrium dsge models with sticky prices in the models inflation is determined by the new keynesian phillips curve nkpc where real marginal cost of producing output is the main driving force and varies with changes in labor cost therefore the specification of the labor market plays a crucial role in describing inflation dynamics many previous studies use sticky wage models e g christiano eichenbaum and evans 2005 levin et al 2006 smets and wouters 2003 2007 in this specification of the labor market workers set wages on a staggered basis la calvo 1983 while firms employ all workers and adjust labor input by changing hours per worker i e intensive margin of labor consequently the cost involved to adjust employment is absent in sticky wage models recently there has been a surge of interest in the role of the extensive margin of labor i e employment for inflation dynamics walsh 2005 krause and lubik 2007 and trigari 2009 for instance incorporate sticky prices in a labor market search model that has been analyzed in the literature starting from mortensen and pissarides 1994 merz 1995 and andolfatto 1996 1 in this labor market specification firms adjust labor input by changing employment while wages are determined through bargaining between workers and firms these characteristics of the labor market differ radically from those in sticky wage models despite this fundamental difference existing literature lacks the formal comparison of sticky wage models and labor market search models the present article fills this gap specifically we estimate a sticky wage model and a labor market search model with japan s data using a bayesian likelihood approach and compare these two models in terms of marginal likelihood and out of sample forecast performance the estimation results show that the labor market search model is superior to the sticky wage model in terms of both marginal likelihood and out of sample forecast performance particularly regarding inflation why is the former model better able to fit the data and forecast inflation because the non labor market part is identical between these two models the key difference is the relationship between real wages and inflation or output in the sticky wage model real wages are highly correlated with output in the presence of monopolistically competitive labor markets and unit labor cost under full employment is identical with real marginal cost and thus drives inflation dynamics however the cross correlation between real wages and output in the data is not so high as in the sticky wage model besides the data of real wages and output determine the unit labor cost which lags far behind inflation by more than 3 years whereas a high contemporaneous correlation between inflation and real marginal cost is represented in the nkpc in the labor market search model labor bargaining generates a mild cross correlation between real wages and output moreover real marginal cost is determined by both hiring cost and unit labor cost that varies with employment fluctuations which gives rise to a high contemporaneous correlation between inflation and real marginal cost therefore the labor market search model is better able to fit the data and forecast inflation in related literature rabanal and rubio ramirez 2005 show that a sticky wage model matches u s data far better in terms of marginal likelihood than a flexible wage model christoffel linzert and linzert 2006 gertler sala and trigari 2008 and krause lopez salido and lubik 2008 estimate a labor market search model with u s or euro area data to our knowledge the present article is the first to compare a sticky wage model and a labor market search model in terms of marginal likelihood and out of sample forecast performance

towards an explanation of the productivity slowdown an acceleration deceleration hypothesis after two and a half decades of prosperous post war development western industrialised countries recently experienced a slowdown of economic growth and productivity advance together with an increase in the rates of inflation and unemployment in trying to explain this malaise we are looking at a diagnosis that could help us to identify early indicators of a future turnaround or some policy variables which deserve to be included in a therapeutic programme although we shall focus on what can be measured complying with the standards of the guild we shall not refrain from considering complex relationships which can be grasped only intuitively even if they include phenomena which lie beyond the limits of official statistics 2 the outcome may be soft economics but we find some consolation in the dictum that it is better to be vaguely right than to be precisely wrong

intertemporal substitution and labor supply in japan this paper considers whether japanese labor market data are consistent with the intertemporal substitution hypothesis the japanese labor market data are first tested for broad conformity with the hypothesis using the methodology of ashenfelter and card 1982 the results from this analysis are encouraging next the hypothesis is tested using the methodology of altonji 1982 the results from this analysis are not generally favorable to the hypothesis finally an ad hoc test of whether the bonus should be considered a form of wage payment is nested in the test of the intertemporal substitution hypothesis with the result that the bonus does not appear to elicit the same labor supply behavior as the base wage

on the job search and strategic bargaining abstract this paper studies wage bargaining in a simple economy in which both employed and unemployed workers search for better jobs the axiomatic nash bargaining solution and standard strategic bargaining solutions are inapplicable because the set of feasible payoffs is nonconvex i instead develop a strategic model of wage bargaining between a single worker and firm that is applicable to such an environment i show that if workers and firms are homogeneous there are market equilibria with a continuous wage distribution in which identical firms bargain to different wages each of which is a subgame perfect equilibrium of the bargaining game if firms are heterogeneous i characterize market equilibria in which more productive firms pay higher wages i compare the quantitative predictions of this model with burdett and mortensen s 1998 wage differentials employer size and unemployment international economic review 39 257 273 wage posting model and argue that the bargaining model is theoretically more appealing along important dimensions

inflation and labor market dynamics revisited abstract we demonstrate that the presence of an empirically plausible labor adjustment decision at the firm level rationalizes strategic complementarities in price setting which help explain inflation dynamics those strategic complementarities are typically assumed away in the related existing literature this motivates our revisiting of inflation and labor market dynamics

can hysteresis explain different labour market operations between europe and the united states this paper offers an analysis of the labour market operation in europe and the united states during 1970 1985 it appears that the labour market developments in europe are more characterized by hysteresis than in the united states simulation results indicate that the unemployment rate in europe would have reached the level of that in the united states in 1985 when wage formation had been more similar

dynamic labor contracts under asymmetric information abstract this paper discusses the distortion of employment within a two period asymmetric information contracting model in which an exogenous demand shock is serially correlated and is known only to firms the obtained results show that serial correlations of the state of nature can cause not only underemployment but also overemployment even when overemployment never occurs in the context of a static asymmetric information contracting model

organizational adjustment and institutional factors in japanese labour market adjustment an empirical evaluation abstract this paper examines the importance of institutional factors in the mechanism of japanese labour market adjustment the commonly held view suggests that transfers of employees both between and within firms have enhanced flexibility while contributing to the maintenance of low unemployment rates the paper produces evidence in support of the importance of transfers as an adjustment device limited to a subset of large manufacturing enterprises however the direct macroeconomic contribution of these institutional factors is marginal and the common view may have overestimated their importance

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

academic admissions standards implications for output distribution and mobility we examine the trade offs implicit in academic admissions standards when students are charged cost based tuition and offered loans that remove liquidity constraints lowering entry requirements while holding graduation requirements fixed increases aggregate output and promotes a more equal distribution of wages but reduces relative income mobility and diminishes the scope for affirmative action lowering admissions standards while raising graduation requirements so that the number of graduates remains constant has little direct effect on output distribution or mobility but again reduces the scope for affirmative action income based affirmative action offers a better trade off between output and relative mobility than income neutral admissions jel d31 h42 i23 i28 j24

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

admission tuition and financial aid policies in the market for higher education we present an equilibrium model of the market for higher education our model simultaneously predicts student selection into institutions of higher education financial aid educational expenditures and educational outcomes we show that the model gives rise to a strict hierarchy of colleges that differ by the educational quality provided to the students we also develop a new estimation procedure that exploits the observed variation in prices within colleges identification is based on variation in endowments and technology it does not rely on observed variation in potentially endogenous characteristics of colleges such as peer quality measures and expenditures we estimate the structural parameters using data collected by the national center for education statistics and aggregate data from peterson s and the national science foundation

participation and study decisions in a public system of higher education we analyze the decision whether to participate and where and what to study in a public system of higher education based on a unique dataset of all eligible high school pupils in an essentially closed region flanders we find that pupils perceive the available institutions and programs as close substitutes relative to the outside option this implies an ambiguous role for travel costs they hardly affect the participation decision but have a strong impact on the decision where and what to study to illustrate how our empirical results can inform the debate on reforming public systems we assess the effects of tuition fee increases uniform cost based tuition fee increases achieve most of the welfare gains the additional gains from fee differentiation are relatively limited these welfare gains are quite large under conservative assumptions on the social cost of public funds and there is a substantial redistribution from students to outsiders copyright 2009 john wiley sons ltd