the missing link intra country evidence on the relationship between high and uncertain inflation from high inflation countries the notion that high inflation breeds high uncertainty about future inflation is widely accepted this acceptance is based largely on a positive correlation between the mean and variability of inflation across countries 2 this positive relationship is taken as evidence that high inflation creates high uncertainty 3 recently though driffill mizon and ulph 10 have questioned the relevance of this cross country evidence for making inferences about welfare issues within countries they argue that it is the relationship between the time series mean and variance within a country that is important when considering the potential costs of inflation in this paper we examine the within country time series link between the level and uncertainty of inflation for ten countries that experienced a period of very high inflation we use data generated from regression based forecasts of inflation and historical data on actual forecasts our sample does not provide evidence of a general positive link within these countries the ten countries we study are argentina bolivia brazil chile colombia israel mexico peru turkey and uruguay in these countries the average annualized rate of inflation from the quarterly data in our sample was about 54 per year and the average sample standard deviation

multiple round timber auction design and simulation this paper presents a multiple round timber auction simulation developed in order to study various configurations of auction design in this study simultaneous sequential timber auctions are modelled and analysed using agent based simulation technology as there are many individual items in the auction to be sold the auction designer defines several rounds that are sequential at pre defined intervals at each round the auction designer announces several simultaneous auctions since bidders are offered different items at each round a mathematical linear programing model for selecting the best set of items to bid for is presented different bidding patterns are simulated and compared in various setup configurations the most advanced of these strategies are adaptive and use agent learning capability the comparisons include the success rate of winning the auction and the winning price per m3 this study suggests an efficient bidding pattern for bidders to bid in order to achieve to their goal and increase their profit similarly in order to increase profit the auctioneer i e the government needs to control several auction parameters including the number of auctions per year the lot size the auction periodicity and the number of bidders this study also suggests parameters configurations that to maximise revenue for the auctioneer

assessing the impact of food policy research rice trade policies in viet nam abstract the economic impact of marketing and trade policy research in viet nam conducted by the international food policy research institute ifpri is assessed using a novel benefit cost framework it measures the economic value of the time saved in hastening the policy responses of the government of vietnam extensive interviews with partners and stakeholders in the research clearly indicated that the time saving was a legitimate measure of the influence of ifpri on decision making linking a spatial equilibrium model with income distribution analysis based on national household surveys allowed ifpri to satisfy policymakers that relaxing rice export quotas and internal trade restrictions on rice would not adversely impact on regional disparities and food security and would have beneficial effects on farm prices and poverty these were major concerns of policymakers prior to the ifpri research project the research on these and other policy options gave a degree of confidence to policymakers that relaxing the controls would be in viet nam s national interest they made these decisions earlier than would have been the case without the ifpri research the policy assessment framework is used to measure the economic impact of the policy changes themselves and in particular the contribution of ifpri s work with viet nam on the policies from 1995 to 1997 the relaxation of rice export quotas and internal restrictions on rice trade made by the government of viet nam in 1995 97 are estimated to have had a present 1995 value to viet nam using a 5 discount rate of 222 million by 2000 rising to 966 million by 2020 for an incremental research investment of less than us 1 million a conservative estimate of the benefit to viet nam of the ifpri contribution to the policy changes effected in viet nam from the reduction in the policy implementation lag indicates a present value in 1995 terms of us 45 million this represents a benefit cost ratio of 56 a more optimistic assessment is that the present value is us 91 million with a benefit cost ratio of 114 in addition to the welfare gains to viet nam there were sizeable gains to the rest of the world from ifpri s contribution inclusion of these benefits increases present value and benefit cost estimates by 34 to 84 around 38 of the contribution of ifpri is estimated to have accrued to the rest of the world as viet nam is now a major player in world rice trade

contract renewal under uncertainty abstract the incentive to adjust prices is considered from a bilateral perspective in a setting where changes in outside opportunities drive the incentive to renew contracts and costs preclude continuous renewal a model encompassing several contract forms is formulated and the existence of an equilibrium to the bilateral renewal game is established prices display inertia and the incumbent contract is found to be more resistant to changes in outside opportunities the larger the costs of contract renewal the variability of outside opportunities and the lower the discount rate the model is shown to match a number of empirical observations on contracts

on the duration of agreements a model of optimal contracts between two infinitely lived parties a borrower and lender is presented and analyzed the objective is to explain the phenomenon of finite length multi period contracts it is shown how costly information acquisition can account for multi period contracts which are of bounded length comparative statics results on how contract length responds to exogenous parameters such as the cost of information acquisition are also derived copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

operations research for green logistics an overview of aspects issues contributions and challenges the worldwide economic growth of the last century has given rise to a vast consumption of goods while globalization has led to large streams of goods all over the world the production transportation storage and consumption of all these goods however have created large environmental problems today global warming created by large scale emissions of greenhouse gasses is a top environmental concern governments action groups and companies are asking for measures to counter this threat operations research has a long tradition in improving operations and especially in reducing costs in this paper we present a review that highlights the contribution of operations research to green logistics which involves the integration of environmental aspects in logistics we give a sketch of the present and possible developments focussing on design planning and control in a supply chain for transportation inventory of products and facility decisions while doing this we also indicate several areas where environmental aspects could be included in or models for logistics

the effects of shock size and type on labor contract duration empirical studies of the relation between uncertainty and the length of union firm contracts have focused on the effects of inflation money supply or industry specific uncertainty this article describes two extensions of previous work first real aggregate uncertainty arising from oil shocks is incorporated into a contract duration model oil shocks significantly affect contract length in seven of 21 u s manufacturing industries second the model is used to test whether the duration of reopenable bargains is positively related to uncertainty associated with large shocks as has been described in danziger the evidence indicates some qualified support for this proposition

wage stickiness and the non neutrality of money a cross industry analysis abstract the paper provides an empirical test of sticky wage models of business fluctuations by focusing on industry level cross sectional implications that emerge this breaks the observational equivalence existing at the aggregate level between rational expectations long term contracting and imperfect information models the specific implication tested is whether output responses to nominal disturbances industry phillips curve slopes are inversely related to wage indexation elasticities the phillips curve slopes are found to vary across industries for the canadian economy but bear no relationship to indexation elasticities casting doubt on the role of nominal wage rigidity in generating the observed non neutrality of money

bargaining structure and nominal wage flexibility in a model with hetergenous agents wage setting by monopoly unions and monetary policy conducted by a central bank we show that the duration of nominal wage contracts is u shaped in the degree of centralization with intermediate bargaining systems yielding contracts of shorter duration and thus more flexible nominal wages than both decentralized and centralized systems we also find the degree of heterogeneity in the economy the theoretical predictions of the model are tested on oecd data there is empirical support for the main results regarding contract length while there is less support for the predictions regarding the level of centralization

alternative supply chain production sales policies for new product diffusion an agent based modeling and simulation approach abstract applying agent based modeling and simulation abms methodology this paper analyzes the impact of alternative production sales policies on the diffusion of a new generic product and the generated npv of profit the key features of the abms model that captures the marketplace as a complex adaptive system are i supply chain capacity is constrained ii consumers new product adoption decisions are influenced by marketing activities as well as positive and negative word of mouth wom between consumers iii interactions among consumers taking place in the context of their social network are captured at the individual level and iv the new product adoption process is adaptive conducting over 1 million simulation experiments we determined the best production sales policies under various parameter combinations based on the npv of profit generated over the diffusion process the key findings are as follows 1 on average the build up policy with delayed marketing is the preferred policy in the case of only positive wom as well as the case of positive and negative wom this policy provides the highest expected npv of profit on average and it also performs very smoothly with respect to changes in build up periods 2 it is critical to consider the significant impact of negative word of mouth in choosing production sales policies neglecting the effect of negative word of mouth can lead to poor policy recommendations incorrect conclusions concerning the impact of operational parameters on the policy choice and suboptimal choice of build up periods

analysis of supply contracts with quantity flexibility this paper explores a class of supply contracts under which a buyer receives discounts for committing to purchases in advance the further in advance the commitment is made the larger the discount as time rolls forward the buyer can increase the order quantities for future periods of the rolling horizon based on updated demand forecast information and inventory status however the buyer pays a higher per unit cost for the incremental units such contracts are used by automobile and contract manufacturers and are quite common in fuel oil and natural gas delivery markets we develop a finite horizon dynamic programming model to characterize the structure of the optimal replenishment strategy for the buyer we present heuristic approaches to calculate the order volume in each period of the rolling horizon finally we numerically evaluate the heuristic approaches and draw some managerial insights based on the findings

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

delays in renewal of labor contracts theory and evidence in many countries an expired labor contract is automatically extended during the often protracted delay before the new contract is signed our theoretical model focuses on macroeconomic factors in explaining the delay it emphasizes the importance of the realized nominal and real shocks and of the levels of nominal and real uncertainty the model is tested using israeli collective wage agreements where long delays are frequent the empirical findings strongly support the theoretical model thus nominal uncertainty is found to increase the delay and real uncertainty to decrease the delay but less in the public than in the private sector

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

the interaction between indexation contract duration and non contingent wage adjustment a model of the elasticity of indexation contract duration and non contingent wage adjustment is estimated using canadian wage agreements results suggest that the degree of indexation and contract duration are interdependent and are affected by their past values labour market conditions and inflation uncertainty the correlation between the industry product prices and the cpi affects the degree of indexation non contingent wage adjustment depends on expected inflation uncompensated past inflation duration and indexation values past and present and labour market conditions this model explains total wage adjustment as well as more aggregative models designed solely for that purpose

real shocks efficient risk sharing and the duration of labor contracts it is widely believed that increased uncertainty leads to shorter duration of labor contracts this is indeed also the result obtained in the formal analysis in gray 1978 who concludes that a s expected increased variability regardless of source shortens contract length 1978 p 8 the basic argument is that production is inefficient unless the real wage happens to equate the demand and supply of labor and that the loss due to inefficient production increases with the deviation of the actual real wage from the real wage that would equate the demand and supply of labor it is assumed that the economy is exposed to both aggregate real shocks and nominal shocks but that the wage can only be indexed to the general price level an imperfect signal of the underlying shocks since uncertainty is greater for more distant periods the deviation of the actual real wage from the real wage that would equate the demand and supply also tends to be greater for more distant periods and it follows that the per period expected loss due to inefficient production increases with contract duration consequently increased uncertainty provides an incentive to reduce contract durations the reason contracts do not become arbitrarily short is the existence of a fixed contracting cost that militates against shortening the contract duration the oil price hikes of 1973 and 1978 presumably increased the a priori importance of aggregate real shocks and the efficientproduction hypothesis therefore leads one to expect a decrease in contract durations in the years following the price hikes the empirical fact however is that there has been no such tendency at least not in the united states this is clearly brought out in table i which shows that the average duration of major collective bargaining settlements negotiated in 1972 1987 has remained roughly constant

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

informing food security decisions in africa empirical analysis and policy dialogue discussions of economic and agricultural development in africa have focused heavily in recent years on structural adjustment i e basic policy changes aimed at allowing international and domestic markets to play a greater role in coordinating national economic activities often these structural adjustments and accompanying policies aimed at improving economic performance have been based on several implicit assumptions about how african food systems operate yet for many countries little empirical information has been available to test these assumptions hence designing policies too often becomes an exercise in planning without facts this paper argues that not only is there a need to base food security and structural adjustment policies more firmly on empirical information but that the process by which the information is obtained is as important as the information itself agricultural economists and other social scientists can and increasingly should design policy research in africa in ways that simultaneously increase effective demand for empirical information as an input into the ongoing policy process and augment african capacity continually to inform policy deliberations we illustrate the payoffs to such an approach by drawing on selected experience in several african countries weber

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

contract duration evidence from franchising abstract economists generally view standard franchise contracts as efficient while franchisee advocates view them as exploitive consistent with the economic view we find that contract duration is positively and significantly related to the franchisee s physical and human capital investments which are often firm specific in contrast to assertions by franchisee advocates we find that these relations exist in subsamples containing only the most established franchisors as measured by size and experience and that larger more experienced franchisors tend to offer longer term contracts than do newer franchisors our evidence also suggests that there is learning across firms about optimal contract terms

testing for contracting effects on employment i test for the importance of wage rigidities from long term contracts by observing how employment responds when firms and workers recontract if rigidities are important then employment should adjust after recontracting to partially undo its movements during the past contract i examine twelve manufacturing industries that display a strong bargaining pattern i find employment does rebound after recontracting particularly in motor vehicles this implies that contract rigidities are important i also find responses in wage growth at the beginning of new contracts but these responses are not related to the pattern of employment responses across industries

models for multi plant coordination abstract this paper addresses coordination of production planning among multiple plants in a vertically integrated firm currently there is no unified body of literature that deals with this issue we identify important issues that managers and researchers must address so that production and inventory decisions can be determined for all plants in a manner optimal for the organization as a whole

early contract renegotiation an analysis of us labor contracts 1970 1995 this article examines the ex post flexibility of us labor contracts during the 1970 95 period by investigating whether unanticipated changes in inflation increase the likelihood of a contract being renegotiated prior to its expiration we find empirical support for this hypothesis specifically our results indicate that renegotiations are triggered principally by large and infrequent price shocks of either sign when combined with evidence that ex ante contract durations are shorter during episodes of increased inflation uncertainty our results suggest that these contracts are flexible both ex ante and ex post to changes in the evolution of inflation

determinants of contract duration in collective bargaining agreements the author develops a model incorporating variables that previous studies have hypothesized as determinants of labor contract duration then empirically tests the model using a data set containing

what is the value of agricultural economics research the output of agricultural economics research is information much of it aimed at designing or improving institutions bayesian decision theory and economic surplus analysis have been suggested as possible approaches to evaluate that information this article takes a critical look at the strengths and weaknesses of combining those approaches for empirical evaluation of agricultural economics research it presents three case studies utilizing prior and posterior probabilities elicited from key decision makers direct application of the probabilities to a simple set of states and actions is best suited to situations involving a single policy making center or a consensus decision making process most economists feel their work has value but few can say how much economists have made significant contributions to our understanding of the value of technology oriented research but have devoted little attention to assessing the benefits of social science research ssr including agricultural economics research aer as accountability concerns have increased federal and state officials increasingly ask for evidence of research impacts many professional associations in the production sciences have drawn on quantitative estimates provided by economists to bolster their claims that research in their areas is a good investment social sciences make do with anecdotal evidence a nascent literature on evaluating social science research including agricultural economics includes studies by gardner

the determinants of contract length an empirical analysis based on canadian micro data abstract recent theoretical work on the determinants of wage contract length focuses on inflation uncertainty as an explanatory variable additional to the more traditional variable of transactions costs this paper analyses the empirical determinants of contract duration using a large sample of contract data and confirms the conclusions reached in the theoretical literature

uncertainty and labor contract durations this paper provides an empirical investigation into the relationship between ex ante u s labor contract durations and uncertainty over the period 1970 to 1995 we construct measures of inflation uncertainty as well as aggregate nominal and real uncertainty the results not only corroborate previous findings of an inverse relationship between contract durations and inflation uncertainty but also document that this relationship extends to both measures of aggregate uncertainty we also explore the robustness of this relationship to various measures of inflation uncertainty that have appeared in the literature

inflation uncertainty and contract duration this study examines the determinants of the duration of u s union contracts using a longitudinal contract data base support is found for the hypotheses that 1 inflation uncertainty reduces contract length and that 2 greater contracting costs as proxied by a strike variable and by previous duration increase contract length in addition contract duration is found to be greater for indexed contracts to be procyclical and to have increased over the sample period copyright 1989 by mit press

waste paper procurement optimization an agent based simulation approach abstract this paper proposes an agent based simulation model to study and analyse the performance of various procurement and production policies in the recycled paper industry the proposed model includes the recycled pulp production process as well as the waste paper inventory and procurement processes a detailed simulation model developed in partnership with a large recycled pulp producer in north america was developed in order to emulate the procurement manager s behaviour therefore based on the observed behaviour of the procurement manager a procurement behaviour model which takes both market price and inventory requirement into account is introduced this paper also introduces a waste paper market model that simulates a market price and enables the control of price forecast accuracy two series of experiments were carried out in order to study the performance of procurement and production policies in several productions contexts results show that production volume flexibility has a negative impact on costs inventory and quality however it is possible to partially reduce these issues with the introduction of contracts with volume flexibility although only a limited effect has been observed in our experiments a more significant strategy to improve costs consists in reducing production rate to the minimum level required to meet demand

export liberalization and household welfare the case of rice in vietnam vietnam has rapidly become one of the three largest rice exporters in the world in spite of a binding export quota this article uses a multimarket spatial equilibrium model to examine the effect of further liberalization on regional rice prices household data are then used to calculate the welfare impact of these price changes on different household groups the results suggest that although rice export liberalization would raise food prices and exacerbate regional inequality it would also increase average real income and reduce slightly the incidence and severity of poverty we explore several explanations of these apparently paradoxical results

does contractual wage rigidity play a role in determining real activity interest in nominal wage ridigity as a source of macroeconomic fluctuations has waxed and waned over the past half century the most recent wave of interest was triggered by the rational expectations revolution of the 1970s which inspired an improved sticky wage paradigm the paradigm posits the existence of short term contractual arrangements that in their simplest form fix wage schedules in nominal terms for a predetermined period the life of the contract and leave employment at the discretion of the firm the most influential examples of the paradigm incorporate rational expectations and satisfy the natural rate hypothesis 9 14 thus meeting the new minimum standards for demand driven theories of the business cycle nominal wage contracting models have been vigorously criticized for both a lack of theoretical rigor and an absence of empirical support despite their critics however the models have remained a popular analytical tool and after almost a decade of inattention economists are showing a renewed interest in empirical tests of nominal contracting models the studies produced to date are small in number and offer conflicting conclusions they are perhaps as important for the objections they provoke as for the answers they provide while the work reported in this paper

a risk sharing view of real wages and contract length this paper models a union and firm choosing between long labor contracts in which wages are predetermined and short contracts in which wages are flexible it is shown that the union strictly prefers short contracts because it dislikes the greater employment volatility in long contracts in contrast the convexity of the firm s profit function leads the firm to prefer the greater uncertainty of long contracts the model predicts that workers are prepared to enter long contracts only if they are compensated with a higher real wage this prediction is tested using a large sample of canadian collective agreements with generally supportive results

long term contracts expectations and wage inertia abstract this paper develops a macro model of contractual wage setting that is used to test the importance that increased contract length has in generating wage inertia using an errors in variables format to isolate the effect of price and productivity shocks it is shown that the sensitivity of union wages to unanticipated disturbances would increase by only a small amount in the absence of long term three year labor contracts our results suggest that formal contracts are not a major source of nominal wage rigidity and the price surprises play a relatively small role in generating business cycles

wage rigidity collective bargaining and the minimum wage evidence from french agreement data using several unique data sets on wage agreements at both industry and firm levels in france we document stylized facts on wage stickiness and the impact of wage setting institutions on wage rigidity first the average duration of wages is a little less than one year and around 10 percent of wages are modified each month by a wage agreement data patterns are consistent with predictions of a mixture of calvo and taylor models the frequency of wage change agreements is rather staggered over the year but the frequency of effective wage changes is seasonal the national minimum wage has a significant impact on the probability of a wage agreement and on the seasonality of wage changes negotiated wage increases are correlated with inflation the national minimum wage increases and the firm profitability

the measurement and behavior of uncertainty evidence from the ecb survey of professional forecasters summary we examine matched point and density forecasts of output growth inflation and unemployment from the ecb survey of professional forecasters we construct measures of uncertainty from individual histograms and find that the measures display countercyclical behavior and have increased across all forecast horizons since 2007 we also derive measures of forecast dispersion and forecast accuracy and find that they are not reliable proxies for uncertainty there is however evidence of a meaningful co movement between uncertainty and aggregate point predictions for output growth and unemployment these results are robust to changes in the composition of the survey respondents over time copyright 2015 john wiley sons ltd

the effects of real and nominal shocks on union firm contract duration abstract the first theoretical works on labor contract length gray 1978 for example emphasized the existence of a negative relation between contract duration and uncertainty in estimating a linear version of gray s contract length model and an alternative model developed by christofides and wilton our empirical results indicate little evidence of a negative relationship between length and uncertainty in the united states furthermore our findings indicate the presence of significant differences across industries at the two digit sic level in the response of bargain duration to uncertainty

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

labor supply constraints profit sharing and volatility rents in an unstable economy i introduction since the end of the 1930s the portion of u s national income claimed by wages and salaries has been in the low sixty percents fluctuating between a low of 60 3 percent in 1942 and a high of 66 2 percent in 1970 the average has been slightly below 63 percent over this interval obviously we cannot know what the share distribution would have been had the economy traversed a perfectly smooth equilibrium growth path but does the observed long term average provide an unbiased estimate of long run equilibrium the question arises in the context of recent suggestions by martin weitzman 1984 and james meade 1986 and others that a move away from fixed wage contracting would reduce cyclical unemployment an oft cited consequence of the convexity of profits in output prices is that in the absence of adjustment costs price stabilization will reduce the long term average profits of firms 1 this is possible because the residual claimant retains the option of adjusting the level of operations in response to business conditions it is therefore interesting that profit sharing for the sake of macroeconomic stability has sometimes been recommended as distributionally neutral or isomorphic in its long run equilibrium properties 2 since profit sharing dilutes profit s claim on the residual share by giving labor a part we ask in this paper whether firm owners must thus give up the aforementioned rents to volatility the euler walras concept of a general equilibrium applies to an imaginary steady state of the economy in which all prices have settled down to their market clearing levels 3 marginal productivities determine the functional distribution of a constant overall income but in fact it is only appropriate to use the euler walras shares as the focal point around which cyclical forces influence the income shares if every characteristic of an economy in recession is symmetrically reversed under boom conditions full symmetry would require that firms be free to increase employment in good times to the same extent that they can reduce their employment levels in slack times this marks a very important distinction between the micro economics of fully competitive input markets and the macroeconomics of the business cycle if a cleared labor market is part of the definition of the walrasian equilibrium then any increase in boom state hiring must be limited by the elasticity of the overall labor supply in the aggregate this elasticity must be far from infinite this will be true whether we view workers as utility maximizers balancing income against leisure or as being forced at a corner solution to simply choose between employment and unemployment there is no equivalent limit short of the whole labor force to the number of workers who can be cut loose by the firm in a recession we construct here a very simple partial equilibrium model of a representative cobb douglas firm which is macroeconomic in the sense that labor constrained booms are assumed to alternate with recessions the firm is free to hire the optimal amount of labor within its labor supply constraint but is not free to alter labor contracts over the business cycle contracts are consistent with a cleared labor market only in the long run steady state 4 in the boom state of the economy the firm under fixed wages is able to obtain the full benefit of the gap which develops between the revenue product of labor and the wage if on the down side of the cycle unemployment is avoided by the use of profit sharing contracts the firm must sacrifice part of these benefits and more than 100 percent of the gains from the saved output may go to labor s share to the extent that these arguments apply in vivo their analytical validity can be demonstrated for a wide range of models more doubt is cast upon the distributional neutrality of profit sharing contracts but we might also question the basic nature of the fixed wage system