toward a reconstruction of keynesian economics expectations and constrained equilibria a two period model of temporary equilibrium with rationing is presented paying particular attention to agents expectations of future constraints it is shown that with arbitrary constraint expectations many different types of current equilibrium may be consistent with the same set of current and expected future wages and prices and that constraint expectations exhibit bootstraps properties e g a higher expectation of keynesian unemployment tomorrow increases the probability that it will prevail today in addition the concept of rational constraint expectations i e perfect foresight of future constraints is introduced and shown to enhance rather than reduce the effectiveness of government policy

the consumption function and intertemporal spillover effects the fact that consumers save more or consume less as long as they expect pessimistically that labor supply constraint will be binding in the future is speculated all the time however no theoretical works are developed satisfactorily without taking the intertemporal spillover effects into account in this paper an explicit solution to the consumer s intertemporal optimization problem is derived by taking account of the intertemporal spillover effects in addition it is shown that the extrinsic uncertainty of labor supply rationing induces people to save more money thus this model is an extension of clower s and barro grossman s models

supply shocks in a two country world with wage and price rigidities the implications of quantity adjustments in the face of sticky prices in open economy macroeconomic models have been introduced by dixit i978 neary i980 and dixit and norman i980 the first two employ the small country assumption that the foreign price level is an exogenous variable with the latter including a non traded good into the discussion dixit and norman introduce a two country one good model and only consider a generalised keynesian outcome under fixed exchange rates in this paper we analyse a two country two good model and consider the international link between unemployment in both countries with special emphasis on supply shock originated disequilibria under fixed and flexible exchange rates naturally the terms of trade become an important transmission mechanism in a two good model under flexible exchange rates the work of barro and grossman i976 malinvaud i977 et al for closed economies has shown that temporary equilibria in a closed economy can be classified into regions of keynesian unemployment classical unemployment repressed inflation and under consumption when two countries linked by trade are discussed the classification of international temporary equilibria multiplies accordingly we choose a small subset of these possibilities focusing on those that are likely to be associated with supply shocks i e combinations of keynesian and classical unemployment two country models have been extensively studied under walrasian and simple keynesian specifications see for instance laursen and metzler i950 harberger i95i meade i95i mundell i968 swoboda and dornbusch i973 and mussa i979 we consider these models briefly in section iii emphasising their micro foundations and general equilibrium properties stability of both fixed and flexible exchange rates regimes for walrasian and keynesian equilibria revolves around some form of the marshall lerner conditions being satisfied the problem of competitive devaluations to export unemployment in a keynesian world is discussed while a keynesian outcome for both countries applies for some configurations of wages and product prices and exchange rates this is not true for all configurations hence with sticky prices monetary deflation in both countries should lead to keynesian unemployment in both but when negative supply shocks reduce national labour demands and output supplies keynesian aggregate demands cease to determine the levels of economic activity and employment appropriately

constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks we investigate the welfare properties of the one sector neoclassical growth model with uninsurable idiosyncratic shocks we focus on the notion of constrained efficiency used in the general equilibrium literature our characterization of constrained efficiency uses the first order condition of a constrained planner s problem this condition highlights the margins of relevance for whether capital is too high or too low the factor composition of income of the consumption poor using three calibrations commonly considered in the literature we illustrate that there can be either over or underaccumulation of capital in steady state and that the constrained optimum may or may not be consistent with a nondegenerate long run distribution of wealth for the calibration that roughly matches the income and wealth distribution the constrained inefficiency of the market outcome is rather striking it has much too low a steady state capital stock

theoretical approaches to monetary disinflation abstract during the 1980s many countries adopted tight monetary policies to reduce high inflation rates which were the legacy of the 1970s as inflation threatens to rise at the beginning of this decade this paper provides a survey of the 1980s literature which sought to provide theoretical understandings of how monetary disinflation is achieved four models are presented monetarist neo keynesian new classical and post keynesian each model s explanation of the recession which accompanies the monetary disinflation is outlined as well as possible policy measures to reduce the extent of the recession and to hasten the return to full employment

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

inflation and wage rigidity flexibility in the short run a recent literature uses accurate wage data from payroll records and provides compelling evidence against the conventional belief that nominal wages are downward sticky this paper provides a unique contribution to this literature by conducting a formal analysis of the role of inflation in cyclical wage rigidity flexibility analysis of payroll based wage data from the korean labor market for the period 1971 2014 finds that the degree of downward nominal wage flexibility is countercyclical and the countercyclicality becomes stronger during a deflationary relative to inflationary recession this serves as a counter example to the conventional theory of cyclical wage rigidity jel e24 e32 j30 j64

downward wage rigidity in a model of equal treatment contracting following insights by bewley 1999a this paper analyses a model with downward rigidities in which firms cannot pay discriminately based on year of entry to the firm and develops an equilibrium model of wages and unemployment we solve for the dynamics of wages and unemployment under conditions of downward wage rigidity where forward looking firms take into account these constraints we show that there is a frontloading incentive that leads to a simple solution in the case of certainty using productivity data from the postwar us economy we analyse the ability of the model to match certain stylised labour market facts

wage changes and intrafirm job mobility over the business cycle two case studies despite the many reasons to expect sluggish wage adjustment recent evidence suggests that real wages are quite procyclical growing more rapidly during economic expansions than during recessions and that this wage procyclicality pertains even to workers who stay with the same employer one possible explanation for these findings is the old hypothesis that a portion of firms cyclical adjustment of labor costs is achieved not by changing the wages paid in particular jobs but by changing the quality of labor assigned to those jobs the authors analysis of interwar personnel data from the ford motor company and the a m byers company supports that hypothesis the authors recognize that case studies of only two firms cannot be definitive but they conclude that cyclicality in workers job assignments deserves further attention

optimal taxation merging micro and macro approaches efficient provision of social insurance and efficient redistributionofresourcesamongindividualsaresomeofthemostimportantandchallenging questions in macroeconomics and public finance a seminal contribution of mirrlees 1971 is the starting point for the modern approach to answering these questions a trade off between efficiency and insurance or equity is inherent to this approach and is a key determinant of the optimal policy in this paper we argue that the large body of research that follows mirrlees approach has been developing in two quite separate directions referred to in this paper as the micro and macro approaches we argue that merging the two directions

keynesian models of deflation and depression revisited abstract this paper extends tobin s tobin j 1975 keynesian models of recession and depression american economic review 65 195 202 keynesian analysis of deflation to include a range of additional channels through which deflation exacerbates keynesian unemployment the paper provides further theoretical reasons why downward price level adjustment may not solve the keynesian problem these arguments challenge the received wisdom that keynes general theory is a special case resting on downwardly rigid prices and nominal wages this conventional wisdom has led many economists to recommend policies promoting downward flexibility these policies have created an environment in which deflation is more likely giving new relevance to keynesian analysis of deflation

fair pay and a wage bill argument for low real wage cyclicality and excessive employment variability this article considers a two period optimal contracting model in which firms make new hires in the second period subject to the constraint that they cannot pay discriminate either against or in favour of the new hires in the absence of fully contingent contracts it is shown that wages are less flexible than needed for efficient employment levels with the result that too few hires are made in bad states of the world unemployment is involuntary in an extension to the model there may also be involuntary and excessive layoffs in some states of the world this article investigates the consequences for wage and employment outcomes of assuming that firms follow a fair wage policy by a fair wage policy is meant that workers receive equal pay for equal work irrespective of when they were hired the fair wage restriction is combined with the assumption that wage contracts are not state contingent while both of these features have much empirical support there has been no previous attempt to analyse their interaction it is shown to lead to reduced wage volatility and increased employment variability as well as the possibility of involuntary unemployment the essential idea of the article is simple if the wage paid to new hires is

on the local uniqueness of the fixed price equilibria a number of recent works have addressed the problem of describing the allocation of resources in an economy where prices are fixed at a value that may not achieve equilibrium of supply and demand in the classical sense it seems that by and large through the works of benassy 1975 dreze 1975 malinvaud younes 1977 and younes 1975 agreement has been reached as to the properties that an allocation should possess when transactions take place at given arbitrary fixed prices the purpose of this paper is to present a result in comparative statics which applies in this approach in the framework of an exchange economy a necessary and sufficient condition for the local uniqueness of the fixed price allocation in a neighbourhood of a competitive equilibrium is established under this condition in a neighbourhood of the competitive allocation the fixed price equilibrium is locally a continuous function of the price system a prerequisite for most studies in comparative statics this condition can be related to the stability of the quantity adjustment process associated with fixed price equilibria in a neighbourhood of the competitive equilibrium as is suggested by samuelson s principle of correspondence stability implies local uniqueness while the converse is not true finally it is shown that the fixed price equilibria are both locally unique and stable when the commodities are substitutes for the rationed consumers the paper is organized as follows section 2 presents the model and results the main proofs are gathered in section 3 while an appendix gives the properties of the derivatives of the consumer s demands the mathematical tools involved are first a generalization of the inverse function theorem for lipschitzian functions due to clarke 1976 and second the identity of sylvester for determinants gantmacher 1966 pp 32 33

keynesian and classical unemployment in an open economy this paper examines various unemployment equilibria in a fix price model of an open economy with nontraded goods the economy exports an internationally traded good and imports an intermediate input good the comparative static effects of various exogenous variables on total employment and the balance of trade are derived and compared across regimes considerable emphasis is placed on the employment effects of external disturbances both price shocks such as a rise in the price of the imported intermediate good and quantity shocks e g a slump in the demand for exportables are examined and the appropriate policy for restoring full employment is discussed in each case

disequilibrium rational expectations abstract in this paper we present a simple dynamic general disequilibrium model which generates both unemployment and inflation as a stationary long run equilibrium rational expectations in the mean are an essential part of this equilibrium policy remedies are examined by means of an example it is shown that rational expectations are consistent with depressed economic activity and that government policy can play an important role it is entirely possible for inflation and unemployment to persist indefinitely

reconciling the wage curve and the phillips curve the wage curve is the negative relationship that links wage levels to the unemployment rate it fits accurately with modern non competitive labour market models but goes against a phillips curve modelling because the latter ties wage growth to the unemployment rate in this article we present a comprehensive review of these non competitive models highlighting recent contributions that try to eliminate the possible gap that exists between the concepts of the wage curve on the one hand and the phillips curve on the other copyright blackwell publishers ltd 2005

wage rigidity and job creation recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations we use worker level data from the cps to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions the wage of new hires unlike the aggregate wage is volatile and responds almost one to one to changes in labor productivity we conclude that there is little evidence for wage rigidity in the data

coffee economic fluctuations and stabilisation an intertemporal disequilibrium model with capital market imperfections abstract this paper develops a two period disequilibrium model of a small open economy under keynesian unemployment to analyse the effects of temporary anticipated and permanent coffee price shocks the model includes a government sector that administers a commodity price stabilisation fund and allows for capital market imperfections the type of capital market imperfection makes an important difference to the results of the model in particular when the government borrows on more favourable terms than individuals the coffee price stabilisation fund reduces the multiplier effects of temporary and permanent shocks not only in the first but also in the second period by contrast when individuals face an upward sloping supply of capital curve the stabilisation fund shifts some of these effects from the first to the second period

the surprising power of age dependent taxes this paper provides a new empirically driven application of the dynamic mirrleesian framework by studying a feasible and potentially powerful tax reform age dependent labour income taxation i show analytically how age dependence improves policy on both the intratemporal and intertemporal margins i use detailed numerical simulations calibrated with data from the u s panel study of income dynamics to generate robust policy implications age dependence 1 lowers marginal taxes on average and especially on high income young workers and 2 lowers average taxes on all young workers relative to older workers when private saving and borrowing are restricted finally i calculate and characterize the welfare gains from age dependence despite its simplicity age dependence generates a welfare gain equal to between 0 6 and 1 5 of aggregate annual consumption and it captures more than 60 of the gain from reform to the dynamic optimal policy the gains are due to substantial increases in both efficiency and equity when age dependence is restricted to be pareto improving the welfare gain is nearly as large

the cyclicality of the user cost of labor abstract the user cost of labor is the expected difference between the present discounted value of wages paid to a worker hired in the current period and that paid to a worker hired in the next period analogous to the price of any long term asset the user cost not wage is the relevant price for a firm that is considering adding a worker i construct its counterpart in the data and estimate that it is substantially more procyclical than average wages or wages of newly hired workers i demonstrate an application of the finding using the textbook search and matching model

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

wage flexibility in the chinese labour market 1989 2009 abstractwage flexibility in the chinese labour market 1989 2009 regional studies china s bureaucratic wage determination system is gradually being replaced by a market based system leading to a novel version of a dual labour market this paper studies wage flexibility in this dual market its principal findings are as follows wages in both sectors have become less responsive to changes in official registered unemployment with an alternative market based measure of unemployment becoming more relevant there is evidence of convergence of flexibility between the two sectors the wages of women exhibit greater flexibility than those of men and there is evidence of differences in wage flexibility between workers who have urban residential rights and rural migrants

a quantitative analysis of capital income taxation this paper studies the quantitative impact of eliminating capital income taxation on capital accumulation and steady state welfare in a general equilibrium model with overlapping generations of sixty five period lived individuals who face idiosyncratic earnings risk borrowing constraints and life span uncertainty under a wide range of parameter configurations the capital income tax rate that maximizes steady state welfare is positive even though eliminating it completely would raise the steady state capital stock toward the golden rule this is because the tax burden is shifted toward the younger and liquidity constrained years reducing the individuals ability to self insure copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

real wage cyclicality in urban china abstract this paper investigates the cyclical behaviour of real wages in urban china we find wage pro cyclicality in the public sector and in small medium firms but not in the private sector and in big firms

evidence on the validity of cross sectional and longitudinal labor market data this article investigates error properties of survey reports of labor market variables we use the panel study of income dynamics psid validation study a two wave panel survey of workers employed by a large firm that shared its detailed payroll records individuals reports of annual earnings are fairly accurate errors are negatively related to true earnings reducing bias due to measurement error when earnings are used as an independent variable biases are moderately larger for changes in earnings earnings per hour are less reliably reported than annual earnings biases in estimating earnings functions are relatively small but those in labor supply functions may be important

cyclicality of real wages among young men abstract this paper analyzes the cyclical behavior of real wages received by the young men in the national longitudinal surveys of labor market experience it extends the studies by bils journal of political economy 1985 93 666 689 and tremblay quarterly review of economics and business 1990 30 90 101 by using the full duration of the survey and by examining differences in wage cyclicality across industries and between workers that change employers and those that stay with the same employer

new evidence on cyclical variation in average labor costs in the united states we provide new evidence on the cyclicality of employers real labor costs using bls establishment job data for the 1982 2018 period average straight time wages have become countercyclical since th

rethinking macroeconomics what failed and how to repair it the standard macroeconomic models have failed by all the most important tests of scientific theory they did not predict that the financial crisis would happen and when it did they understated its effects monetary authorities allowed bubbles to grow and focused on keeping inflation low partly because the standard models suggested that low inflation was necessary and almost sufficient for efficiency and growth after the crisis broke policymakers relying on the models floundered notwithstanding the diversity of macroeconomics the sum of these failures points to the need for a fundamental re examination of the models and a reassertion of the lessons of modern general equilibrium theory that were seemingly forgotten in the years leading up to the crisis this paper first describes the failures of the standard models in broad terms and then develops the economics of deep downturns and shows that such downturns are endogenous further the paper argues that there have been systemic changes to the structure of the economy that made the economy more vulnerable to crisis contrary to what the standard models argued finally the paper contrasts the policy implications of our framework with those of the standard models

budget deficits and the current account an intertemporal disequilibrium approach the objective of the present paper is to develop an intertemporal disequilibrium model of a monetary economy to explain the effects of fiscal policy on the current account we wish to emphasize the role of aggregate demand determined output fluctuations and flexible exchange rates within a microtheoretic optimizing framework furthermore the differing effects of monetary versus non monetary i e tax or bond finance of government expenditures are considered

on the stability of non walrasian equilibria abstract we present a dynamic disequilibrium macro model which permits non walrasian or keynesian equilibria as stationary states unlike the stability results obtained by varian 1977 and eckalbar 1979 1980 1981 in a series of papers in the same model we show that such equilibria have the saddle point property when the real wage rate the real money balances and expected output demand all change in disequilibrium

useful government spending direct crowding out and fiscal policy interdependence this paper introduces perfect substitutability between private and public consumption in a dynamic open economy with imperfect competition and nominal rigidities this implies a direct crowding out effect that generalising to the two country case some well known properties of a closed economy tends to reduce consumption following both domestic and foreign expansions a less expected result is that sub stitutability has a positive effect on the short run output spillover we also show that if we modify the model to allow for home bias in government spending temporary fiscal expansions display a quasi neutrality property

effective demand differential information and the multiplier the paper develops a rigorous model of the interaction between employment income and demand it is shown that when agents are differently informed about the income generated in the economy aggregate demand shocks create a keynesian type unemployment moreover the model explains nominal wage price stickiness and a multiplier effect so as to imply that a larger burden of adjustment is taken by quantities rather than prices copyright 1987 by royal economic society

keynesian controversies on wages in the general theory keynes advanced two hypotheses about movements in wages and urged their empirical investigation john dunlop lorie tarshis and henry richardson responded to this call with articles published in the economic journal in the late 1930s in turn keynes replied to their findings this exchange is described and the subsequent literature on the cyclical movement of real wages and the rigidity of money wages is outlined

where modern macroeconomics went wrong this paper provides a critique of the dsge models that have come to dominate macroeconomics during the past quarter century it argues that at the heart of the failure were the wrong microfoundations which failed to incorporate key aspects of economic behaviour e g incorporating insights from information economics and behavioural economics inadequate modelling of the financial sector meant they were ill suited for predicting or responding to a financial crisis and a reliance on representative agent models meant they were ill suited for analysing either the role of distribution in fluctuations and crises or the consequences of fluctuations on inequality the paper proposes alternative benchmark models that may be more useful both in understanding deep downturns and responding to them

a neo kaleckian goodwin model of capitalist economic growth monopoly power managerial pay and labour market conflict this paper presents a neo kaleckian goodwin model of growth and distribution the key innovation is the introduction of managerial pay kaleckian monopoly power determines the functional distribution of income and goodwin labour bargaining power determines the wage bill division the model helps explain slower us growth over the past 30 years for much of that period the functional distribution of income was relatively constant but growth slowed because income inequality increased owing to a wage bill shift from workers to managers the wage bill division effect explains why economies can display wage led and profit led characteristics economies can be profit led regarding functional income distribution and wage led regarding wage bill distribution

intertemporal optimizing models of trade and current account balance a survey abstract this study surveys the intertemporal optimizing models of trade and current account balance that were developed calibrated and empirically tested since they came into vogue in the 1980s the implications of these models often differ from those of static and dynamic conventional non optimizing models the literature on optimizing models has not only grown reasonably fast but has also witnessed significant advances in methodology and these models have culminated into a distinct strand of new open economy macroeconomics the studies conducted until the late 1980s have used deterministic perfect foresight models while several studies conducted since the 1990s relax the perfect foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents the future research needs to explore the possibility of tracing any preferred specification of household preferences model the effect of time varying discount factor on household utility function and intertemporal budget constraint examine the role of costs in international trade place a parallel emphasis on the empirical verifications of theoretical propositions examine the relative performance of optimizing vis a vis non optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

tax incidence in a model with perfect foresight of agents and rationing in markets abstract this paper examines the incidence of several taxes in a macroeconomic model producers and consumers optimize with perfect foresight price inertia leads to rationing in the market for goods and for labour in the long run the system tends towards walrasian equilibrium meanwhile there may be keynesian unemployment classical unemployment or repressed inflation with possible switches of regimes balanced budget policies are analysed by working through numerical examples

cyclical labor costs within jobs abstract using uk employer employee panel data we present novel facts on how wages and working hours respond to the business cycle within jobs firms reacted to the great recession with substantial real wage cuts and by recruiting more part time workers a one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2 6 for new hires as well as for job stayers hiring hours worked were substantially procyclical while job stayer hours were acyclical these results show that real wages are not rigid and that the labor costs of new hires are especially flexible

inter industry mobility and the cyclical upgrading of labor we investigate whether a market clearing model is consistent with industry employment and wage patterns related to the cyclical upgrading of labor we demonstrate that roy s 1951 market clearing

on the optimality of age dependent taxes and the progressive u s tax system abstract in life cycle economies where an individual s optimal consumption work plan is almost never constant the optimal marginal tax rates on capital and labor income vary with age conversely the progressivity imbedded in the u s tax code implies that marginal tax rates vary with age because tax rates vary with earnings and earnings vary with age using numerical simulations this paper shows that if the tax authority is prevented from conditioning tax rates on age some degree of progressivity is desirable as progressive taxation better imitates optimal age dependent taxes than an optimal age independent tax system this role for progressive taxation emanates from efficiency reasons and does not rely on any insurance nor re distribution arguments

labor market shocks and retirement do government programs matter abstract this paper argues that labor market conditions are an important and often overlooked determinant of retirement transitions in our analysis we examine how the unemployment rate affects retirement and whether the social security ss system and unemployment insurance ui system influence how older workers respond to labor market shocks we use pooled cross sectional data from the march current population survey cps in our analysis we find that downturns in the labor market increase retirement transitions and that the magnitude of this effect is comparable to that associated with moderate changes in financial incentives to retire and to the threat of a health shock facing older workers interestingly retirements only increase in response to an economic downturn once workers become ss eligible suggesting that retirement benefits may help to alleviate the income loss associated with a weak labor market we also estimate the impact of ui generosity on retirement and find little consistent evidence of an effect this suggests that in some ways ss may serve as a more effective form of unemployment insurance for older workers than ui

the cyclicality of real wages within employer employee matches using data from the panel study of income dynamics the author examines the cyclicality of wages within employer employee matches for the years 1970 91 recent research on wage cyclicality has suggested that wages are very procyclical tending to rise and fall with economic upturns and downturns even for workers who remain with the same employer the author finds however that the evidence for wage procyclicality within the matches he examines is rather weak except for the small group of workers who were paid by piece rate or commissions despite having acyclical wage rates men who were paid hourly had earnings movements that were very procyclical salaries exhibited little cyclicality but salaried workers who had income sources from bonuses commissions or overtime had procyclical earnings the results suggest that the increasing prevalence of incentive based pay will increase the procyclicality of wages within matches

cost benefit rules in a regionalized disequilibrium model in 1982 83 a mining company in northern sweden laid off 1 800 employees the parliament allotted sek 309 million for a program of job creating measures evaluation of these measures requires a welfare theoretic foundation this analysis focuses on the welfare implications of public production of private goods these effects depend on which market output is sold and the type of taxes used to balance the public budget the rules include partial and indirect spill over effects that can be interpreted in terms of multipliers and marginal propensities to consume

disequilibrium and the welfare maximising levels of government spending taxation and debt a disequilibrium framework which extends that of r j barro and h i grossman 1971 and e malinvaud 1977 to include overlapping generations and dynamics due to perfect foresight and t he accumulation of bonds and capital is used to determine when a welfare maximizing fiscal policy requires a higher level of government spending than in walras ian equilibrium when deficits are permitted optimum spending either equals the walrasian optimum or differs in a way depending arbitrarily on preferences when a balanced budget is imposed two situations which may justify spending clearly above the walrasian optimum are 1 when capital accumulation is included 2 when spending provides utility to consumers copyright 1987 by royal economic society

interpreting panel data on job tenure tenure responses in the panel study of income dynamics psid and the national longitudinal surveys are often inconsistent with calendar time these inconsistencies pose special problems in the psid because job changes cannot be identified directly so researchers must infer them from error ridden tenure data we use alternative rules for partitioning psid data into jobs and then estimate several wage and mobility models to assess the sensitivity of parameter estimates to the partitioning method we also assess the importance of replacing raw tenure data with imputed measures that are internally consistent

real wage cyclicality of job stayers within company job movers and between company job movers using the british new earnings survey panel data nespd for the period 1975 to 2001 we estimate the wage cyclicality of job stayers those remaining within single jobs in a given company within company job movers and between company job movers we also examine how the proportion of internal and external job moves varies over the business cycle we find that the wages of internal movers are slightly more procyclical and wages of external movers considerably more procyclical than those of stayers notwithstanding a decomposition shows that in britain wage cyclicality arises almost entirely from the procyclicality of wages for job stayers with across and within firm mobility playing a lesser role thus there is little evidence for rigid wage models that imply that employers use changes in job titles as a means of adjusting wages to the business cycle we also show that the distinctions between private and public sectors and between workers covered and uncovered by collective agreements have important impacts on the wage estimates of both stayers and movers

inventories in the open economy macro model a disequilibrium analysis this study examines a disequilibrium model of a small open economy with explicit links between periods due to inventory accumulation as well as the more conventional channels through current account imbalances and the government budget constraint the key features of the model are that agents have perfect foresight with neutral public debt and that inventories adjust to smooth production intertemporarily the paper explores the extent to which fiscal policy can be used selectively for coping with an export slump without running into a balance of payments constraint

imperfect competition and the suboptimality of rational expectations abstract this paper investigates whether nonrational expectations can lead to outcomes which other things being equal pareto dominate rational expectations outcomes in order to carry out this investigation we construct an intertemporal micro based macroeconomic model with the two following strong points a it accommodates both rational and non rational expectations b both prices and quantities are determined by optimizing agents in particular prices are determined by explicit price setters using objective demand curves in this model the first theorem of welfare holds so that the walrasian equilibrium with rational expectations cannot be pareto dominated this conclusion is extremely fragile however and we show that as soon as some degree of imperfect competition is present rational expectations are suboptimal in the sense that they are dominated by irrational expectations

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

contracts job experience and cyclical labor market adjustments longitudinal estimates of the variability of individual wages hours and weeks worked over the course of changing demand states are provided for all workers generally and for workers of varied levels of job experience emphasis is placed on that part of job experience represented as years on current job a commonly used proxy for the magnitude of firm specific skills interpretation of resulting estimates in the context of the labor market contracting literature is attempted generally significant procyclical patterns are found for real weekly wages weekly hours and weeks worked the extent of weekly wage variability is much greater than is generally suggested in the literature furthermore workers with greater tenure exhibit greater cyclical wage and hours variability and less weeks variability finally empirical distinctions are drawn separately for white collar and blue collar as well as union and nonunion workers

worker job matches job mobility and real wage cyclicality using the british new earnings survey panel data nespd this paper examines male and female real wage cyclicality over the period 1975 2001 estimation is undertaken separately for job stayers and job movers stayers are defined with respect to single jobs within the company while movers refers to individuals changing jobs both within and between companies core estimates concern real hourly standard wage rates additional features include differentiating between manual and non manual workers and distinguishing between hourly wage rates and hourly wage earnings

task assignment over the business cycle in this article i evaluate the hypothesis that firms respond to negative demand shocks by assigning workers to tasks that require less skill than the tasks they normally carry out using changes in employment in state industry cells as a measure of demand conditions facing individual firms i provide evidence in favor of the hypothesis furthermore the skill requirements of the tasks carried out by workers are procyclical the results are consistent with a specific capital model where employers move workers between tasks so that layoffs are concentrated on workers with low levels of firm specific human capital

moonlighting over the business cycle i introduction during economic downturns employment levels fall unemployment rates increase and real wages drop as such real wages are considered somewhat procyclical yet very little is known about the cyclicality of multiple job holding from a graphical analysis of national time series moonlighting data during the 1960s and 1970s stinson 1987 finds evidence of large increases in moonlighting during expansionary periods likewise partridge s 2002 findings support the possibility of procyclical multiple job holding yet the popular media and employment think tanks discuss moonlighting as a by product of financial pressures 1 furthermore the idea that individuals may hold multiple jobs during an economic downturn in order to supplement family income is consistent with the so called added worker effect in the labor economics literature why should we care about the cyclicality of multiple job holding in the economy there are numerous reasons first moonlighting has played and can be expected to continue to play a visible role in the u s workforce the moonlighting rate was 5 2 as of 1970 with 7 0 of male workers and 2 2 of female workers holding multiple jobs this moonlighting rate remained practically unchanged over the course of the next 30 yr yet its gender incidence did fluctuate in particular the female moonlighting rate grew over the past several decades from the above listed 2 2 in 1970 to 3 8 in 1980 and to 5 9 in 1991 and exceeded the male rate for the first time in 1995 6 5 vs 6 3 in may 2007 the moonlighting rate was still similar to the moonlighting rate in 1970 i e 5 3 although now females are much more likely to moonlight than men with rates of 4 9 vs 5 7 2 considered over the course of an entire year vs at a point in time an even larger percent age of workers hold second jobs in this regard paxson and sicherman 1996 p 357 note that approximately 20 of male workers and 12 2 of female workers hold second jobs in any given year 3 as these numbers suggest moonlighting is a substantively important labor market phenomenon however it is much understudied in fact our review of the literature to follow will show that only a handful of research papers have studied this phenomenon thus our primary motivation for writing the paper is to shed light on a poorly understood yet numerically important feature of the labor market a second reason for examining the cyclicality of multiple job holding is the potential importance of moonlighting in facilitating labor supply adjustments during temporary economic downturns or upturns 4 through a description of moonlighters our analysis will shed light on how workers respond to fluctuations in job opportunities across the business cycle macroeconomists and labor micro economists have long studied employment cyclicality in an attempt to improve the explanations of the changing composition of the labor force over business cycles for example the added and discouraged worker effects 5 third as one part of the broader picture of economic cyclicality our study fits nicely into the ongoing debate concerning the cyclicality of real wages 6 considerable research effort has been devoted to understanding the nature of real wage fluctuations across business cycles yet these studies are muddied by a glossing lack of distinction between workers average real wages across all jobs and their wages in the primary job alone understanding the role that moonlighting may play in employment cyclicality may inform the debate concerning the measurement of real wages when studying real wage cyclicality a final and policy relevant motivation for this research refers to the structure of employment taxes affecting secondary jobs as explained by anderson and meyer 2003 unemployment insurance ui payroll taxes are highly regressive in large part because benefits are structured in the same way

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

labor dependent capital income taxation abstract capital taxation which is negatively correlated with labor supply is proposed this paper uses a life cycle model of heterogeneous agents that face idiosyncratic productivity shocks and shows that the tax scheme provides a strong work incentive when households possess large assets and high productivity later in the life cycle when they otherwise would work less the system also adds to the saving motive of prime age households and raises aggregate capital the increased economic activities expand the tax base and the revenue neutral reform results in a lower average tax rate the negative cross dependence generates a sizable welfare gain in the long run relative to the tax system that treats labor and capital income separately as a tax base the reform however can hurt the elderly during the transition with a high marginal tax on their capital income

global effects of national stabilization policies under fixed and floating exchange rates this paper deals with international effects of two types of stabilization policies monetary expansion directed towards the demand side and a reduction in payroll taxes directed towards the supply side the analysis focuses on employment relative prices and welfare issues it rests on a simple intertemporal general equilibrium model of two countries that includes a specific micro theory of money under floating exchange rates a country s employment is insulated from both policies abroad but its consumption generally changes under fixed exchange rates no such insulation prevails while monetary expansion is generally expansionary reduced payroll taxes constitute a beggar thy neighbor policy in both systems the welfare of a country may decrease although its employment increases an immiserizing expansion may occur

on income and wealth taxation in a life cycle model with extensive labour supply in a stationary life cycle model with extensive labour supply two forms of taxation are studied non linear income taxation and linear wealth taxation in the life cycle model the social weights of the dynasties depend on their permanent incomes not on the observed taxable current income a tax on wealth then can complement income tax as a redistributive tool the derivative of social welfare with respect to the wealth tax rate at the no tax point is computed it is positive whenever permanent income is positively correlated with aggregate life time savings this result is illustrated on a numerical example

reflections on macroeconomics the turmoil that has characterized macroeconomics for at least a decade originated with the inflation that emerged in the late 1960 s and persisted stubbornly throughout the 1970 s the inability of the neoclassical synthesis to model inflation convincingly spawned the new classical models because they infer macroeconomic results more directly from principles of maximizing behavior they appeal to some as more rigorous many others reject them as irrelevant because neither the microeconomic behavior that these models postulate nor their macroeconomic implications are realistic the central postulates are that all agents are price takers and that all markets clear in the sense of walrasian auction markets in a dynamic or multiperiod context this means markets clear in rationally expected future prices the most controversial implications are policy ineffectiveness and in some versions the proposition that inflation could be eliminated with little cost in real output as one of those who was unimpressed with these more provocative postulates and implications i was distressed that anyone took them seriously and that the profession became so divided over important policy issues but it is also true that some more interesting ideas that were originally linked with the auction market model by robert lucas and other authors might not have been developed without the controversy one is that the rational expectations methodology should be applied in a thorough way to macroeconomic relations another is that private agents behavior will depend on the rules governing the conduct of policy or the policy regime i am optimistic that we are on the verge of generating more light and less heat than we have been recently the interesting new ideas and methodology that have developed in the course of the past decade s debates will continue to be explored but inevitably i believe these and other ideas will be examined within the framework of an economy that in crucial ways does not operate with auctionlike markets both the lack of empirical success with the classical postulates and the intellectual challenge of developing a more general micro foundation to supplant the auction model are pushing in this direction with this development the gap between rigor and reality should narrow as researchers differ less about the basic postulates underlying macro models

did policy activism work abstract how macroeconomic policy activism influences business cycles remains a major unresolved question this paper compares the degree of cyclical stability in industrialized countries over three periods 1870 1913 1922 1937 and 1950 1979 two of which were little affected by demand management while the third saw a large degree of policy involvement the evidence shows that the 1950 1979 years were unprecedently stable neither problems of data reliability nor the influence of the world cycle nor the smaller role of agriculture appear to be responsible for this the major reason seems to be the greater influence of government which operated via automatic and discretionary policies and by changing expectations

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

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

real wages and the business cycle the objectives of this review are threefold 1 to characterize the empirical literature on the cyclical behavior of real wages 2 to identify the sources of the differences in results across studies and 3 to enumerate key factors that determine the cyclicality of real wages given a host of measurement and methodological issues drawing firm conclusions is difficult but several generalizations can be made the estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage composition effects play an important but complicated role as well

a two country disequilibrium model the implications of wage and price rigidities for several open economy macroeconomic questions are studied in a two country framework using comparative statics and numeric analytic solutions in contrast to a small country disequilibrium approach the proposed model highlights the critical dependence of trade balance stability and other comparative static results on the specification for the export rationing scheme although coordination of export rationing policies carries potential mutual benefits it is shown that these may not be realized due to game theoretic problems the analysis also offers new illustrations and more general results which emphasize 1 the dependence of the efficacy of macroeconomic policies on the specific set of wage and price rigidities as well as quantity constraints in both countries and 2 the likelihood that a devaluation will have perverse trade balance effects in supply constrained regimes

age dependent employment protection this paper examines the age related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life time we first argue that the potential employment gains related to employment protection are high for older workers as they are magnified by the proximity to retirement but higher firing taxes for these workers increase job destruction rates for the younger generations furthermore from a normative standpoint when firms cannot ex ante age direct their search the impact of each generation of unemployed workers on the average return on vacancies makes the internalization of the search costs for the other generations imperfect through the ex post nash bargaining process we show that the first best age profile of firing taxes is typically hump shaped partially in contradiction with existing policies in some european countries taking into account the fact that the human capital of older workers is more specific than general tends to exacerbate these results

unemployment fluctuations match quality and the wage cyclicality of new hires we revisit the issue of the high cyclicality of wages of new hires we show that after controlling for composition effects likely involving procyclical upgrading of job match quality the wages of new hires are no more cyclical than those of existing workers the key implication is that the sluggish behaviour of wages for existing workers is a better guide to the cyclicality of the marginal cost of labour than is the high measured cyclicality of new hires wages unadjusted for composition effects key to our identification is distinguishing between new hires from unemployment versus those who are job changers we argue that to a reasonable approximation the wages of the former provide a composition free estimate of the wage flexibility while the same is not true for the latter we then develop a quantitative general equilibrium model with sticky wages via staggered contracting on the job search and heterogeneous match quality and show that it can account for both the panel data evidence and aggregate evidence on labour market volatility

real wage cyclicality in the eurozone before and during the great recession evidence from micro data we study the response of real wages to the business cycle in eight major eurozone countries before and during the great recession average real wages are found to be acyclical but this reflects in large part the effect of changes in the composition of the labour force related to unemployment variations over the cycle using longitudinal micro data from the echp and silc panels to control for composition effects we estimate the elasticities of real wage growth to unemployment increases between 0 6 and 1 over the period 1994 2011 composition effects have been particularly large since 2008 and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011 in contrast at a constant labour force composition in terms of education and experience the figures indicate a significant decrease in average wages during the downturn particularly in countries most affected by the crisis overall there is no evidence of downward nominal wage rigidity during the great recession in most countries in our sample

disequilibrium dynamics with monetarist price expectations abstract in this note we sketch the main features of the dynamic evolution of a rationed equilibrium macroeconomic model in which prices and wages respond to excess demands and inflation expectations and the money stock is endogenous we postulate monetarist inflation expectations i e expected inflation is assumed to be equal to the current percentage rate of change of the money stock if the system is stable monetarist inflation expectations are asymptotically rational