the employment effects of shorter working hours an application to japanese data this paper applies a simple model of hours employment and earnings to japanese manufacturing data and shows that a reduction in the number of standard hours is likely to increase overtime and reduce employment these findings are in line with recent theoretical developments and in contrast to the predictions of traditional analysis of hours and employment adjustment this difference is shown to be due to the treatment of the wage rate copyright 1989 by the london school of economics and political science

political institutions and financial development an empirical study summary this paper examines whether political institutional improvement promotes financial development using a panel dataset of 90 developed and developing countries over 1960 99 the empirical evidence reveals a positive effect of institutional improvement on financial development at least in the short run particularly for lower income countries the preliminary evidence by a before after event study indicates that a democratic transformation is typically followed by an increase in financial development

why don t poor countries catch up a cross national test of an institutional explanation early neoclassical analyses predicted that poor countries would grow faster than wealthy countries because of technological advances and diminishing returns to capital in the latter the reverse has occurred poor countries are falling back rather than catching up we suggest here that deficient institutions underlie this divergence employing various indicators of institutional quality including the rule of law the pervasiveness of corruption and the risk of expropriation and contract repudiation we show that the ability of poor countries to catch up is determined in large part by the institutional environment in which economic activity in these countries takes place jel o00 o10

globalisation growth and convergence this paper devoted to the study of globalisation analyses two distinct but closely related issues first it aims at evaluating disparities in the degree of globalisation observed in a sample of 101 countries over the period 1970 2005 second the paper tries to shed some light to the much debated issue of whether globalisation affects economic growth and in so doing whether convergence in globalisation brings about convergence in per capita income the results obtained are both encouraging on the one side as it is shown that there has been a clear process of globalisation convergence on the other the paper concludes that globalisation has been one of the main drivers of economic growth thus fostering convergence in per capita income

the employment effects of a shorter working week labor organizations currently argue that reducing the standard working week will help lower the high unemployment of the 1980s opponents maintai n that this will increase labor costs and therefore not alleviate un employment this paper analyzes the employment effects of a cut in ho urs using the monopoly union and efficient bargaining models of the union and firm under various developments of the models the results are quite consistent a reduction in hours has employment effects th at are at best ambiguous and very often negative a puzzle remains as to why trade unions are pressing for shorter hours copyright 1987 by the review of economic studies limited

working time and labour demand in finnish manufacturing short run and long run effects the effect of changes in the standard working time on employment and average hours is studied using pooled data from five finnish manufacturing industries the model is an error correction model which makes it possible to separate short run reductions in standard hours increase employment there is evidence that the long run effect of working time on employment has changed over time in the 1970s reductions in hours have had positive long run employment effects but in the 1980s the positive short run impact has been neutralized in the long run changes in standard hours do not influence the utilization rate of labour which is defined as the ratio of overtime hours to standard hours in the short run the utilization rate is influenced by output changes

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

when does it take a nixon to go to china substantial policy changes like market oriented reforms by populist parties and steps towards peace by hawks are sometimes implemented by unlikely parties to account for such episodes this paper develops a framework in which incumbent politicians have better information about the state of the world than voters the incumbent is unable to credibly transmit all this information since voters are also imperfectly informed about his ideology the paper identifies conditions under which an incumbent party s electoral prospects increase the more atypical the policy it proposes popular support for a policy or its credibility depends on the policymaker policy pair copyright 1998 by american economic association

a note on redistributive fairness and economic reform abstract to understand reasons for possible failures of good economic reforms we consider an institution which is always successful in making the best public decision from the utilitarian perspective we show it is bound to introduce inequality if costs of a reform are privately known the losers can not be always compensated thus if equity is a primary concern then some reforms with positive aggregate net gain might not be undertaken if the utilitarian welfare is the only guide for making public decisions implementing a reform might require the ability to ignore the associated social costs of inequality

financial integration in east asia an empirical investigation the central objective of this paper is to empirically evaluate the degree of linkages among east asian equity and bond markets using data from the imf s coordinated portfolio investment survey cpis we find that intra east asian financial asset holdings of four east asian countries japan korea hong kong and singapore are larger than the levels predicted by the financial gravity model however our analysis suggests that this result is likely to be driven by intra regional trade linkages and reflect those linkages therefore the salient implication for regional policymakers is that they should continue to promote intra regional financial integration this paper also aims to analyse the impact of three different types of country specific risks political economic and financial risks on investment from the four countries this analysis yields a clear positive relationship between destination country risk in particular political risk and capital inflows

overtime labor employment frictions and the new keynesian phillips curve abstract this paper presents a new keynesian nk model that is extended to differentiate between straight time and overtime work the model proposes that the new keynesian phillips curve nkpc should be estimated with marginal cost measured in terms of overtime labor the resulting coefficient estimates are in accordance with theory and statistically significant for the hybrid nkpc which allows for backward looking price setters but not for the purely forward looking nkpc in the hybrid model backward looking behavior is found to be predominant the paper also shows that the incorporation of employment frictions predetermined employment and convex adjustment costs in nk models helps reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level

the structure of labor costs with overtime work in u s jobs the author analyzes employment contract and labor demand models of the fair labor standards act overtime pay regulation to determine their effects on employers labor costs using national compensation survey data to obtain a representative sample of u s private industry jobs he assesses each model s ability to predict either the adjustment of wage rates if overtime is warranted the employment contract model or the probability of using overtime to meet labor demands the labor demand model using quasi fixed employment costs as independent variables allows for a better accounting of labor demand he finds that lower wages go hand in hand with jobs requiring more overtime work which indicates that overtime pay regulation influences the structure of compensation

the effects of work sharing on employment and overtime in finnish manufacturing 1960 87 comparison of three alternative models the purpose of this paper is to develop a model of the determination of hours and employment is developed and compared with the models of brunello 1989 and hart and wilson 1988 the models are estimated by using annual and quarterly data from the finnish manufacturing sector according to the results the actual hours closely follow the standard hours this implies that the interior solutions in hours determination suggested by compared models are not relevant instead firms try to avoid overtime as a consequence work sharing through shorter hours will be effective

political losers as a barrier to economic development per capita income in many sub saharan african countries such as chad and niger is less than 1 30th of that of the united states most economists and social scientists suspect that this is in part due to institutional failures that stop these societies from adopting the best technologies a particularly interesting historical example comes from the diffusion of railways in the 19th century while railways are regarded as a key technology driving the industrial revolution there were large lags in their diffusion for example in 1850 the united states had 14 518 km of track britain 9 797 km and germany 5 856 km in the russian and hapsburg empires there were just 501 km and 1 357 kim respectively all data from brian r mitchell 1993 why do societies as in this example fail to adopt the best available technologies one answer is that existing powerful interest groups block the introduction of new technologies in order to protect their economic rents and societies are able to make technological advances only if they can defeat such groups economic monopolies may be one example a monopolist might wish to block the introduction of a new technology by a rival that will capture the market this idea which we call the economic losers hypothesis was discussed by simon kuznets 1968 developed at length by joel mokyr 1990 in the context of technology adoption and formalized by per krusell and jose victor rios rull 1996 and stephen l parente and edward c prescott 1997 related ideas are widely discussed in the literature on international trade policy with many formal models e g gene m grossman and elhanan helpman 1994 there are problems with this story however first despite the intuitive appeal of the idea there are relatively few instances where major economic change was blocked by economic losers mokyr 1990 emphasizes the attempts of many skilled artisans to block the introduction of new machines the most famous example is the luddites skilled weavers who were thrown out of work by mechanization interestingly however many of these groups including the luddites were ultimately unable to block economic progress equally important the economic losers hypothesis relies on the presumption that certain groups have the political power to block innovation but if so why not use this power to simply tax the gains generated by the introduction of the new technology this might be because there are limits on the nature of fiscal instruments though it seems plausible that groups with sufficient political power to block innovation would be able subsequently to lobby effectively for redistribution a more important reason however may be that the introduction of new technology and economic change more generally may simultaneously affect the distribution of political power we argue that the effect of economic change on political power is a key factor in determining whether technological advances and beneficial economic changes will be blocked in other words we propose a political loser hypothesis we argue that it is groups whose political power not economic rents is eroded who will block technological advances if agents are economic losers but have no political power they cannot impede technological progress if they have and maintain political power i e are not political losers then they have no incentive to block progress it is therefore agents who have t discussant gene grossman princeton university

does institutional change spread across countries explaining spatial patterns in human rights if a country improves its human rights record will neighbouring countries benefit beneficial spillovers could justify intervention by the un or one of the many other organisations that internationally fight human rights violations we document that countries human rights performances often resemble the human rights situation of their neighbours however exploiting time variation in a spatial panel we find that much of that resemblance is simply determined by the shared geographical location changes in neighbouring countries have little influence on local human rights suggesting that contemporaneous spillovers and interactions are limited

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

does globalization affect growth evidence from a new index of globalization the study develops an index of globalization covering its three main dimensions economic integration social integration and political integration using panel data for 123 countries in 1970 2000 it is analysed empirically whether the overall index of globalization as well as sub indexes constructed to measure the single dimensions affect economic growth as the results show globalization indeed promotes growth the dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries although less robustly information flows also promote growth whereas political integration has no effect

swallowing the bitter pill sources of popular support for neoliberal reform in latin america what accounts for the surprisingly widespread popular approval that painful neoliberal reforms elicited in several latin american countries this article compares the explanatory power of two rival hypotheses which draw on conventional rational choice and psychological decision theory the compensation hypothesis claims that governments can engineer support for costly reforms by compensating the losers through targeted social benefits the rescue hypothesis questions this claim and maintains that draconian adjustment only finds support if it promises to revert a deep crisis and avert further losses data from argentina bolivia brazil mexico peru and venezuela suggest that the rescue hypothesis accounts much better for the initial endorsement of neoliberal shock programs immediately after their enactment when these shock programs bring about economic stabilization and recovery targeted social benefits help consolidate support for neoliberalism which a statistical analysis of the impact of social s

work sharing employment and wages the paper analyzes the effects of a reduction in working time on wages and employment with a monopoly union in general it is not clear in which directions these variables move but if employment and working time are perfect substitutes the effects are related to how working time has been determined initially the wage increases if initial working time is smaller than or equal to the trade union optimum whereas the result is unclear when it is larger in this case it is never optimal for a trade union to reduce both the wage and working time in response to a recessionary supply shock the analysis may help to explain varying attitudes towards work sharing in different countries

wages hours and overtime premia evidence from the british labor market unlike the united states britain has no national laws regulating overtime hour assignment or compensation using individual level data on male non managerial workers from the 1998 british new earnings survey the authors investigate relationships among the standard hourly wage rate hourly earnings including overtime the overtime premium and the length of overtime hours they find that when overtime is accounted for average hourly wage earnings are fairly uniform across firms in a given industry because firms paying below market level straight time wages tend to award above market level overtime premiums and conversely firms paying above market level straight time wages provide below market level overtime premiums

the electoral consequences of the washington consensus this paper assesses how electoral outcomes in both presidential and legislative elections in latin america have been affected by the adoption of economic policies that seek to improve macroeconomic stability and facilitate the functioning of markets the database includes 17 latin american countries for the period 1985 2002 and a total of 66 presidential and 81 legislative elections the set of testable hypotheses is derived from a review of the literature and is structured around the hypothesis of economic voting it is found that i the incumbent s party is rewarded for reductions in the rate of inflation and to a lesser extent for increases in the rate of growth ii the more fragmented or ideologically polarized the party system the higher the electoral rewards of reducing the inflation rate or raising the economic growth rate iii voters care not only about economic outcomes but also about some of the policies adopted while the electorate seems blind to macroeconomic policies such as fiscal or exchange rate policies it is averse to pro market policies irrespective of their effects on growth or inflation and iv the electorate is more tolerant of pro market reforms when the incumbent s party has a more market oriented ideology these results suggest that reforming parties have paid a hefty price for the adoption of pro market reforms except when such reforms have been undertaken in conjunction with stabilization policies in high inflation economies

the effect of unions on the receipt of unemployment insurance benefits using national longitudinal survey of youth data for 1979 91 the authors analyze the effect of union representation on the likelihood that individuals eligible for unemployment insurance ui bene

the direction of causality between financial development and economic growth abstract this paper employs the geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth the paper finds that 1 financial development generally leads to economic growth 2 the granger causality from financial development to economic growth and the granger causality from economic growth to financial development coexist 3 financial deepening contributes more to the causal relationships in the developing countries than in the industrial countries 4 the longer the sampling interval the larger the effect of financial development on economic growth 5 financial deepening propels economic growth through both a more rapid capital accumulation and productivity growth with the latter channel being the strongest

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

is globalization detrimental to financial development further evidence from a very large emerging economy with significant orientation towards policies abstractthis study attempts to explore the relationship between globalization and financial development by endogenizing economic growth population density inflation and institutional quality for india during the period from 1971 2013 using the more conclusivecombined cointegration method the study provides evidence of cointegration among these variables the long run and short run estimates from the ardl model and causality tests respectively suggest that globalization in its all forms political social and economic and its overall measure as well as inflation are detrimental to financial development while economic growth and population density both promote financial development furthermore the results also point out that institutional quality is not conducive to financial development in india and there exists a feedback effect between financial development and inflation moreover financial development is influenced by economic growth institutional quality and population density

financial development and economic growth convergence or divergence abstract this study tests for convergence in financial development and economic growth by incorporating the interaction between the real and financial sectors into an otherwise traditional test for convergence the results show strong evidence for conditional convergence middle and high income countries conditionally converge to parallel growth paths not only in per capita gdp but also in financial development the mutually reinforcing relationship between financial development and economic growth is stronger in the early stage of economic development and this relationship diminishes as sustained economic growth gets under way as such low income countries with a relatively well developed financial sector are more likely to catch up to their middle and high income counterparts and those with a relatively under developed financial sector are more likely to be trapped in poverty this finding explains the observed great divergence between poor and rich countries another finding is that while human capital is more important to growth in the early stage of economic development economic freedom becomes more important in the later stage

a political economy model of road pricing abstract in this paper we use a simple majority voting model to study the introduction of urban congestion tolls the model allows for different types of uncertainty and considers different uses of the toll revenues the following results are obtained first we show that individual uncertainty with respect to modal substitution costs may imply that a majority votes against road pricing ex ante although a majority would have been in favor after its introduction ex post moreover if a majority is against road pricing ex ante there will also be no majority for organizing an experiment that would take away the individual uncertainty second political uncertainty with respect to the use of the revenues corroborates the finding that ex ante more voters will be against the introduction of tolls third both types of uncertainty suggest that fewer voters are against road pricing when toll revenues are used to subsidize public transport than when they are redistributed to all voters importantly the results of this paper are consistent with a number of recent empirical observations on efforts to introduce road pricing including the systematic rejection of road pricing in referenda the more favorable attitudes towards road pricing after than before its introduction and tying the toll revenues to support public transport

overtime pay overtime hours and labor unions this article analyzes the effect of labor unions on overtime compensation and overtime hours estimates from may 1985 current population survey data indicate that unionization increases the prevalence of premium pay for overtime and reduces the incidence and extent of overtime hours along with the finding of previous research that unionized workers are more susceptible to temporary layoffs these results are consistent with a model in which unions use overtime pay to stabilize working hours and expand membership

markets for risk and openness to trade how are they related if protectionist trade policies aim to insure domestic industries against swings in world market prices the development of financial markets could lead to trade liberalization likewise trade lib

size effects on the transmission mechanism from finance to development a study of large emerging economies arge developing countries and emerging economies typically brazil india china and south africa bics demonstrate a strong upward trendin many aspects of their macroeconomic performance in recent decades thisdevelopmental surge has been sometimes attributed to size effects wherebyeconomies of scale and scope and agglomeration impact create productivityimprovements most of the literature studying large countries emphasises thereal economy trade and growth alesina and spolaore 1997 2003 but sayslittle about the interrelationship of real and nancial sectors on development our empirical work is based on and closely linked with the conceptual ideasabout the transmission channel from nance to growth levine 2005 butemphasising that large economies behave in a distinctive fashion we demon strate that real sector variables domestic and foreign have more in uence onaggregate output and its growth compared to nancial sector development animplication of the paper is that the ef cient approach to deal with economicrecession for these countries is to strengthen real sectors instead of helping nancial sectors directly we analyse the interconnections among aggregate output capital formation external trade and developmental nance for these four large developing coun tries in terms of two speci c real sector indicators one internal and one exter nal domestic investment and foreign trade as well as an indicator for

fixed costs and hours constraints hours constraints are typically identified by worker responses to questions asking whether they would prefer a job with more hours and more pay or fewer hours and less pay because jobs with different hours but the same rate of pay may be infeasible when there are fixed costs of employment or mandatory overtime premia the constraint in those cases may be illusory cross section estimates of reported hours constraints are consistent with this model implying that the overall level of hours constraints may exaggerate the extent to which the labor market is characterized by frictions and imperfections

when winners feel like losers evidence from an energy subsidy reform in 2011 the government of el salvador implemented a reform to the gas subsidy that increased the welfare of households in all but the top two deciles of the income distribution however the reform turned out to be rather unpopular especially among winners this paper relies on ad hoc household surveys conducted before the implementation and in the following two and a half years to test which factors help explain the puzzle the analysis uses probit and logit models to show that misinformation a negativity bias by which people with limited information inferred negative consequences mistrust of the government s ability to implement the policy and political priors explain most of the un satisfaction before implementation perceptions improved gradually and significantly so over time when the subsidy reception induced households to update their initial priors although political biases remained significant throughout the entire period the results suggest several implications with respect to policy reforms in cases where agents have limited information

work sharing and overtime this paper deals with the employment effects of reduced working time when firms endogenous response of overtime is considered the analysis distinguishes between fixed and profit maximizing levels of output as well as between interior and corner solutions it is shown that under plausible assumptions a reduction in working time is quite likely to be counterproductive as an employment promoting measure i introduction a reduction in working time has been proposed as a method of increasing employment through work sharing such proposals however often seem to build on an oversimplified view of the world where little consideration is given to various possible repercussions most economists therefore seem rather sceptical towards such proposals for more or less critical discussions see e g hart sloane 1979 charpin 1984 brunstad holm 1984 calmfors 1985 hoel 1986 1987 hoel vale 1986 and dreze 1987 none of these papers however takes into account that actual working time will differ from normal working time to the extent that there is overtime work the aim of this paper is to analyse how endogenous responses of overtime may affect the outcome with respect to employment of reducing the normal working time although overtime work currently accounts for only a minor proportion of total working time around three per cent in sweden we believe this to be an important channel since a major reduction in working time will represent a nonmarginal change which is likely to produce significant changes in established practices our results add to the doubts that a reduction in working time increases employment there has been some recent work on the relationship between normal working time and overtime cf hart 1984 fitzroy hart 1985

financial development industrialization the role of institutions and government a comparative analysis between india and china this research is the first comparative attempt incorporating the role of economic demographic sectoral contribution government and trade in explaining financial development for india and china

the demand for hours of labor direct evidence from california california s longstanding requirement that most women receive time and a half pay for workhours beyond eight in one day was extended to men in 1980 analyzing current population survey data from 1973 1985 and 1991 we find that this overtime penalty substantially reduced the amount of daily overtime worked by california men relative to men in other states comparisons that use women to control for california specific shocks show even stronger effects the estimates imply a price elasticity of demand for overtime hours of at least 20 5

the legal environment banks and long run economic growth this paper examines the relationship between the legal system and banlding development and traces this connection through to long run rates of per capita gdp growth capital stock growth and productivity growth the data indicate that countries where the legal system 1 emphasizes creditor rights and 2 rigorously enforces contracts have better developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax furtherrnore the exogenous component of banking development the component defined by the legal environment is positively and robustly associated with per capita growth physical capital accumulation and productivity growth this paper addresses two questions first do crosscountry differences in the legal rights of creditors the efficiency of contract enforcement and the origin of the legal system explain cross country differences in the level of banking development second do better developed banks cause faster economic development that is is the component of banking development defined by the legal environment positively associated with long run rates of economic growth capital accumulation and productivity growth examining the relationship between the legal system and banking development is valuable irrespective of issues associated with long run growth first banks may influence the level of income per capita and the magnitude of cyclical fluctuations bernanke and gertler 1989 1990 second many economists stress that understanding the evolution of legal and financial systems is essential for understanding economic development north 1981 engerman and sokoloff 1996 consequently quantitative information on the relationship between the legal environment and banks will improve our understanding of business cycles and the process of economic development furthermore examining the causal links between banks and economic growth has both conceptual and policy implications on the conceptual front a long literature debates the importance of banks in economic development starting as early as bagehot 1873 economists have argued that better banks banks that are better at identifying creditworthy firms mobilizing savings pooling risks and facilitating transactions

social preferences and voting on reform an experimental study debating over efficiency enhancing but inequality increasing reforms accounts for the routine business of democratic institutions fernandez and rodrik 1991 hold that anti reform bias can be attributed to individual specific uncertainty regarding the distribution of gains and losses resulting from a reform in this paper we experimentally demonstrate that anti reform bias arising from uncertainty is mitigated by social preferences we show that paradoxically many who stand to lose from reforms vote in favor because they value efficiency while many who will potentially gain from reforms oppose them due to inequality aversion

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

growth volatility and financial liberalization we examine the effects of both equity market liberalization and capital account openness on real consumption growth variability we show that financial liberalization is mostly associated with lower consumption growth volatility our results are robust surviving controls for business cycle effects economic and financial development the quality of institutions and other variables countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings we also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to gdp growth volatility suggesting improved risk sharing our results are weaker for liberalizing emerging markets but we never observe a significant increase in real volatility moreover we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors

employment and allocation effects of reducing the length of the workday the paper analyses the effects of reducing the length of the workday in a situation with classical unemployment owing to a fixed hourly real wage rate the length of the workday is assumed to enter the production functions of the two sectors manufacturing and services differently employment will increase in the manufacturing sector while the employment effect in the service sector is ambiguous it is possible for employment in the service sector to decline so much that total employment also goes down if the workday is shortened in the manufacturing sector alone employment will rise in this sector and decline in the service sector the effect on total employment is ambiguous with a specific case of mixed classical and keynesian unemployment employment in the manufacturing sector will be unaffected by changes in the length of the workday while a reduction in the length of the workday will reduce employment in the service sector if the income elasticity for services is not less than one

technology utilization and inflation what drives the new keynesian phillips curve we argue that the new keynesian phillips curve literature has failed to deliver a convincing measure of real marginal costs we start from a careful modeling of optimal price setting allowing for nonunitary factor substitution nonneutral technical change and time varying factor utilization rates this ensures the resulting real marginal cost measures match volatility reductions and level changes witnessed in many u s time series the cost measure comprises conventional countercyclical cost elements plus procyclical and covarying utilization rates although procyclical elements seem to dominate the components of real marginal cost components are becoming less cyclical over time incorporating this richer driving variable produces more plausible price stickiness estimates than otherwise and suggests a more balanced weight of backward and forward looking inflation expectations than commonly found our results challenge existing views of inflation determinants and have important implications for modeling inflation in new keynesian models

union density and political strikes why do trade unions organize antigovernment strikes in some countries but not in others this article argues that there is a curvilinear relationship between union density and political strike activity political strikes are rare in countries with low union density since effective protests require a basic level of organizational capacity they are also rare in countries with high union density since a government that faces a strong union movement has powerful incentives to adjust its policies in order to avoid open confrontation but political strikes are relatively common in countries with moderate levels of union density since it is difficult for governments and unions to find viable compromises when the strength of the unions is not secure the empirical part of the article estimates the relationship between union density and the likelihood of political strikes in two samples of advanced democracies

tax reform and the political economy of the tax base abstract this paper studies the political prospects for reform in a model where the tax base and statutory rate are separate instruments of tax policy the model suggests that large changes in the tax code may be easier to enact than marginal reforms the tax base faces a tipping point where even the beneficiaries from tax exemptions support reform at this tipping point tax reform is pareto improving politically feasible tax reform occurs when fiscal needs are large but may nonetheless involve reductions in marginal tax rates there is strategic complementarity in lobbying for tax exemptions resulting in multiple equilibria the model s main predictions are consistent with recent tax reforms in oecd countries

worksharing and factor prices abstract the aspect of worksharing on which this paper concentrates concerns an increase in the firm s workforce offset by a reduction in average working hours emphasis is given to the effect of relative factor prices on worksharing within a model structure which includes the capital stock and worker productivity as endogenous inputs factor prices include all the main categories of wage and non wage labour payments as well as the user cost of capital special attention is given to the role of non wages both quasi fixed and variable an analysis of the effects of marginal employment subsidies on worksharing is also considered with reference to the french solidarity contracts

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

ideology tactics and efficiency in redistributive politics we model the electoral politics of redistribution when voters and parties care about inequality in addition to their private concerns for consumption and votes respectively ideological concerns about income redistribution lead each party to adopt a general proportional income tax adjusted to appeal to the ideological leanings of high clout groups with disproportionately many swing voters which the parties also ply with pork barrel projects our results relate to director s law which says that redistributive politics favors middle classes at the expense of both rich and poor

effects on unemployment of reduced working time in an economy where firms set wages the paper considers an economy where firms set wages balancing the direct benefit of low wages with the indirect cost of low wages relative to other firms leading to high quit rates and therefore high training costs reducing the institutionally given working time makes the importance of training costs increase thus making firms more concerned about keeping quit rates low the effect is increased unemployment as a consequence of reduced working time the effect on hourly and yearly wages is uncertain although increased hourly wages seem to be the most plausible case

institutional quality thresholds and the finance growth nexus using an innovative threshold estimation technique this study examines whether the growth effect of financial development in countries with distinct levels of institutional development differs the results demonstrate that there is a threshold effect in the finance growth relationship specifically we found that the impact of finance on growth is positive and significant only after a certain threshold level of institutional development has been attained until then the effect of finance on growth is nonexistent this finding suggests that the financial development growth nexus is contingent on the level of institutional quality thus supporting the idea that better finance i e financial markets embedded within a sound institutional framework is potent in delivering long run economic development

redistributive promises and the adoption of economic reform this paper analyzes the relationship between economic reform and the democratic process to ask the following question does the likelihood of adoption of an economic reform increase with an increase in the efficiency benefits from that reform a priori we might expect that this likelihood should increase monotonically for two reasons first economic reform results in an increase in the size of the national pie if the government has the ability to make compensatory tax transfers an increase in each citizen s income is possible second a larger economic reform results in a greater number of winners this might also be expected to reinforce the political support for economic reform so we should expect a reform with greater efficiency benefits to a larger population to have a greater chance of adoption by the government however in this paper we show that this intuition is mistaken in particular we demonstrate that there exists a certain non monotonicity between the distribution of winners from economic reform and the probability of its adoption an increase in the number of winners may lower rather than increase the likelihood of adoption of economic reform in particular even though reforms that benefit a minority or an overwhelming majority are adopted reforms that benefit a smaller majority are not adopted

globalisation institutional reforms and financial development in east asian economies this study investigates the dynamic effects of globalisation on institutions and financial development in east asian economies using panel data tests our empirical results demonstrate that globalisation has a significant influence on institutional quality and that institutional reforms in turn facilitate and support financial development in particular the development of the banking sector in east asia globalisation is also found to have a favourable direct impact on stock market development without passing through an institutional quality channel

the effects of overtime pay regulation on worker compensation proponents claim that a statutory overtime premium by raising the relative cost of overtime may encourage firms to substitute employment for overtime hours the author argues that there will be no real effects if firms reduce straight time wages so as to offer the same package of weekly compensation and hours of work that was acceptable initially empirical analysis suggests that wage differentials do arise to mitigate the purely demand driven effects predicted by previous models but these differentials are not large enough to neutralize overtime pay regulation completely copyright 1991 by american economic association

testing the effectiveness of the french work sharing reform a forecasting approach the macroeconomic impact of the french work sharing reform of 2000 a reduction of standard working hours in combination with wage subsidies is analysed using a vector error correction model vecm for several labour market variables as well as inflation and output out of sample forecasts for 2000 2001 are produced a comparison of these forecasts which serve as a benchmark simulation without structural shifts to the realized values with shifts suggests significant beneficial employment effects of the policy mix other shifts were absent and thus cannot explain the outcome output productivity hourly labour costs and inflation are only transitorily affected or not at all

openness and inflation new empirical panel data evidence abstract the purpose of this paper is to test the hypothesis first documented by romer 1993 that inflation is lower in more open economies according to this hypothesis central banks have a smaller incentive to engineer surprise inflations in economies that are more open because the phillips curve is steeper in this paper the panel data technique has been employed to examine the aforementioned hypothesis concerning the developed and developing countries over the last two decades also comparing with other empirical studies this paper has estimated the relationship between economic globalization as one dimension of the new kof globalization index and inflation the paper s results cast substantial doubts on the conventional view that suggests a robust and negative relationship between trade openness and inflation the estimation result regarding the traditional measure of trade openness indicates a positive and significant association between trade openness and inflation which opposes the view of the romer 1993 hypothesis in contrast the estimation results regarding a new economic globalization index the kof index suggest that higher economic globalization will decrease inflation as supported by the romer 1993 hypothesis for both developed and developing countries during 1990 9 and 2000 9 thus it seems that the new economic globalization measure the kof index which is a broader comprehensive index is a better proxy for openness

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

hedonic prices and implicit markets estimating demand and supply functions for differentiated products in choosing the level of quality to purchase the buyer of a differentiated product also chooses a point on the marginal price schedule for that product hence in general the demand functions for product characteristics cannot be consistently estimated by ordinary least squares market equilibrium results in a matching of characteristics of demanders and suppliers this matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics the paper develops these issues a stochastic structure for hedonic equilibrium models is then proposed identification results are presented and estimation procedures are outlined

financial development and openness evidence from panel data abstract this paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development as well as its variation across countries in recent years utilising annual data from developing and industrialised countries and dynamic panel estimation techniques we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development our findings reveal that the marginal effects of trade financial openness are negatively related to the degree of financial trade openness indicating that relatively closed economies stand to benefit most from opening up their trade and or capital accounts although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts opening up one without the other could still generate gains in terms of banking sector development thus our findings provide only partial support to the well known rajan and zingales hypothesis which stipulates that both types of openness are necessary for financial development to take place