the great recession and the bulimia of us consumers deep causes and possible ways out this paper focuses on the apparent bulimia of us consumers and its role in the recent crisis we seek to show how various characteristics of american society and the us economy are related to this phenomenon we illustrate some structural features of the us economy and public policies that may have created a difference in terms of patterns of consumption and market participation between the usa and continental europe we then present some explanations of us hyperconsumerism put forward by psychologists and sociologists thus relating this phenomenon to the decline in subjective well being and social capital documented in the usa we also discuss how the negative endogenous growth paradigm may help to account for it finally we review the debate on the us policy agenda by underlining some weaknesses in the two politically more realistic options and by outlining a third policy strategy which is possibly preferable for people s long term well being

individual and aggregate labor supply with coordinated working times i analyze two extensions to the standard model of life cycle labor supply that feature operative choices along both the intensive and extensive margin one assumes that individuals face continuous wage hours schedules while the other assumes that all work must be coordinated across individuals though similar qualitatively the two models have very different implications for aggregate labor supply responses to tax policy in the first model curvature in the individual utility from leisure function plays relatively little role but in the second model it is of first order importance the second model also has important implications for what data are best able to provide evidence on the extent of curvature in the utility from leisure function

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

measuring gross flows in the labor force an overview of a special conference the measurement of flows in the american labor market has challenged researchers for years several problems including response variability rotation group bias and matching errors hinder accurate measurement of the flows the bureau of the census and the bureau of labor statistics jointly sponsored a conference to examine these problems present current research on solutions to the problems and submit recommendations for improving the data recommendations include procedural changes in the current population survey as well as new estimation techniques

entrepreneurship start up costs and employment abstract we study the effects of business start up costs on employment in a model with managers workers and matching we show that higher start up costs discourage entrepreneurs and increase the fraction of the population who become workers job creation suffers and employment settles at a lower level we illustrate with evidence from major oecd economies where large variations in start up costs are correlated with large variations in employment levels

structural change in an open economy we study the importance of international trade in structural change our framework has both productivity and trade cost shocks and allows for non unitary income and substitution elasticities we calibrate our model to investigate south korea s structural change between 1971 and 2005 we nd that the shock processes propagated through the model s two main transmission mechanisms non homothetic preferences and the open economy explain virtually all of the evolution of agriculture and services labor shares and the rising part of the hump shape in manufacturing counterfactual exercises show that the role of the open economy is quantitatively important for explaining south korea s structural change

labor supply and the optimality of social security abstract traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers and also for its ability to provide partial insurance against mortality and labor income risks in this paper i demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households labor supply decisions using a general equilibrium life cycle consumption model calibrated to the u s economy i show that these distortions can be large enough to erase much of the traditional welfare gains from social security i also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature

an equilibrium model of the business cycle with household production and fiscal policy the authors estimate a dynamic general equilibrium model of the u s economy that includes an explicit household production sector and stochastic fiscal variables they use their estimates to investigate two issues first the authors analyze how well the model accounts for aggregate fluctuations they find that household production has a significant impact and reject a nested specification in which changes in the home production technology do not matter for market variables second the authors study the effects of some simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar models without home production copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the drivers of structural change the main goal of this paper is to provide an integrated survey of the literature devoted to identifying the drivers of structural change broadly defined as the process of reallocation of economic activity across the three broad sectors agriculture manufacturing and services using the ggdc 10 sector database this paper first presents the empirical facts associated with structural change in different regions of the world that is europe and the usa asia latin america and africa then reviews four determinants of structural change i changes in income ii changes in relative sectoral prices iii changes in input output linkages and iv changes in comparative advantage s via globalization and trade

marriage stability taxation and aggregate labor supply in the u s vs europe americans work more than europeans using micro data from the united states and 17 european countries we document that women are typically the largest contributors to the cross country differences in work hours we also show that there is a negative relation between taxes and annual hours worked driven by men and a positive relation between divorce rates and annual hours worked driven by women in a calibrated life cycle model with heterogeneous agents marriage and divorce we find that the divorce and tax mechanisms together can explain 45 of the variation in labor supply between the united states and the european countries

can progressive taxation account for cross country variation in labor supply abstract the difference between average hours worked in the us and average hours worked in continental european countries has been increasing since the early 1970s to explain this phenomenon this paper develops an endogenous growth model with two key properties agents are heterogeneous in their rates of time preference and labor skills and the model incorporates progressive income taxes the model is calibrated to us and german data for the periods 1971 1974 and 1986 1989 our findings suggest that the degree of progressivity is a major factor in explaining the patterns of the us and german labor supply over time predictions of the model also match the distributional trends in both countries during this time period

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

hoarding of international reserves in china mercantilism domestic consumption and us monetary policy abstract we develop a two country two period model able to reproduce the key qualitative aspects of the us china co dependency and imbalances as the result of the chinese and american authorities pursuing different but complementary objectives we show that a mercantilist reserve hoarding has served well the chinese policy goals fast gdp expansion and labor mobilization and has been compatible with the us ones high households consumption if the us authorities keep monetary policy sufficiently loose thus reducing the real value of the us liabilities held by china this latter finds less tempting to stop financing the us external deficit appreciate the currency and increase consumption on the contrary if the policy goals in china change from the maximization of gdp growth to higher households standards of living a rebalancing process may be ignited we then discuss the model and its theoretical predictions also in light of the five year plans approved by the chinese ruling party

structural transformation and the deterioration of european labor market outcomes this paper examines hours worked in continental europe and the united states from 1956 to 2003 the empirical work establishes two results first hours worked in europe decline by almost 45 percent compared to the united states over this period second this decline is almost entirely accounted for by the fact that europe develops a much smaller market service sector than the united states a simple model of time allocation is used to understand these patterns i find that relative increases in taxes and technological catch up can account for most of the differences between the european and american time allocations over this period

time allocation and home production technology abstract this paper studies the effect of the relative productivity between the market sector and the home sector on time allocation a novelty of the paper is to jointly estimate home productivity and the elasticity of substitution between market goods and home hours which is accomplished through structural estimation based on income decile level data with a high elasticity of substitution and a slower growth rate of productivity in the home sector relative to the market sector the model can produce key data patterns of time allocation in both the cross sections and time series quantitatively relative productivity can account for 32 of the variation in market hours and 18 of the variation in home hours

on the allocation of time a quantitative analysis of the roles of taxes and productivities basic theory suggests that increases in labor income taxes induce people to substitute household production for market work time use surveys for 12 oecd countries during 1970 2010 however show that instead people substituted leisure for market work to understand why this happened we carefully measure the labor productivity of household production and find that it grew strongly in many countries of our sample employing a calibrated model of household production we show that strong growth in the labor productivity of household production implies that leisure absorbs the reductions in market work after labor income tax increases

long term changes in married couples labor supply and taxes evidence from the us and europe since the 1980s abstract we document the time series of employment rates and hours worked per employed by married couples in the us and seven european countries belgium france germany italy the netherlands portugal and the uk from the early 1980s through 2016 relying on a model of joint household labor supply decisions we quantitatively analyze the role of non linear labor income taxes for explaining the evolution of hours worked of married couples over time using as inputs the full country and year specific statutory labor income tax codes we further evaluate the role of consumption taxes gender and educational wage premia and the educational composition the model is quite successful in replicating the time series behavior of hours worked per employed married woman with labor income taxes being the key driving force it does however capture only part of the secular increase in married women s employment rates in the 1980s and early 1990s suggesting an important role for factors not considered in this paper an independent and important contribution of the paper is that we make the non linear tax codes used as an input into the analysis available as a user friendly and easily integrable set of matlab codes

international productivity and factor price comparisons abstract using oecd input output tables for a diverse group of 33 countries in the year 2000 and estimates of each country s factor stocks i compute factor payments for aggregate labor and capital with value added data adjusted for self employment by sector using a detailed technology matrix for the u s i compute factor specific productivity measures in each country relative to the u s and show that these measures are strongly correlated with the pattern of wages and rental rates i find that many low income countries with low labor productivity have relatively high capital productivity i also find a distinctive pattern between factor productivity and factor payments depending on whether a country has a high or low wage rental ratio compared to the u s i show these findings are consistent with the existence of sector based differences in production technology and complementarities between factors

did austerity cause brexit did austerity cause brexit this paper shows that the rise of popular support for the uk independence party ukip as the single most important correlate of the subsequent leave vote in the 2016 european union eu referendum along with broader measures of political dissatisfaction are strongly and causally associated with an individual s or an area s exposure to austerity since 2010 in addition to exploiting data from the population of all electoral contests in the uk since 2000 i leverage detailed individual level panel data allowing me to exploit within individual variation in exposure to specific welfare reforms as well as broader measures of political preferences the results suggest that the eu referendum could have resulted in a remain victory had it not been for a range of austerity induced welfare reforms further auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on brexit suggests up until 2010 the uk s welfare state evened out growing income differences across the skill divide through transfer payments this pattern markedly stops from 2010 onwards as austerity started to bite

social security and retirement across the oecd abstract employment to population ratios differ markedly across organization for economic cooperation and development oecd countries especially for people aged over 55 years in addition social security features differ markedly across the oecd particularly with respect to features such as generosity entitlement ages and implicit taxes on social security benefits this study postulates that differences in social security features explain many differences in employment to population ratios at older ages this conjecture is assessed quantitatively with a life cycle general equilibrium model of retirement at ages 60 64 years the correlation between the simulations of this study s model and observed data is 0 67 generosity and implicit taxes are key features to explain the cross country variation whereas entitlement age is not

the role of trade in structural transformation abstract low agriculture productivity is considered a key obstacle to economic development for many countries international trade in agricultural goods can help overcome this barrier and facilitate structural transformation because it allows countries to import part of their food needs this article quantifies the role of trade in this context through the examples of south korea during the last 50 years and great britain in the 19th century to do the analysis i calibrate and simulate a two sector neoclassical growth model to match the data and perform the policy experiments i find that agricultural imports played a crucial role in the early transformation of great britain while in south korea trade also had a positive impact on its structural transformation but it could have played a much larger role if the country had not introduced agricultural protection policies

taxation of human capital and wage inequality a cross country analysis wage inequality has been significantly higher in the united states than in continental european countries ceu since the 1970s moreover this inequality gap has further widened during this period as the us has experienced a large increase in wage inequality whereas the ceu has seen only modest changes this paper studies the role of labor income tax policies for understanding these facts we begin by documenting two new empirical facts that link these inequality differences to tax policies first we show that countries with more progressive labor income tax schedules have significantly lower before tax wage inequality at different points in time second progressivity is also negatively correlated with the rise in wage inequality during this period we then construct a life cycle model in which individuals decide each period whether to go to school work or be unemployed individuals can accumulate skills either in school or while working wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks progressive taxation compresses the after tax wage structure thereby distorting the incentives to accumulate human capital in turn reducing the cross sectional dispersion of before tax wages we find that these policies can account for half of the difference between the us and the ceu in overall wage inequality and 76 of the difference in inequality at the upper end log 90 50 differential when this economy experiences skill biased technological change progressivity also dampens the rise in wage dispersion over time the model explains 41 of the difference in the total rise in inequality and 58 of the difference at the upper end

life cycle prices and production we use scanner data and time diaries to document how households substitute time for money through shopping and home production we document substantial heterogeneity in prices paid for identical goods for the same area and time with older households shopping the most and paying the lowest prices doubling shopping frequency lowers a good s price by 7 to 10 percent we estimate the shopper s price of time and use this series to estimate an elasticity of substitution between time and goods in home production of roughly 1 8 the observed life cycle time allocation implies a consumption series that differs markedly from expenditures

unemployment human capital depreciation and unemployment insurance policy summary this paper presents a structural estimation of a life cycle model with unemployment risk the model allows for human capital depreciation during unemployment it is estimated using german and us household level data the data suggest that the adverse impact of unemployment on individual productivity is important in both countries but quantitatively more relevant in germany moreover simulations show that the combination of skill depreciation with the generous unemployment insurance system that was in place in germany until recently is a key factor in explaining the differences in labour market performance between these countries copyright 2012 john wiley sons ltd

the food problem and the evolution of international income levels in most poor countries large fractions of land labor and other productive resources are devoted to producing food for subsistence needs we show that a model incorporating the food problem can provide new and useful insights into the evolution of international income levels in particular we find that the food problem can explain why some countries started to realize increases in per capita output more than 250 years later in history than others we also show that the food problem has important implications for growth miracles and the speed at which a country converges to its balanced growth path

optimal factor tax incidence in two sector human capital based models abstract this paper studies the optimal factor tax incidence in a standard two sector human capital based endogenous growth model elucidated by lucas 1988 capital income taxes generate dynamic inefficiency for capital accumulation and labor income taxes create dynamic inefficiency for human capital accumulation a factor tax incidence is a tradeoff between these two inefficiencies a switch from capital income taxes to labor income taxes reduces the long run welfare coming from lower leisure and increases the long run welfare originated from higher economic growth and higher consumption because the representative agent s learning time and human capital are inseparable and thus affect learning activities at the same degree we find that based on the current us income tax code it is optimal to first tax capital income and to resort to taxing labor income only when tax revenue is insufficient to cover government expenditure

the role of product market regulations in the process of structural change abstract the sectoral allocation of labor differs considerably across developed economies even in the presence of similar patterns of structural change a general equilibrium model that captures the stylized facts of structural change is presented in this framework economy wide product market regulations hinder the development of dynamic sectors such as service industries this is consistent with the negative cross country relationship between product market regulations and the service employment share discussed in the paper additionally the model suggests that higher service prices and rents in regulated economies reduce labor supply providing a rationale for the negative association between product market regulations and the employment rate previously found in the literature

the transatlantic productivity gap a survey of the main causes abstract during the last 2 decades europe s economy experienced a productivity slowdown whereas the united states us economy exhibited a marked acceleration the result is that since the early 1990s the relative productivity levels between the two regions have continuously diverged leading to a transatlantic productivity gap much of the explanation for this is the strong performance of the us in the so called new economy or knowledge economy and in particular the underinvestment in r d and as a result productivity and innovation has been at the forefront in the european policy agenda however various explanations for the us european union transatlantic productivity gap suggest that the picture is rather more complex than simply the effects on or the result of particular technology driven sectors

structural transformation marketization and household production around the world we provide evidence on household and market production in 36 countries since 1960 on average the household sector accounts for almost half of total hours worked as gdp per capita increases the employment share of household production in total hours worked initially declines and then hardly changes while the employment shares of market goods and services decrease and increase estimating the value added of household production yields similar patterns labor productivity of household production is lower than and positively correlated with that in the market these findings can be used as an input into quantitative work involving household production

taxes transfers and employment in an incomplete markets model the consequences of increases in the scale of tax and transfer programs are assessed in the context of a model with idiosyncratic productivity shocks and incomplete markets the effects are contrasted with those obtained in a stand in household model featuring no idiosyncratic shocks and complete markets the main finding is that the impact on hours remains very large but the welfare consequences are very different the analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment

job polarization in europe the structure of employment is always changing and economists are always trying to understand those changes in the 1990s the idea of skill biased technological change sbtc was used to understand the shift in employment toward more educated workers see david h autor and lawrence f katz 1999 for a survey however in recent years it has become appar ent that a more nuanced approach is needed the idea of sbtc might lead one to predict a uni form shift in employment away from low skilled and toward high skilled occupations but studies for the united states autor katz and melissa s kearney 2006 and the united kingdom goos and manning 2007 have shown that there is growth in employment in both the high est skilled professional and managerial and lowest skilled personal services occupations with declining employment in the middle of the distribution manufacturing and routine office jobs this is what goos and manning 2007 term job polarization although see the introduc tion to goos and manning 2007 for antecedents of these ideas there are several hypotheses about the rea sons for job polarization first the routiniza tion hypothesis first put forward by autor frank levy and richard murnane 2003 sug gests that the effect of technological progress is to replace routine labor which tends to be clerical and craft jobs in the middle of the wage distribution second there is the view that globalization in general and offshoring in par ticular is an important source of change in the job structure in the richest countries see for example alan s blinder 2007 third there may be a link between job polarization and

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

labor supply in the past present and future a balanced growth perspective the absence of a trend in hours worked in the postwar united states is an exception across countries and historically hours fall steadily by a little below 0 5 per year are steadily falling hou

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

engines of liberation electricity was born at the dawn of the last century households were inundated with a flood of new consumer durables what was the impact of this consumer durable goods revolution it is argued here that the consumer goods revolution was conducive to liberating women from the home to analyse this hypothesis a beckerian model of household production is developed households must decide whether or not to adopt the new technologies and whether a married woman should work can such a model help to explain the rise in married female labour force participation that occurred in the last century yes the housewife of the future will be neither a slave to servants nor herself a drudge she will give less attention to the home because the home will need less she will be rather a domestic engineer than a domestic labourer with the greatest of all handmaidens electricity at her service this and other mechanical forces will so revolutionize the woman s world that a large portion of the aggregate of woman s energy will be conserved for use in broader more constructive fields thomas alva edison as interviewed in good housekeeping magazine lv no 4 october 1912 p 436

the role of the structural transformation in aggregate productivity we investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation the secular reallocation of labor across sectors and the time path of aggregate productivity across countries using a simple model of the structural transformation that is calibrated to the growth experience of the united states we measure sectoral labor productivity differences across countries productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing moreover over time productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services in the model these sectoral productivity patterns generate implications that are broadly consistent with the cross country evidence on the structural transformation aggregate productivity paths and relative prices we show that productivity catch up in industry explains about 50 percent of the gains in aggregate productivity across countries while low relative productivity in services and the lack of catch up explains all the experiences of slowdown stagnation and decline observed across countries

social security and cross country differences in hours a general equilibrium analysis abstract i develop a general equilibrium life cycle model with an intensive and extensive margin of labor supply and endogenous human capital accumulation i use the model to assess the effects of changes to various features of social security on labor supply outcomes of particular interest are changes to the scale of the program and to the relevant eligibility rules i find that the cross country differences in social security programs account for at least 79 of the differences in employment rates of people aged 55 64 and 17 31 of the differences in aggregate hours worked between the us and continental europe

does entry regulation hinder job creation evidence from the french retail industry are product market and entry regulation key sources of low employment growth in many european countries we investigate this question in the context of the french retail trade industry since 1974 approval by regional zoning boards has been required for the creation or extension of any large retain store in france we exploit a unique database that provides time and region specific variation in boards approval decisions we show that stronger deterrence of entry by the boards increased retailer concentration and slowed down employment growth in france

does the public sector implode from baumol s cost disease i introduction the origin of the baumol cost disease is lower none productivity growth for services than for manufactures the progressive sector see baumol and brown 1966 and baumol 1967 the public sector in most countries is an important provider of tax financed services such as health education and care the baumol cost disease is accordingly often taken to have fatal consequences for the public sector putting it on an unsustainable trajectory baumol 1993 in one version the argument runs as follows the relative costs of providing services increase and hence more and more resources are needed if the supply of services should match the supply of manufactured goods this leads to an ever increasing tax rate compare lindbeck 2006 and van der ploeg 2007 in another version the tax rate is considered given productivity increases enhance income and thus the tax base leaving more tax revenue however under baumol s cost disease this revenue gain is absorbed by increasing costs just to maintain an unchanged supply of public services an increasing gap between public provision of services and private consumption of manufactures thus evolves which in turn will leave the population increasingly dissatisfied with the public sector this reasoning is often encountered in analyses of fiscal sustainability the aim of such analyses is to assess the financial viability of tax financed welfare arrangements these analyses often make trajectories under the baumol assumption showing that it leads to ever increasing financial problems calling for reforms see for example imf 2014 adding increasing demands for services in particular health services when material living standards increase further adds to these problems 1 see for example hall and jones 2007 and oecd 2013 this appears to leave policy makers in a conundrum either the tax burden is ever increasing leading to an eventual collapse of the economy or the supply of public services would have to be restrained leaving an increasing gap between aspired and realized levels of public service provisions this article takes outset in the baumol assumptions concerning productivity differences baumol growth and asks whether the doomsday implications expounded in the literature and in policy debates are justified this article does not challenge the premises of the baumol argument on differences in productivity growth between manufactures and services 2 but the implications when accounting explicitly for service provision from both the private and public sectors a further starting point is the observation that simple predictions based on baumol growth rely on fixed proportions between private consumption and public service provision as well as neglecting labor supply although the baumol problem has a technological origin its implications cannot be seen independently of preferences and thus private responses as well as the optimal provision of public services this article accordingly differs from the standard literature in three aspects first explicit account is taken of service provision from both the private and public sectors 3 not all services are provided via the public sector and many of the examples used to exemplify the baumol problem are services in private production second a very general formulation of preferences is adopted to capture how technological changes map into changes in key variables and affect the scope for tax financed service provision finally public service provisions and thus taxes are endogenous to analyze how policies respond to the changes induced by the baumol process 4 to focus on the basic implications the model is kept as simple as possible and because no essential intertemporal margins are important the model is static see for example buera and kaboski 2012 rogerson 2008 the main finding of the article is that under baumol growth the doomsday implications for the public sector do not hold

structural change and the kaldor facts in a growth model with relative price effects and non gorman preferences u s data reveal three facts 1 the share of goods in total expenditure declines at a constant rate over time 2 the price of goods relative to services declines at a constant rate over time and 3 poor households spend a larger fraction of their budget on goods than do rich households i provide a macroeconomic model with non gorman preferences that rationalizes these facts along with the aggregate kaldor facts the model is parsimonious and admits an analytical solution its functional form allows a decomposition of u s structural change into an income and substitution effect estimates from micro data show each of these effects to be of roughly equal importance

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

relative prices and sectoral productivity the relative price of services rises with development a standard interpretation of this fact is that productivity differences across countries are larger in manufacturing than in services the service sector comprises heterogeneous categories we document that many disaggregated service categories such as transportation communication and finance feature a negative income elasticity of relative prices whereas the relative price of aggregate services is mostly driven by large expenditure categories in housing collective government and health that feature a positive income elasticity of relative prices we also document a substantial reallocation of expenditures in services from categories with positive income elasticities traditional services to categories with negative elasticities non traditional services as income rises using an otherwise standard multi sector development accounting framework extended to include an input output structure we find that the cross country income elasticity of sectoral productivity is large in non traditional services 1 15 smaller in manufacturing 1 05 and much smaller in traditional services 0 67 eliminating cross country productivity differences in non traditional services reduces aggregate income disparity by 58 percent a 7 9 fold reduction in aggregate productivity differences we also find that the heterogeneity between traditional and non traditional services has a substantial impact on aggregate productivity and that the input output structure is important in this assessment

union firm bargaining and the influence of product market power and production technology on systematic risk the relationship between the capm firm beta and the firm s microeconomic decisions is studied by a model under uncertainty which combines the feature of an ex ante inputs substituable production technology and the existence of a union which bargains over various economic dimensions of the firm it is shown that the earlier findings of a relationship between the firm beta the firm product market power and the labor capital ratio may be reinforced through the indirect channel of labor market bargaining but the relationship becomes more complex and heavily depends on the scope of the union firm bargaining process this yields the empirical prediction confirmed for a panel of belgian firms that any proper estimation of the determinants of firm beta must control for firms in the sample being unionized

structural change in a multisector model of growth we study a multi sector model of growth with differences in tfp growth rates across sectors and derive sufficient conditions for the coexistence of structural change characterized by sectoral labour reallocation and constant aggregate growth path the conditions are weak restrictions on the utility and production functions commonly applied by macroeconomists we present evidence from us two digit industries that is consistent with our predictions about structural change and successfully calibrate the historical shift from agriculture to manufacturing and services we show quantitatively that reasonable deviations from our conditions do not have a big impact on the properties of the model

sectoral shocks and home substitution we show that the effect of a sectoral shock on the composition of sectoral shares crucially depends on whether the goods produced in the sector are home substitutable or not when a productivity shock hits the market sector that produces non home substitutable goods e g manufacturing goods the shock largely affects the composition of consumption shares of market sectors on the other hand when a shock hits the market sector that produces home substitutable goods e g service goods relocation in shares mainly occurs between the sector and the home sector we compare our results to those of the traditional three sector model without a home sector and show that the missing of the home substitution effects predicts completely different implications for the response of consumption shares to sectoral shocks

policy analysis in a matching model with intensive and extensive margins the large differences in hours of work across rich countries reflect large differences in both employment to population ratios and hours per worker we imbed the canonical model of labor supply into a matching model to produce a model with operative intensive and extensive margins and assess the implications of several policies for changes along the two margins tax and transfer policies lead to decreases along both margins whereas regulations that increase the cost of creating or maintaining a job may lead to decreases in employment but necessarily lead to increases in hours per worker

beyond balanced growth balanced growth models are commonly used in macroeconomics because they are consistent with the well known kaldor facts regarding economic growth these models however are inconsistent with one of the most striking regularities of the growth process the massive reallocation of labour from agriculture into manufacturing and services this paper presents a simple model consistent with both the kaldor facts and the dynamics of sectoral labour reallocation

modern macroeconomics in practice how theory is shaping policy over the last three decades macroeconomic theory and the practice of macroeconomics by economists have changed significantly for the better macroeconomics is now firmly grounded in the principles of economic theory we focus on the role of economic theory in shaping policy over the last several decades the united states and other countries have undertaken a variety of policy changes that are precisely what macroeconomic theory of the last 30 years suggests the evidence that theoretical advances have had a significant effect on the practice of policy is often hard to see for policymakers and advisers involved in the hurly burly of day to day policymaking but easy to see if one steps back and takes a longer term perspective examples of the effects of theory on the practice of policy include increased central bank independence adoption of inflation targeting and other rules to guide monetary policy increased reliance on consumption and labor taxes instead of capital income taxes and increased awareness of the costs of policies that distort labor markets

a quantitative analysis of china s structural transformation abstract the structural transformation of china or the reallocation of resources from the agricultural sector to the nonagricultural sector between 1978 and 2003 was truly remarkable we develop a two sector neoclassical growth model to quantitatively assess the driving forces of china s recent structural transformation in addition to the forces currently emphasized in the literature sectoral productivity growth we show that china s transformation was accelerated significantly by the gradual reduction in the relative size of the chinese government we find that the reduction in the size of the chinese government accounted by itself for 15 of the reduction in the agricultural share of employment two mechanisms explain this i in our model the lower tax rate associated with reduced intervention encouraged the accumulation of physical capital which is produced in the nonagricultural sector ii lower inefficiencies induced incomes to rise and given our preferences resulted in a disproportionate increase in the demand for the nonagricultural good

changes in sectoral composition associated with economic growth in this paper the author uses dynamic general equilibrium methods to examine the interrelationship between sectoral composition and growth she shows that growth is affected by sectoral composition and vice versa the model is basically a solow model of sustained growth with multiple consumption goods and nonhomothetic preferences each consumption good is produced using different factor intensities the rate of exogenous technological change is different in each sector nonhomotheticity of preferences drives the result that sectoral composition affects growth rates copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

unemployment and hours of work the north atlantic divide revisited i examine the dynamic evolutions of unemployment hours of work and the service share since the war in the united states and europe the theoretical model brings together all three and emphasizes technological growth computations show that the very low unemployment in europe in the 1960s was due to the high productivity growth associated with technological catch up productivity also played a role in the dynamics of hours but a full explanation for the fast rise of service employment and the big fall in aggregate hours needs further research taxation has played a role but results are mixed

globalization and the skilled city abstract the location of economic activity both across and within countries has undergone dramatic shifts over the last five decades three key trends stand out first cross country inequality has declined as many developing countries have grown rapidly second economic geography within countries has instead grown more unequal in both the developed and the developing world third within country spatial disparities have grown mainly because of the disproportionate success of skilled cities in this paper i develop a model that jointly explains these patterns as a consequence of deepening international economic integration my model explains the faster population and output growth of skilled cities as well as their tendency to increase their initial skill advantage consistent with the evidence my theory predicts a non monotonic path of urban growth in developed countries the model predicts a future shift in worldwide urban hierarchies as some developing world cities overtake unskilled cities in industrialized countries along global supply chains

towards a quantitative theory of automatic stabilizers the role of demographics employment volatility is larger for young and old workers than for the prime aged at the same time in countries with high tax rates the share of total hours supplied by young old workers is lower these two observations imply a negative correlation between government size and business cycle volatility this paper assesses in a heterogeneous agent olg model the quantitative importance of these two facts to account for the empirical relation between government size and macroeconomic stability

unemployment participation and worker flows over the life cycle we estimate and report life cycle transition probabilities between employment unemployment and inactivity for male workers using current population survey monthly files we assess the relative importance of each probability in explaining the life cycle profiles of participation and unemployment rates using a novel decomposition method a key robust finding is that most differences in participation and unemployment over the life cycle can be attributed to the probability of leaving employment and the probability of transiting from inactivity to unemployment while transitions from unemployment to employment the job finding probability play secondary roles we then show that a simple life cycle extension of a three state labor search model with leisure shocks can qualitatively replicate the empirical unemployment and participation life cycle profiles without introducing age or worker heterogeneity in market abilities we conclude that models that seek to explain life cycle work patterns should not ignore transitions to and from inactivity

can traditional theories of structural change fit the data two traditional explanations for structural changes are sector biased technological progress and non homothetic preferences this paper integrates both into an otherwise standard growth model and quantitatively evaluates them vis a vis time series the exercise identifies a set of puzzles for standard theories i the model cannot account for the steep decline in manufacturing and rise in services in the later data ii the standard model requires implausibly low elasticity of substitution across goods to match the consumption and output data and iii the behavior of consumption and output shares differs significantly from that of employment shares we argue that models that incorporate home production sector specific factor distortions and differences across sectors in the accumulation of human capital are promising avenues to amend the standard models jel o11 o14 o41

taxation and labor supply of married couples across countries a macroeconomic analysis we document contemporaneous dierences in the aggregate labor supply of married couples across 18 oecd countries relative to their us counterparts european married men work on average 9 to 17 percent and married women in western and southern europe 26 and 31 percent fewer hours married women in scandinavia and eastern europe however work almost as many hours as us married women we nd that a model of joint household decision making can largely replicate these facts if the full non linearity of labor income taxes and the tax treatment of married couples are taken into account going to a system of strictly separate taxation would increase labor supply of married women by more than 100 hours annually in a third of our sample countries

structural change in advanced nations a new set of stylised facts we provide new evidence on patterns of structural change in advanced economies reconsidering the stylised facts put forward by kaldor 1963 kuznets 1971 and maddison 1980 since 1980 the services sector has overwhelmingly predominated in the economic activity of the european union japan and the us but there is substantial heterogeneity among services personal finance and business services have low productivity growth and increasing shares in employment and gdp by contrast shares of distribution services are constant and productivity growth is rapid we find that the labour share in value added is declining while the use of ict capital and skilled labour is increasing in all sectors and regions

two views on the deterioration of european labor market outcomes this paper challenges the consensus view on the deterioration of european labor market outcomes relative to the united states when looking at employment to population ratios rather than unemployment rates i find that the deterioration begins in the mid 1950s and continues through the mid 1990s i also present evidence to suggest that the key to understanding this deterioration is to understand why europe has not developed a market service sector similar to the united states jel e2 j2

windfalls structural transformation and specialization abstract macro cross country data and micro us county data indicate that resource rich regions have small but relatively productive manufacturing sectors and large but relatively unproductive non manufacturing sectors we suggest a process of specialization to explain these facts windfall revenue induces labor to move from the traded manufacturing to the non traded non manufacturing sector a self selection of workers takes place only those most skilled in manufacturing sector work remain in manufacturing workers that move to non manufacturing however will be less skilled at non manufacturing sector work than those who were already employed there resource induced structural transformation thus results in higher productivity in manufacturing and lower productivity in non manufacturing we construct and calibrate a two sector open economy model of self selection and show that exogenous cross country variation in natural resource endowments is large enough to explain the direction and magnitude of sectoral employment and productivity differences between resource rich and resource poor regions the model implies that low aggregate productivity found in some resource rich countries is not caused by a resource induced decline of a relatively productive manufacturing sector rather the higher manufacturing productivity in those countries is a consequence of manufacturing s smaller size

can total factor productivity explain value added growth in services abstract this paper examines the factors responsible for generating the services led growth witnessed in the indian economy during 1980 2005 a sectoral growth accounting exercise shows that total factor productivity tfp growth was the fastest for services moreover this tfp increase was significant in accounting for service sector value added growth a growth model with agriculture industry and services as three principal sectors is calibrated to indian data using sectoral tfp growth rates the baseline model performs well in accounting for the evolution of value added shares and their growth rates but is unable to capture sectoral employment share trends the performance of the model with respect to value added shares improves when the post 1991 increase in service sector tfp growth following the inception of market based liberalization reforms is accounted for a modified version of the model with public capital can better track trends in sectoral employment shares

optimal taxation with home production abstract optimal taxes for europe and the u s are derived in a realistically calibrated model in which agents buy consumption goods and services and use home capital and labor to produce household services the optimal tax rate on services is substantially lower than the tax rate on goods specifically the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production the optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large