labor force participation interest rate shocks and unemployment dynamics in emerging economies abstract emerging economies emes have highly volatile unemployment and real wages standard models with interest rate shocks can generate higher unemployment volatility but still fall quantitatively short of matching the empirical volatility of unemployment a small open economy search model with endogenous participation and self employment a feature of emes generates 90 percent of the volatility of unemployment in the data highly volatile wages and quantitatively consistent cyclical aggregate dynamics amid productivity and interest rate shocks of plausible magnitudes endogenous participation amplifies shocks and plays a critical role in overcoming a key limitation of standard search models for emes

the demand for post compulsory education in the uk and the effects of educational maintenance allowances in this paper the author develops a model of investment in postcompulsory schoolin g based on human capital theory the model is estimated using data on a sample of sixteen and seventeen year olds derived from the family expenditure survey the results reveal significant differences in the factors influencing enrollment in postcompulsory education between m ales and females mot notably household income is an important deter minant of educational participation for females but not for their ma le counterparts on the basis of these results the author assesses t he effects of the introduction of educational maintenance allowances on participation rates in the united kingdom

on corporate borrowing credit spreads and economic activity in emerging economies an empirical investigation abstract we document a considerable increase in foreign financing by the corporate sector in emerging economies emes since the early 2000s mainly in the form of bond issuance and claim that it has opened up an important channel by which external financial factors can drive economic activity in these economies such claim is substantiated by a strong negative relationship between economic activity and an external financial indicator that we construct for several emes using micro level data on spreads of bonds issued by emes corporations in foreign capital markets three salient features characterize such a negative relationship first the financial indicator has considerable predictive power on future economic activity in these economies even after controlling for other potential drivers of business cycles such as movements in sovereign spreads and global financial risk among others second on average an identified adverse shock to the financial indicator generates a large and protracted fall of real output growth in these economies and up to 14 of its forecast error variance is associated to this shock lastly fluctuations in this indicator also respond strongly to shocks in global financial risk emanating from world capital markets thereby implying that changes in corporate spreads also serve as a powerful propagating mechanism of the effect of changes in global investors risk appetite in emerging markets

unemployment hysteresis and the natural rate hypothesis i introduction rod cross et al university of st andrews ii reflections on hysteresis and the natural rate 1 the irrelevance of the natural rate lawrence summers harvard university 2 on the history of hysteresis rod cross university of st andrews iii the characteristics of the unemployed 1 unemployment vacancies and the long term unemployed peter smith l b s paul levine south bank polytechnic alan budd l b s 2 characteristics of the long term unemployed evidence from the labour force survey stephen creigh department of employment 3 is unemployment irreversible peter r hughes department of employment gillian hutchinson queen mary college london iv analysis of hysteresis effects 1 union activity and wage employment movements assar lindbeck institute for international studies university of stockholm and dennis snower birkbeck college london 2 a simple model of imperfect competition with walrasian features huw dixon birkbeck college london 3 unemployment and worker quality simon price university of bristol 4 screening in labour markets with heterogeneous workers inge schnell university of bonn and l s e iv hysteresis effects and the explanation of aggregate unemployment 1 testing for multiple natural rates of unemployment in the british economy alan carruth university of kent and andrew oswald centre for labour economics l s e 2 why is wage inflation in britain so high stephen nickell university of oxford 3 phillips curve estimates incorporating a natural rate with hysteresis effects david coe o e c d 4 hysteresis and european unemployment olivier blanchard m i t and lawrence summers harvard university 5 the natural rate empirical fact or theoretical straitjacket tim jenkinson merton college oxford iv panel discussion the implications of hysteresis effects for unemployment policy 1 david stanton employment market research unit department of employment 2 charles adams i m f 3 marcus miller university of warwick 4 peter mcgregor fraser of allander institute university of strathclyde

trade credit bank lending and monetary policy transmission this paper investigates the role of trade credit in the transmission of monetary policy most models of the transmission mechanism allow the firm to access only financial markets or bank lending according to some net worth criterion in our model we introduce trade credit as an additional source of funding we predict that when monetary policy tightens there will be a reduction in market and bank lending and an increase in trade credit this is confirmed with an empirical investigation of 16 000 manufacturing firms

staying on in full time education the educational participation rate of 16 year olds this paper presents a time series analysis of the socioeconomic factors influencing the propensity of sixteen year olds to stay on in full time education in england and wales the econometric methodology employed relies on cointegration and general to specific techniques the results suggest that the main factors influencing staying on are the rate of return to education changing social class structure unemployment rates and the introduction of special employment and training measures such as the youth training scheme copyright 1991 by the london school of economics and political science

interfirm relationships and informal credit in vietnam trading relations in vietnam s emerging private sector are shaped by two market frictions the difficulty of locating trading partners and the absence of legal enforcement of contracts examining relational contracting we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier a longer duration of trading relationship is associated with larger credit as is prior information gathering customers identified through business networks receive more credit these network effects are enduring suggesting that networks are used to sanction defaulting customers

credit market imperfections labor markets and leverage dynamics in emerging economies abstract emerging economies emes have different credit and labor market structures relative to advanced economies we document that economies with larger self employment shares tend to exhibit less countercyclical leverage dynamics we build a model where formal credit markets input credit relationships and the structure of labor markets interact that 1 captures a comprehensive set of eme business cycle regularities and 2 rationalizes our new fact the interaction between firms net worth interfirm input credit and self employment underlying our framework is critical for explaining our fact and is supported by the data

effectiveness of electoral systems for reducing government corruption a game theoretic analysis abstract a theoretical model is developed for predicting the relative effectiveness of different electoral systems for reducing government corruption we consider voting games in which parties with known corruption levels and known positions on a major policy question compete for legislative seats we find that approval voting and proportional representation are fully effective in the sense that all equilibria exclude corrupt parties from legislative seats plurality voting is partly effective in the sense that there always exist some equilibria that exclude corrupt parties borda voting is ineffective because for some political situations no equilibria can guarantee the exclusion of corrupt parties journal of economic literature classification number d72

choice at sixteen the proportion of sixteen year olds in britain who stay on at school is low by oecd standards this paper examines the probability of completing education at the minimum legal age using micro data on individuals parameter estimates of a reduced form logit model of the leaving probability are obtained for both boys and girls the rich data set used allows the separate effects of family school and ability to be assessed family background in the form of class and parental education is shown to have a large effect even when ability and school type are controlled for copyright 1989 by the london school of economics and political science

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

the provision of public goods under alternative electoral incentives politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork barrel spending we compare a winner take all system where all the spoils go to the winner to a proportional system where the spoils of office are split among candidates proportionally to their share of the vote in a winner take all system the public good is provided less often than in a proportional system when the public good is particularly desirable we then consider the electoral college system and show that it is particularly subject to this inefficiency

an econometric analysis of reservation wages this paper describes an analysis of survey data on unemployed people who reported their asking wage and the wage they expected to earn we show that if agents behavior is described by the standard optimal job search model one can use these data to deduce structural parameters rather than estimate them and we report our deductions from two surveys 1 of british unemployed people

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

the impact of the business environment on young firm financing this paper uses a dataset of more than 70 000 firms in over 100 countries to systematically study the use of different financing sources for new and young firms in comparison to mature firms the authors find that in all countries younger firms rely less on bank financing and more on informal financing however they also find that younger firms use more bank finance in countries with stronger rule of law and better credit information and that the reliance of young firms on informal finance decreases with the availability of credit information overall the results suggest that improvements to the legal environment and availability of credit information are disproportionately beneficial for promoting access to formal finance by young firms

electoral systems and public spending we study the effects of electoral institutions on the size and composition of public expenditure in oecd and latin american countries we emphasize the distinction between purchases of goods and services which are easier to target geographically and transfers which are easier to target across social groups we present a theoretical model in which voters anticipating government policymaking under different electoral systems have an incentive to elect representatives more prone to transfer public good spending in proportional majoritarian systems the model also predicts higher total primary spending in proportional majoritarian systems when the share of transfer spending is high low after dee ning rigorous measures of proportionality to be used in the empirical investigation we e nd considerable support for our predictions

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

theoretical comparisons of electoral systems abstract elements of an economic theory of political institutions are introduced a variety of electoral systems are reviewed cox s threshold is shown to measure incentives for diversity and specialization of candidates positions when the number of serious candidates is given duverger s law and its generalizations are discussed to predict the number of serious candidates duverger s law is interpreted as a statement about electoral barriers to entry and this idea is linked to the question of the effectiveness of democratic competition as a deterrent to political corruption the impact of post electoral bargaining on party structure in presidential and parliamentary systems is discussed

capital over the business cycle renting versus ownership we find that capital renting makes up one fifth of u s capital expenditures and it increases during downturns further we present cross country evidence that output losses after financial crises are smaller where renting is more prevalent to understand these findings we build a general equilibrium model with borrowing constraints and with the option to rent or buy capital the countercyclicality of rentals occurs because their supply increases as renting serves as an additional means of savings when credit markets malfunction moreover demand also shifts toward rentals as they become relatively cheaper by absorbing excess savings renting mitigates financial crises

unemployment a survey this paper presents a survey of the economics of unemployment it covers competitive and imperfect competition models the role of different methods of wage determination and explanation of postwar unemployment patterns in the oecd countries copyright 1990 by royal economic society

remittances entrepreneurship and employment dynamics over the business cycle abstract we incorporate remittances and micro entrepreneurship self employment into a small open economy business cycle model with capital and labor market frictions countercyclical remittances moderate the decline of households consumption during recessions these remittances also are used to finance the start up costs of microenterprises that bolster households income during economic downturns we show that the positive income effect from countercyclical remittances also leads to a decrease in salaried labor supply which generates offsetting upward pressure on wages during recessions and adversely affects the recovery of the economy consistent with the microeconomic evidence the behavior of remittances decisively affects labor force participation and the composition of employment between non salaried and salaried employment over the business cycle the model delivers labor market and aggregate cyclical dynamics that are consistent with the mexican data including a highly volatile and countercyclical unemployment rate

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

electoral rules and corruption is corruption systematically related to electoral rules recent theoretical work suggests a positive answer but little is known about the data we try to address this lacuna by relating corruption to different features of the electoral system in a sample of about eighty democracies in the 1990s we exploit the cross country variation in the data as well as the time variation arising from recent episodes of electoral reform the evidence is consistent with the theoretical priors larger voting districts and thus lower barriers to entry are associated with less corruption whereas larger shares of candidates elected from party lists and thus less individual accountability are associated with more corruption individual accountability appears to be most strongly tied to personal ballots in plurality rule elections even though open party lists also seem to have some effect because different aspects roughly offset each other a switch from strictly proportional to strictly majoritarian elections only has a small negative effect on corruption jel e62 h3

an empirical analysis of the unemployment duration of school leavers unemployment is a waste of vaulable human resources which also imposes various economics medical and psychological costs on the individual these costs are likely to be greater the longer the duration of umemployment this is true for both prime aged workers and the youngest entrants to the labour market that is school leavers using careers service data on 1979 1980 and 1981 leavers the authors seek to shed light on the issue of what factors determine the duration of unemployment for minimum aged school leavers the way in which these factors can be used by the careers service to identify those school leavers who have a higher risk of long term unemployment is discussed and a number of strategies for helping this group are outlined the results show that after allowing for the distorting influence of the youth opportunities programme longer durations of unemployment are associated with an absence of work experience low to intermediate qualifications and other personality traits

informal employment safety net or growth engine summary is informal employment a safety net or a growth engine to address this question this paper studies the trends and cycles of informal employment it first presents a theoretical model of long and short run behavior of informal labor then it analyzes these relationships empirically using the share of self employment in the labor force as the proxy for informal employment in the long run informality is larger when labor productivity is lower government services weaker and business flexibility less prevalent in the short run informal employment behaves counter cyclically indicating that it acts primarily as a safety net the degree of counter cyclicality however varies inversely with the size of informal labor itself

do the determinants of employability and earnings returns produce similar outcomes in metropolitan and regional labour markets the case of new south wales australia mallik g basu p k hicks j and sappey r do the determinants of employability and earnings returns produce similar outcomes in metropolitan and regional labour markets the case of new south wales australia regional studies this paper analyses and compares the determinants of employability and earnings return outcomes in two diversified labour markets in australia using advanced econometric techniques to analyse confidentialised unit record files curf data from the 2006 census the paper identifies educational qualifications broad occupational group immigration status and age as the major determinants in general the metropolitan sydney market places a greater value on higher education qualifications than do labour markets in the regions immigrants particularly from non english speaking countries are more likely to be disadvantaged in sydney and ageing provides a mixed impact in regional areas where on average older people work longer but at lower wages

employment and firm heterogeneity capital allocation and countercyclical labor market policies abstract developing and emerging economies have large employment shares in micro and small firms which are characterized by limited access to formal financing and high reliance on input credit these economies implemented a host of countercyclical labor market policies amid the global financial crisis gfc but labor market data limitations prevent detailed empirical assessments of the effectiveness of these policies we develop a business cycle model with frictional labor markets consistent with the employment and firm structure of these economies and assess the aggregate impact of key countercyclical labor market policies implemented amid the gfc improving job intermediation for large firms is particularly effective in aiding recoveries policies targeting smaller firms yield limited aggregate benefits differences in labor productivity and sectoral contribution to employment and output across firm categories are key in explaining the response to policy

political careers or career politicians two main career paths are prevalent among politicians in modern democracies there are career politicians i e politicians who work in the political sector until retirement and political careers i e there are politicians who leave politics before retirement and work in the private sector in this paper we propose a dynamic equilibrium model of the careers of politicians in a political economy with a private sector and a political sector where individuals are heterogeneous with respect to their market ability as well as their political skills we characterize the conditions under which the two career paths emerge in equilibrium and establish a number of comparative statics results with respect to the quality of politicians and their careers

constitutions politics and economics a review essay on persson and tabellini s the economic effects of constitutions in this essay i review the new book by torsten persson and guido tabellini the economic effects of constitutions which investigates the policy and economic consequences of different forms of government and electoral rules i also take advantage of this opportunity to discuss the advantages and disadvantages of a number of popular empirical strategies in the newly emerging field of comparative political economy

pay for politicians and candidate selection an empirical analysis abstract a growing theoretical literature on the effect of politicians salaries on the average level of skills of political candidates yields ambiguous predictions in this paper we estimate the effect of pay for politicians on the level of education of parliamentary candidates we take advantage of an exceptional reform where the salaries of finnish mps were increased by 35 in the year 2000 intended to make the pay for parliamentarians more competitive a difference in differences analysis using candidates in municipal elections as a control group suggests that the higher salary increased the fraction of candidates with higher education among female candidates while we find no significant effect for male candidates

political selection under alternative electoral rules we study the patterns of political selection in majoritarian versus proportional systems political parties face a trade off in choosing the mix of high and low quality candidates high quality candidates are valuable to voters and thus help to win elections but they crowd out loyal candidates who are most preferred by the parties under proportional representation politicians selection depends on the share of swing voters in the entire electorate in majoritarian elections it depends also on the distribution of competitive versus safe single member districts we show that a majoritarian system with only a few competitive districts is less capable of selecting good politicians than a proportional system as the share of competitive districts increases the majoritarian system becomes more efficient than the proportional system however for a large enough share of competitive districts a non monotonic relation arises the marginal positive effect of adding high quality politicians on the probability of winning the election is reduced and highly competitive majoritarian systems become less efficient than proportional ones in selecting good politicians

electoral reform and trade offs in representation we examine the effect of electoral institutions on two important features of representation that are often studied separately policy responsiveness and the quality of legislators theoretically we show that while a proportional electoral system is better than a majoritarian one at representing popular preferences in some contexts this advantage can come at the price of undermining the selection of good politicians to empirically assess the relevance of this trade off we analyze an unusually controlled electoral reform in switzerland early in the twentieth century to account for endogeneity we exploit variation in the intensive margin of the reform which introduced proportional representation based on administrative constraints and data on voter preferences a difference in difference analysis finds that higher reform intensity increases the policy congruence between legislators and the electorate and reduces legislative effort contemporary evidence from the european parliament supports this conclusion

do better paid politicians perform better disentangling incentives from selection the wage paid to politicians affects both the choice of citizens to run for office and the performance of those who are appointed first if skilled individuals shy away from politics because of higher opportunities in the private sector an increase in politicians pay may change their mind second if the re election prospects of incumbents depend on their in office deeds a higher wage may foster performance we use data on all italian municipal governments from 1993 to 2001 and test these hypotheses in a quasi experimental setup in italy the wage of mayors depends on population size and sharply rises at different thresholds we apply a regression discontinuity design to the only threshold that uniquely identifies a wage increase 5 000 inhabitants exploiting the existence of a two term limit we further disentangle the composition from the incentive component of the effect of the wage on performance our results show that a higher wage attracts more educated candidates and that better paid politicians size down the government machinery by improving efficiency importantly most of this effect is driven by the selection of competent politicians rather than by the incentive to be re elected

school leaver unemployment a proactive approach 1990 school leaver unemployment a proactive approach applied economics vol 22 no 4 pp 439 461

costly external finance and labor market dynamics abstract we study the role of agency frictions and costly external finance in cyclical labor market dynamics with a focus on how credit market frictions may amplify aggregate tfp shocks the main result is that aggregate tfp shocks lead to large fluctuations of labor market quantities if the model is calibrated to the empirically observed countercyclicality of the finance premium a financial accelerator mechanism thus amplifies labor market fluctuations by rendering rigidity in real wage dynamics in contrast if the finance premium is procyclical which the model can be parameterized to accommodate amplification is absent and labor market fluctuations display the shimer 2005 puzzle

do institutions affect citizens selection into politics traditional political economy has paid primary attention to the structuring of the principal agent relationship between citizens and politicians and the role of competition and institutions in disciplining political agents however as the electoral control of politicians and the credibility of policy commitments are limited this perspective needs to be complemented with an economics of political selection that takes into account the quality of those elected to political office we review the emerging literature which investigates institutional conditions that impact the selection of politicians we discuss pay in politics electoral rules institutions enhancing transparency in politics and institutions which govern dual office holding in different branches of government we argue that further comparative analyses are essential in order to gain an improved understanding of the impact that institutions have on political outcomes not only via the channel of accountability but also via the channel of selection

condemning corruption while condoning inefficiency an experimental investigation into voting behavior this article reports results from an economic experiment that investigates the extent to which voters punish corruption and waste in elections while both are responsible for reductions in voters welfare they are not necessarily perceived as equally immoral the empirical literature in political agency has not yet dealt with these two dimensions of voters choice calculus our results suggest that morality and norms are indeed crucial for a superior voting equilibrium in systems with heterogeneous politicians while corruption always is punished self interest alone in the absence of norms leads to the acceptance and perpetuation of waste and social losses

how do electoral systems affect fiscal policy evidence from cantonal parliaments 1890 2000 using a new data set on swiss cantons since 1890 we analyze how the adoption of proportional representation affects fiscal policy in line with economic theory we show that proportional systems shift spending toward broad goods like education and welfare benefits but decrease spending on geographically targetable goods like roads we find little evidence that proportional representation increases the overall size of government an analysis of the underlying theoretical mechanisms reveals that proportional representation increases electoral turnout left wing representation and political fragmentation these changes in political representation explain a substantial share of the rise in education spending but a small share of the rise in welfare spending or the decline in road expenditures jel h4 h11 i38

electoral rules and political selection theory and evidence from a field experiment in afghanistan voters commonly face a choice between competent candidates and those with policy preferences similar to their own this article explores how electoral rules such as district magnitude mediate this trade off and affect the composition of representative bodies and the quality of policy outcomes we show formally that anticipation of bargaining over policy causes voters in elections with multiple single member districts to prefer candidates with polarized policy positions over more competent candidates results from a unique field experiment in afghanistan are consistent with these predictions specifically representatives selected by elections with a single multi member district are better educated and exhibit less extreme policy preferences