employment adjustment versus hours adjustment is job security desirable firms can adjust to shocks by laying off and hiring workers or by adjusting the hours worked by each worker adjustment of hours provides job security for employed workers adjustment of employment generates higher labor market turnover and thus better job prospects for the unemployed since high turnover lowers the expected cost of being laid off by reducing the expected duration of unemployment there is a strategic complementarity between firms in the provision of job security this gives the possibility of multiple equilibria with different amounts of turnover copyright 1995 by the london school of economics and political science

involuntary unemployment in economies with efficient risk sharing abstract we study economies where employment lotteries determine random layoffs and incomes for employed and unemployed agents allocate risk efficiently we ask for which specifications are unemployed agents worse off a situation we call involuntary unemployment we show unemployed agents are worse off iff an exogenous increase in wealth decreases aggregate unemployment in a monetary economy we show that in equilibrium the unemployed are worse off iff high inflation implies high unemployment our model also generates nominal wage stickiness as an equilibrium phenomenon but neither involuntary unemployment nor nominal stickiness implies these economies are operating inefficiently or are out of equilibrium

underemployment and normal leisure abstract a combined worksharing layoff wage severance pay contract is shown to imply inter alia that normal leisure and underemployment do coexist provided the elasticity of substitution between employment and hours is sufficiently low as defined rigorously in the text

globalisation territory and strategic alliances in different financial centres the debates about globalisation global finance and global cities appear to confuse global and international changes and seem a historical this paper begins with a sceptical assessment of globalisation and asks whether a globalised economy is really an internationalised one the paper then addresses an aspect of global finance the national impetus given to alliances between markets in major cities the financial derivatives markets particularly in europe are used to exemplify this trend and to question the degree to which electronic trading poses a threat to the economic welfare of the urban territories in which they are located in conclusion the prospect of major players in large financial centres becoming incorporated into the governance of urban policy is raised

nonstationarity in job search theory generally structural job search models are taken to be stationary in this paper models are examined in which every exogenous variable can cause nonstationarity for instance because its value is dependent on unemployment duration a general differential equation that describes the evolution of the reservation wage over time is derived as an empirical illustration a nonstationary structural model is estimated that focuses on the consequences of a downward shift in the level of benefits it appears that the elasticity of duration with respect to the level of benefits after the shift is much larger than the elasticity with respect to the level before the shift this paper examines the movement of a job seeking individual s reservation wage over time in a general nonstationary job search model also results concerning comparative dynamics of the reservation wage and the distribution of the duration of unemployment are derived as an empirical illustration a nonstationary structural model is estimated the nonstationarity originates from the decrease in the level of benefits when unemployment duration equals two years from the results some detailed policy recommendations can be deduced as one is able to distinguish the effect of a change in the level of benefits in the first two years of unemployment from the effect of a change in the level after that period recently the use of job search models for the analysis of unemployment duration has become widespread the reduced form approach in empirical studies see e g lancaster 1979 in which only the hazard of the duration distribution is estimated is gradually being replaced by a more structural approach the latter way of modelling is characterized by the explicit use in empirical analysis of the reservation wage equation as stated by the theory e g yoon 1981 lancaster and chesher 1983 lynch 1983 narendranathan and nickell 1985 and van den berg 1988 use the complete theoretical framework of job search theory to make inferences about search behaviour however the structural models used in these studies are stationary this implies that variables like unemployment benefits or the rate of arrival of job offers are assumed to be constant over the spell of unemployment which is often at variance with reality what is more various reduced form empirical studies indicate a significant durationdependence of the re employment probability which is generally interpreted as evidence in favour of the presence of nonstationarity see e g blau and robins 1986 kooreman and ridder 1983 lancaster 1979 and narendranathan nickell and stern 1985 consequently there is a need to model reservation wage movements over time based on a nonstationary theoretical framework

globalisation institutional structures and real estate markets in central european cities this paper examines the urban development process in post socialist cities of budapest prague and warsaw in the context of economic globalisation and societal transformation several factors have helped to shape the post socialist cities of central europe since the end of the 1980s these include political transformation economic change restitution privatisation price liberalisation and decentralisation of local government it is argued that local government administrative and planning structures have been ill prepared in meeting the requirements of international investment capital in a co ordinated and effective manner institutional constraints has promoted an organic form of urban development primarily determined through the international demand for and supply of commercial and retail space

some evidence on lump sum versus convex costs of changing prices 2 two models in which price stickiness results from price adjustment costs are tested one an s s pricing model assumes lump sum adjustment costs and predicts firms will make relatively large infrequent price changes the other assumes convex adjustment costs and predicts frequent partial price adjustments survey data of firms price behavior reveal patterns consistent with the s s model however many of the patterns are also consistent with partial adjustment rules although the high percentage of firms which fix prices for a quarter or more casts doubt on the plausibility of the partialadjustment hypothesis i introduction in new keynesian economics price stickiness arises not because of wage rigidity so much as because either the gains to individual firms from changing prices are negligible or the costs of doing so deter full and immediate price changes as a result nominal shocks which affect demand for the firm s product as well as real shocks give rise to changes in output the nature and the timing of the effects of demand changes such as those initiated by monetary policy thus depend on how individual firms respond to the signals they receive sticky price models based on costs of price adjustment take at least two different forms one assumes a lump sum cost to changing prices which leads to predictions that firms generally keep prices fixed and make infrequent relatively large price changes the other assumes convex adjustment costs and leads to the prediction that firms make relatively small and frequent partial adjustments toward a target level evidence drawn from a series of surveys conducted by the national federation of independent business will be used to test the predictions from these two types of models while the data do not allow a definitive test between the two models the available evidence supports the model with lump sum costs of changing prices with the important proviso that there be substantial heterogeneity in the relative costs to firms of making price changes so that the frequency and size of changes vary considerably across firms ii s s rules with lump sum costs of price changes how frequently should a firm change its price when a change takes place how large should it be sheshinski and weiss 1977 and barro 1972 provided the first answers to these questions in their models an individual firm incurs a lump sum cost when changing its nominal price and the firm s profits depend on its real price where real price is defined as the firm s nominal price divided by an index of the prices of all other firms in the economy sheshinski and weiss assume that the firm tries to maximize the present value of its real profits their solution amounts to what is known in the optimal inventory literature as an s s rule in which s s units are ordered when stocks run down to s as applied to a pricing rule when prices rise elsewhere in the economy the firm s real price falls to a lower bound s at which point the firm raises its nominal price so that its real price jumps to s they prove that a more rapid general inflation rate calls for a lower s and higher s furthermore subject to a monotonicity condition a higher general inflation rate calls for a shorter time between price changes after showing a number of numerical examples sheshinski and weiss report that numerical experiments with a quadratic profit function give high intervals between price changes 1 2 years even with very low adjustment costs 1977 300 when the profit function is flat in the neighborhood of the profit maximizing real price there is little benefit from changing price a similar argument appears in the menu cost explanation for real effects of nominal disturbances in the absence of private incentives for individual price changes there may be real aggregate effects of nominal disturbances for example see mankiw 1985 akerlof and yellen 1985 kuran 1986 blanchard and kiyotaki 1987

changing urban systems in post communist societies in central europe analysis and prediction this paper is concerned with three levels of urban system changes changes in the intra urban structure of cities after the collapse of the communist regimes changes in the national or state urban systems i e inter urban systems and changes in the international system of capital cities in central europe the restoration of the land market and the removal of rent controls will lead to socially polarised neighbourhoods and new retail patterns the reintroduction of market economies will convert the socialist policy of even development into one of increased concentration on growth centres within deindustrialisation in which national capitals will play a greater role lastly at the international level national capitals will hierarchicise as in pre 1914 years and new dynamic frontier zones may arise

job search and hyperbolic discounting structural estimation and policy evaluation this paper estimates the structural parameters of a job search model with hyperbolic discounting and endogenous search effort it estimates quantitatively the degree of hyperbolic discounting and assesses its implications for the impact of various policy interventions aimed at reducing unemployment the model is estimated using data on unemployment spells and accepted wages from the national longitudinal survey of youth nlsy the likelihood function explicitly incorporates all the restrictions implied by the optimal dynamic programming solution to the model both observed and unobserved heterogeneity are accounted for the results point to a substantial degree of hyperbolic discounting especially for low and medium wage workers the structural estimates are also used to evaluate alternative policy interventions for the unemployed estimates based on a model with exponential discounting may lead to biased inference on the economic impact of policies jel c6 c73 d90 j64 j68

the effects of changes of the job offer arrival rate on the duration of unemployment generally it is acknowledged that changing the job offer arrival rate has two opposite effects on unemployment duration for a basic job search model sufficient conditions on the wage offer distribution have been derived ensuring that one of the effects dominates however these are not satisfied for the popular families of wage offer distributions here i show that the conditions can be weakened at virtually no cost the set of distributions satisfying the new conditions is considerably larger than the set previously established in particular it includes all wage offer distribution families that are popular in structural empirical research

optimal unemployment insurance in a matching equilibrium this article considers optimal unemployment insurance ui in an equilibrium matching framework where wages are determined by strategic bargaining it compares the outcome with the standard nash bargaining approach which can be interpreted as union wage bargaining with an insider outsider distortion it also shows that a coordinated policy approach one that chooses job creation subsidies and ui optimally generates a much greater welfare gain than a policy that simply varies ui payments by duration

does a shift in the tax burden create employment according to dalton s law it does not matter which side of the market is taxed this holds for a model of the labour market as well nevertheless it is often maintained that shifting the wedge from employers to employees has favourable effects on employment that is a shift from employers to employees taxes decreases wages and hence unemployment this apparent paradox is discussed by analysing the impact of taxes in a wage bargaining model it is shown that dalton s law does not necessarily hold in those models the findings are illustrated by empirical results concerning tax shifting by employers and employees for the netherlands it is found that no employers taxes are shifted backwards whereas about 44 of employees taxes are shifted forwards these values imply a positive effect on employment of a reduction of the wedge in favour of employers

job search and commuting time we structurally analyze a job search model for unemployed individuals that allows jobs to have different wage commuting time combinations the structural parameter of interest is the degree of willingness to pay for commuting time we use a unique dataset containing responses by unemployed individuals on the optimal search strategy to estimate this parameter without the need to rely on functional form assumptions we address specification errors in the model and measurement errors in the data the results identify types of individuals who have a high disutility of commuting time

are prices too sticky nominal price rigidity has a negative externality rigidity in one firm s price increases the variability of aggregate real spending which harms all firms this paper investigates whether this externality is large which would imply that stabilization policy can be highly beneficial even if the costs of making prices flexible are small there are three conclusions first both the private cost of price rigidity and the externality are second order in the size of fluctuations second the externality can nonetheless be arbitrarily large third in a simple model the externality is small for plausible parameter values

the workers value of the remaining employment contract duration this paper introduces and applies a method for estimating workers marginal willingness to pay for job attributes employing data on job search activity worker s willingness to pay for the remaining duration of the employment contract is derived we provide evidence that workers attach substantial value to the remaining contract duration a temporary worker with a remaining contract of 6 months is willing to pay about 10 of the wage to increase the contract by one month

why are prices sticky preliminary results from an interview study this paper reports preliminary results from a large research project on business pricing which is currently underway the idea is to use interviews with actual price setters to assess the validity of a dozen theories of price stickiness the rather unorthodox for economists methodology is defended the research design is described briefly and a few results based on the first 72 interviews out of a projected 200 are presented this sample suggests that the median firm changes its price annually and that price adjustments typically lag 3 4 months behind shocks to demand or cost this abstract was borrowed from another version of this item

the development of the neoclassical tradition in labor economics this essay on labor economics examines neoclassical theory s rise to ascendancy following the second world war with a secondary focus on the relative decline but continued influence of institutionalist economic theory the authors describe the evolution of institutional and neoclassical theory from the late nineteenth to mid twentieth centuries examine some early intellectual debates between the two camps briefly describe the work of neoclassical labor economics pioneers and look at major developments over the past 30 years they argue that neoclassical economists increasing intellectual breadth and influence in public policy have led them to pay closer attention to issues that have long been of concern to institutionalists and neoinstitutionalists

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

does the public employment service affect search effort and outcomes in this paper we examine the disincentive effects of the public employment service on the search effort of unemployed workers and on their exit rate from unemployment for that purpose we specify a structural search model with fixed and variable costs of search in which unemployed workers select their optimal search intensity given the exogenous arrival rate of job contacts coming from the public employment agency because the theoretical effect of an increase in this exogenous job contact arrival rate on the structural exit rate from unemployment is ambiguous we estimate this model using individual unemployment duration data our results show that the exit rate from unemployment increases with the arrival rate of job contacts obtained by the public employment service especially for low educated and low skilled workers they also show that the search effort is more costly for low educated women and low skilled adult unemployed workers this last result suggests that a public employment agency that matches searchers and employers is beneficial in the sense that it saves searchers in terms of search costs they would otherwise bear

stochastic inflation and the optimal policy of price adjustment this paper analyzes the optimal policy of price adjustment for a monopolistic firm in the presence of stochastic inflation it shows that an increase in the expected rate of inflation or in the cost of price adjustment leads to an increase in the initial real price and a decrease in the terminal real price in each period with a fixed nominal price it also shows that the effects of increased riskiness of inflation are ambiguous

labor market dynamics and the business cycle structural evidence for the united states we use a 12 dimensional var to examine the aggregate effects of two structural technology shocks and two policy shocks for each shock we examine the dynamic effects on the labor market the importance of the shock for labor market volatility and the comovement between labor market variables and other key aggregate variables in response to the shock we document that labor market indicators display hump shaped responses to the identified shocks technology shocks and monetary policy shocks are important for labor market volatility but the ranking of their importance is sensitive to the var specification the conditional correlations at business cycle frequencies are similar in response to the four shocks apart from the correlations between hours worked labor productivity and real wages to account for the unconditional correlations between these variables a mixture of shocks is required

estimating a structural search model the transition from school to work this paper presents a finite horizon search model that is econometrically implemented using all of the restrictions impli ed by the theory following a sample of male high school graduates fr om the youth cohort of the national longitudinal surveys from graduat ion to employment search parameters are estimated reservation wages and offer probabilities are estimated to be quite low simulations a re performed of the impact of changing the parameters on the expected duration of unemployment copyright 1987 by the econometric society

unemployment insurance and redistributive taxation abstract this paper studies the simultaneous determination of the socially optimal levels of unemployment insurance income taxation and experience rating it argues that there is a normative justification for state unemployment insurance when the government wishes to use redistributive taxes but cannot enforce lump sum transfers it is not socially optimal for there to be full experience rating of unemployment insurance schemes one distortion should be used to off set another the state must then intervene in the provision of insurance for those without jobs

business cycles in the united kingdom facts and fictions this paper documents the statistical properties of contemporary business fluctuations in the united kingdom we study the period 1956 90 using quarterly detrended data on key aggregate variables we compute selected moments of the data compare our results with those for the united states and rigorously test for dynamic instabilities our findings confirm the existence of substantive cyclical regularities both across countries and across time some notable cross country differences are also identified conclusions about stability are shown to be potentially sensitive to the method of testing in general cross correlations are appreciably more stable than standard deviations

an empirical examination of the sources of changes over time in the job finding rate using reservation wages and rejected wage offers we consider a structural dynamic job search model where nonstationarity originates from the change over time in the benefit level the job offer arrival rate and the wage offer distribution the model is estimated on the french sample of the echp taking advantage of direct observation of reservation wages rejected job offers and associated rejected wages we find that the offered wages deteriorate rapidly 13 8 over six months 19 2 over one year and 30 over two years and that changes in the wage offer distribution are the unique source of negative duration dependence in the hazard

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

does unemployment compensation affect unemployment duration abstract we use a flexible hazard rate model with unrestricted spell duration and calendar timeeffects to analyse a dataset including all norwegian unemployment spells during the1990 s the dataset provides a unique access to conditionally independent variation inunemployment compensation we find that a marginal increase in compensation re duces the escape rate from unemployment significantly irrespective of business cycleconditions and spell duration the escape rate rises sharply in the months just prior tobenefit exhaustion while men are more responsive than women with respect to mar ginal changes in compensation women are most responsive with respect to benefitexhaustion keywords unemployment spells business cycles unemployment compensation non parametric duration analysis jel classification c41 j64 the ragnar frisch centre for economic research oslo we wish to thank the re search council of norway for financial support and christian brinck harald goldstein costas meghir espen moen steinar strom rolf aaberge and three anonomyous referees for helpful comments cor respondence to knut roed the ragnar frisch centre for economic research gaustadalleen 21 0349oslo norway e mail knut roed frisch uio no

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

unemployment insurance and short time compensation the effects on layoffs hours per worker and wages we analyze two unemployment insurance systems in one unemployed workers receive benefits while those on reduced hours do not as in north america at least until recently in the other short time compensation is paid to workers on reduced hours as in europe the first system causes inefficient temporary layoffs for some parameters the latter does not but implies inefficient hours per worker some evidence is presented regarding these effects despite policymakers recent enthusiasm for short time compensation the clear implication of this project is that changes should come on the tax not benefit side of the system

unemployment duration stigma and re employment earnings a nonstationary model of individual labor market histories where the distribution of wages offers depends on elapsed unemployment duration and where unemployment compensation is claimed for a limited period only is estimated from sample information on completed unemployment duration accepted earnings and accepted job duration and can identify movements in the reservation wages induced by human capital loss from those caused by benefit exhaustion the results indicate that individuals seem to be much more sensitive to benefit exhaustion than human capital loss the estimated structural parameters provide an explanation for the existence of a statistical relationship between continuous unemployment and accepted job durations

on the infrequent adjustment of price by firms i introduction recent research by blinder 1991 indicates that as many as 75 percent of all firms change price no more than twice a year according to the wall street journal these findings seem to have caused considerable surprise 1 there is however nothing unusual about these results infrequent price adjustment by firms can be readily explained by the existence of very small price adjustment or menu costs and the fact that deviations from optimal price adjustment policies often result in negligible reductions in a firm s average rate of profit this paper brings together in a dynamic setting two ingredients in the literature that have previously been linked only in a static framework the small menu cost argument of mankiw 1985 and the near rational argument of akerlof and yellen 1985 numerical examples are used to answer the familiar objection that price adjustment costs are too small to be important the main conclusions of the paper remain valid for a wide variety of plausible parameter values and do not depend on extreme assumptions concerning the flatness of the firm s profit function the basic insight that under imperfect competition first order deviations from optimal behavior imply second order losses was first made by bowley 1924 25 this idea was further developed by akerlof and yellen 1985 since the firm s profit function is flat at its maximum point failure to adjust price in response to small exogenous shocks implies very small losses even if price adjustment is costless if there are some costs associated with changing price a policy of rigid prices in the face of small nominal shocks may be optimal this would seem to provide a micro explanation for sticky prices these ideas are usually expounded in the framework of a static two period model 2 further the conclusions reached are only valid for small deviations from optimal behavior the present paper extends the argument to a dynamic framework of continual inflation and its conclusions are shown to remain valid for large deviations from optimal pricing policies 3 the paper makes two main points first very small price adjustment costs often lead to surprising long intervals between price changes even when the length of this interval is chosen optimally second the loss of profits suffered by the firm when the interval between price changes is much greater than the optimal value is often negligible large deviations from optimal policies typically imply very small losses this is a much stronger claim than the familiar argument that small deviations from optimality imply second order losses and it does not follow from the envelope theorem if a firm adopts a simple rule of say changing price twice a year regardless of the inflation rate it may earn a level of profit practically indistinguishable from that it would earn if it behaved optimally at least for inflation rates experienced in the western democracies since world war ii the standard objection to the menu cost explanation of infrequent price adjustment is that these costs are much too small to explain observed pricing behavior the examples presented below show that this objection can be discounted seemingly trivial price adjustment costs as small as one millionth of the firm s annual revenue can explain price adjustment frequencies as low as once or twice a year at inflation rates of 20 percent per annum and above part of the explanation concerns the flatness of the firm s profit function over a wide range of plausible values of demand and cost parameters profit functions are sufficiently flat to explain observed frequencies of price adjustment even when the interval between price changes is optimal but there is more too it than this large deviations from optimal price adjustment policies imply surprisingly small losses even for profit functions that would never be described as flat in particular the loss in profit caused by large deviations in the interval between price changes from its optimal value are normally very small

search behaviour transitions to non participation and the duration of unemployment using longitudinal micro data on unemployed individuals for 1983 85 a structural job search model is estimated the model allows for transitions from unemployment to nonparticipation an extended version of the model deals with the influence of on the job search and prospective wage increases on search behavior of the unemployed the empirical results show that the probability of accepting a job offer is almost one for most unemployed individuals a large portion of unemployment spells ends in a transition out of the labor force the effects of changes in benefits on duration appear to be extremely small copyright 1990 by royal economic society

optimal firm size taxes and unemployment abstract we analyze a model similar to the standard implicit contracting framework but assume that the size of the firm the number of workers under contract is endogenous some well known predictions from contract theory with firm size fixed exogenously are reversed in particular a result obtained by feldstein concerning unemployment insurance does not hold when firm size is chosen optimally he concludes an increase in experience rating the extent to which firms pay for unemployment benefits through their taxes reduces unemployment while we show that it increases unemployment under reasonable conditions

benefits and unemployment in an open economy an equilibrium analysis this paper examines the relation between uemployment compensation and unemployment in the netherlands this relation is studied by menas of a small macroeconomic model for an open economy that assumes equilibrium in the labour market and on the current account the model yields an elasticity of unemployment to benefits of 1 0 which is high compared to microeconomic research and the outcomes of disequilibrium models for the netherlands according to the model a rise in the wedge i e the difference betweenn real labour cost and real net wages leads to an increase in unemployment whilst shifting this wedge from the employers to the employees induces a fall in unemployment

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

output work hours and employment in the short run of a labour managed firm in its pure form the organisation of a labour managed firm lmf differs radically from that of a profit maximising firm pmf lmfs are found not only in yugoslavia many forms of producers cooperatives and employee owned firms appear in capitalist economies e g jones and svejnar i982 the theory of the lmf is also relevant to the economics of trade unions profit sharing codetermination and internal labour markets this is because where worker participation exists elements of the economic forces prevalent in an lmf can influence management policies on wages employment and investment it follows that by studying the lmf in relation to the pmf we may be better able to grasp the workings of more realistic firm organisations in which both labour and management vie over the division of firm specific rents from this perspective on the theory of the firm we examine the short run behaviour of the competitive lmf and in particular the tendency for output supply employment demand and work hours to differ from the neoclassical norm traditionally the short run analysis of the lmf has focused on its employment response to output price changes the theorem due to ward i958 and vanek i970 holds that an increase in output price causes paradoxically a reduction in employment and output if the lmf maximises per capita remuneration more recent work in which the lmf maximises the member s expected utility over layoff probabilities and remuneration demonstrates that the lmf s response to a higher output price is essentially to increase both output and employment e g steinherr and thisse i979 bonin i98i and miyazaki and neary i983a the key to this result is that these authors distinguish actual workforce which is variable in the short run from lmf membership size which is variable in the long run but fixed in the short run the precise features of this lmf short run behaviour also depend on the nature of the lmf s bankruptcy constraint which is largely determined by the lmf s access to capital markets in this line of analysis however authors have effectively assumed that work hours are institutionally fixed but variability in work hours or effort intensity can also be an important factor in the lmf s response to output price changes because a change in the lmf s output price immediately affects the member worker s per capita some of the basic results of this paper were originally reported in sections 7 8 of our july 1979 mimeographed paper which was read at the second international conference on the economics of worker s self management istanbul june i980 and also in seminars at berkeley british columbia bell labs cornell hitotsubashi kyoto osaka tokyo and toronto in i979 i980 we thank j bonin and the participants of the above conference and seminars for comments on earlier versions in writing the present version we especially benefited from the comments of anonymous referees p evans and t macurdy we are responsible for any remaining errors omissions and ambiguities a detailed computational appendix for our theorems and examples is available on request

unemployment compensation finance and labor market rigidity abstract the systematic use of experience rating is an original feature of the u s unemployment benefits system at first glance experience rating does not appear to be a desirable choice for a lot of european labor markets which are characterized by high firing costs we provide a simple matching model of a rigid labor market that includes firing costs temporary jobs and a minimum wage in order to analyze this issue our analysis leads us to argue that experience rating is likely to reduce unemployment and improve the welfare of low skilled workers in france and more generally for low skilled workers in a typical rigid continental european labor market

duration dependent unemployment insurance payments and equilibrium unemployment this paper develops a model of equilibrium unemployment with duration dependent unemployment insurance ui payments as the government does not observe job offers there is a moral hazard problem because the option of receiving further ui payments raises the job seeker s value of remaining unemployment extending the duration of ui payments while reducing the level of payments to hold total generosity constant results in higher negotiated wages simulations suggest that a generosity neutral switch from a six month ui scheme to a one year scheme has small effects but a switch to an indefinite scheme has a large impact on wages and unemployment

what can explain the apparent lack of international consumption risk sharing recent research in international business cycles finds that international consumption comovements do not match the risk sharing predictions of standard complete markets models in this paper i ask whether two different types of explanations can help explain this result 1 nonseparabilities between tradables and nontradable leisure or goods and 2 the effects of capital market restrictions on consumption risk sharing i find that risk sharing cannot be resolved by either explanation alone however when i allow for both nonseparabilities and certain market restrictions risk sharing among unrestricted countries cannot be rejected this evidence suggests that a combination of these two effects may be necessary to explain consumption risk sharing across countries

territorial competition and globalisation scylla and charybdis of european cities policy makers in europe have been concerned with developing and sustaining the competitiveness of their cities this concern comes from the view that the determing parameter of urban regions is globalisation by engaging in a process of territorial competition the economic and social welfare of cities constituent territories can be maintained what this paper argues is that there is a danger that territorial competition is as much an abstraction as globalisation and its application to policy making will bring about distortions in economic development by examining the specification of globalisation and territorial competition and the relevant literature a debate may be initiated in which the consequences for the economic environment of european cities are addressed the discussion is given some context by drawing on the cursory examples one global and one local of london and lille

optimum income taxation and layoff taxes this paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment it is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income the optimal layoff tax is equal to the social cost of job destruction which amounts to the sum of unemployment benefits that the state pays to unemployed workers and payroll taxes that the state does not get when workers are unemployed

short time work benefits revisited some lessons from the great recession the great recession triggered a resurgence of short time work stw throughout the oecd several countries introduced stw from scratch or significantly expanded the scope of the programmes already in place in some countries like italy japan and germany between 2 5 and 5 of the workforce participated in stw schemes at the trough of the recession in this paper we analyse the rationale for stw benefits and their effects on labour adjustment from both a cross country and a time series perspective we find that stw actually contributed to reduce job losses during the great recession however the number of jobs saved according to our macroeconomic and microeconomic estimates is smaller than the number of participants in these schemes and the full time equivalent jobs involved pointing in some countries to sizeable deadweight costs other institutions like plant level bargaining over hours wages and employment levels may be more effective than stw in encouraging adjustment along the intensive margins in the presence of temporary shocks our results also suggest that stw cannot be readily extended to countries having much different institutional configurations as the demand for stw is very much affected by other institutions such as employment protection legislation and the degree of centralization of collective bargaining furthermore stw must be temporary as during upturns may actually negatively affect employment we also find that specific design features of stw such as experience rating and disincentives to 100 reductions in working hours are important in improving the cyclical properties of stw tito boeri and herbert bruecker

work incentive effects of taxing unemployment benefits before 1979 unemployment insurance ui benefits were not treated as taxable income in the united states several economists criticized this policy on the ground that not taxing ui benefits while taxing earned income allegedly encourages unemployed persons to conduct longer than socially optimal job searches since 1979 however ui benefits received by persons in higher income families have been subject to income tax this paper investigates whether the introduction of benefit taxation has had the predicted effect of reducing unemployment duration the study uses data on a sample of persons that filed for ui in 1978 or 1979 to examine whether high income claimants collected benefits for shorter periods after the tax change than they did before benefits became taxable as part of the empirical analysis the paper develops a generalization of the weibull distribution and applies a limited dependentvariable technique for this distribution similar to the tobit technique for the normal distribution despite some variation in the results from different model specifications the analysis presents persuasive evidence of a tax effect on unemployment duration the 1979 policy change is estimated to have reduced average compensated unemployment duration among the sampled high income claimants by about one week

labor management bargaining contract curves and slutsky equations consider a firm in which labor and management bargain over division of the firm s organizational rent and negotiate the firm s policy i emphasize the relationship between the bargainer s contract curve and the firm s slutsky equations i can describe a bargaining firm as a hybrid of a neoclassical profit maximizing firm and a pure labor managed firm i apply the methodology to models of employment contracts and identify three separate circumstances in which labor s bargaining power affects the firm s comparative static behavior first there is inefficiency in contractual bargaining second income effects in the worker s utility function interact with the firm s capital cost burden third labor s interest in long term utility maximization need not coincide with management s interest in profit maximization this last case arises from the incompleteness of the market for property rights in the firm

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

labor market policies during an epidemic abstract we study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic we incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance ui expansions and payroll subsidies in isolation payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost equivalent ui expansion when considered jointly however a cost equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to ui the two policies are complementary catering to different rungs of the productivity ladder the small share of payroll subsidies is sufficient to preserve high productivity jobs but it leaves room for social assistance to workers who face inevitable job loss

keynesian real business cycles in a neoclassical framework abstract simple old fashioned keynesian models of cyclical fluctuations provide a legitimate alternative to neoclassical real business cycle models not only can these models mimic many of the characteristics of actual business cycles the ad hoc behavioral rules on which they are based are vastly simpler and easier to calculate than the often insoluble maximization problems faced by representative agents in neoclassical models in addition these simple rules often imply a negligible loss of utility compared to that achieved when decision rules are derived as solutions to an intertemporal optimization problem as a result even though keynesian models are apparently based on suboptimal behavior by individual agents one cannot assume that these models are dominated by neoclassical alternatives

price adjustment costs and the output inflation trade off when prices are costly to adjust there is a trade off between the rate of inflation and the firm s average level of output this trade off is the result of fully optimizing behaviour by the firm sufficient conditions are developed for inflation to have no effect on output however these conditions are unlikely to be met in practice this suggests that the superneutrality of money hypothesis is incompatible with the type of demand and cost curves normally encountered in economic theory if the discount rate is positive moderate rates of inflation will always lead to higher levels of output

the effects of age and unemployment percentage on the duration of unemployment evidence from aggregate data abstract in this paper models for the duration of unemployment are estimated using aggregate data on incomplete unemployment spells in particular the elasticities of the probability of leaving unemployment with respect to age and unemployment percentage are estimated special attention is paid to the time dependence of the re employment probability and to the effect of omitted regressors because models are fitted for male and female unemployed separately these groups can be compared we find that their position on the labour market is different

why do firms offer employment protection this paper derives optimal employment contracts when workers are risk averse and there are employment and unemployment risks without income insurance consumption rises during employment and falls during unemployment optimal employment contracts offer severance compensation and sometimes give notice before dismissal severance compensation smooths consumption during employment and dismissal delays insure partially against the unemployment risk because of moral hazard during the delay consumption falls to give incentives to the worker to search for another job no dismissal delays are optimal if exogenous unemployment compensation is sufficiently generous

the redistributive roles of unemployment insurance and the dynamics of voting abstract public unemployment insurance is analyzed as the majority voting equilibrium policy of a dynamic stochastic economy abstracting from incentive effects we focus on redistribution some results are because of the distribution of heterogeneous employment opportunities public insurance may be democratically chosen even if complete private markets exist and because of the dynamics even when agents are intrinsically homogeneous the equilibrium benefit level or duration benefit schedule deviates from what has been described as optimal in the literature the effects of differences in the average frequency or duration of unemployment on equilibrium taxes and benefits are investigated with some unanticipated results

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

layoffs wages and unemployment insurance abstract the influence of unemployment insurance on wage and layoff behavior is analyzed in the context of optimal labor contracts responses of contract terms to changes in economic parameters are shown to depend in general on the nature of the initial contract the degree of workers risk aversion and the resolution of bargaining conflict layoffs are not necessarily reduced by an increase in experience rating or a reduction in the ui benefit product demand fluctuations tend to induce procyclical employment fluctuations but not wage fluctuation an implication of optimal contracts with private insurance suggests a reason for government intervention in ui provision

the anatomy of unemployment dynamics abstract this paper examines the relation between individual unemployment durations and incidence inflow size on the one hand and the time varying macroeconomic conditions in the economy on the other we develop a model for the analysis of aggregate unemployment incidence and duration data and estimate this model on quarterly french data over the period 1982 1994 stratified by sex we find upward trends in both incidence and durations the former is relatively important for females the latter for males male incidence and durations are countercyclical with only a minor role for cohort effects on durations in contrast female cohorts entering at the top of the cycle have relatively short unemployment spells and the female incidence is if anything procyclical there is strong seasonal variation in particular in the incidence finally we find relatively small non monotonic individual duration dependence in the first six quarters of unemployment unobserved heterogeneity explains the observed negative duration dependence at these durations we provide some evidence that negative individual duration dependence and not heterogeneity is important at higher durations

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

on inflation and output with costly price changes a simple unifying result we analyze the effect of inflation on the average output of monopolistic firms facing a small fixed cost of changing nominal prices using taylor expansions we derive a general closed form solution for the slope of the long run phillips curve this very simple unifying formula allows us to evaluate and clarify the role of three key factors the asymmetry of the profit function the convexity of the demand function and the discount rate these partial equilibrium effects remain important components of any general equilibrium model with s s pricing this abstract was borrowed from another version of this item

a note on overemployment underemployment in labor contracts under asymmetric information abstract models of labor contracts under asymmetric information may predict either overemployment or underemployment this paper shows that this result depends crucially on whether or not leisure is a normal good if firms are risk neutral

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

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

a theoretical framework for the functioning of the dutch property market in this article a theoretical framework will be presented to aid understanding of the functioning of property markets more particularly the dutch property market it will be argued that traditional urban economic theories are not able to explain the structure and processes of the built environment in the dutch case we are confronted with two problems first to find a way in which urban economic theories designed for a context of cities in great britain and the us can be used to explain urban development that takes place in the different context of dutch cities and secondly to formulate a set of hypotheses appropriate for the dutch property market the hypotheses concern the strategies of individual actors on the property market and the underlying factors it is concluded that in general the relation between institutional structure and property development has been neglected both because of insufficient attention from economic scientists and because empirical research is very complicated

inflation output and labour productivity when prices are changed infrequently when prices are changed infrequently the effect of inflation on output depends on the form of profit and demand functions this paper provides a general taxonomy at small inflation rates output falls rises stays the same if the demand function is concave convex linear in terms of the log of real price this holds when the frequency of price changes is fixed in case of a catalogue firm as well as when it is chosen optimally in case of a menu cost firm with fixed and variable price adjustments costs with some specifications inflation increases output but reduces labor productivity copyright 1990 by the london school of economics and political science

unemployment insurance and market structure abstract this paper examines the impact of unemployment insurance ui on employment and unemployment in an industry in which the prices can vary due to some market power some non conventional results are obtained it is shown that if there is free entry and exit average industrial employment may be a decreasing function of the experience rating because the number of firms in the industry is itself a decreasing function of this parameter this contradicts the conventional view which was arrived at using models of a perfectly competitive industry with no entry and according to which employment should be an increasing function of the experience rating the general conclusion is that for industries with different degrees of market power the same ui scheme has different impacts on employment and unemployment

unemployment insurance and quits in canada in two recent policy changes the canadian government acted to limit the eligibility of job quitters and those dismissed for cause for unemployment insurance ui we study the effects of these policy changes on separation behaviour we find no evidence that these policy changes induced a relabelling of separations towards ui eligible reasons but we do find quite different responses across demographic groups women and young men are inhibited from quitting their jobs by the new quit penalties but prime age males seem unaffected by the large increase in the cost of quitting imposed by the changes

social security benefits and employer behavior evaluating social security early retirement benefits as a form of unemployment insurance employers often shed older workers by encouraging them to take early retirement an implicit contract model suggests that this behavior will be influenced by the social security early retirement program when demand is weak and layoffs are necessary social security benefits can act like a form of unemployment insurance effectively subsidizing workforce reductions by lowering the cost to the firm of shedding older workers since social security benefits are not subject to experience rating the result is an inefficiently high level of early retirements this paper concludes with a discussion of policies for restoring early retirements to efficient levels

the effect of active labor market programs on not yet treated unemployed individuals labor market programs may affect unemployed individuals behavior before they enroll such ex ante effects are hard to identify without model assumptions we develop a novel method that relates self reported perceived treatment rates and job search behavioral outcomes like the reservation wage to each other among newly unemployed workers job search theory is used to derive theoretical predictions to deal with effect heterogeneity and selectivity the effects of interest are estimated by propensity score matching we apply the method to the german active labor market program system using a novel data set including self reported assessments of the variables of interest as well as unusually detailed information on behavior attitudes and past outcomes we find that the system generates a negative ex ante effect on the reservation wage and a positive effect on search effort jel j64 c21 d83 d84

job separation in a non stationary search model a structural estimation to evaluate alternative unemployment insurance systems this paper considers a job search model in which the environment is not constant throughout the unemployment spell and where jobs do not last for ever in this situation reservation wages can be lower than they would be in a model without consideration of such separations but they can initially be higher precisely because of the non constant environment the model is estimated structurally by using spanish data for the period 1985 1996 the main finding is that after controlling for unobserved heterogeneity the unemployment hazard rate is almost flat during the first six months however after this duration the highly decreasing job offer arrival rate comes to be the only significant factor given that acceptance probabilities become equal to one the estimated parameters are used to evaluate different unemployment insurance designs we conclude that a non monotonic pattern in unemployment benefits joint with a tax paid by workers and based on unemployment duration makes this duration 13 2 lower than it currently is in spain copyright 2006 john wiley sons ltd

the information content of wage and duration data in a search model estimates of the parameters of the wage offer density and the offer arrival process of a simple search model are presented in this paper the optimality constraint from the search model is treated as a restriction and its effect on parameter estimates is analysed estimates from wage data alone and estimates from duration data alone can be interpreted as unrestricted estimates while estimates obtained from wage and duration data together can be interpreted as restricted estimates this interpretation allows a test of the optimality constraint which is rejected by the data used estimates reveal a substantial difference in the information contained in wages and the information contained in durations but benefit elasticities are consistent with findings from previous studies

optimal price dynamics and speculation with a storable good this paper analyzes as a dynamic game the optimal price and storage strategies of respectively a the seller of a storable good who must keep pace with inflation but incurs a cost to changing his price b his customers who speculate on the timing of price adjustments to buy and store just before a unique markov perfect equilibrium is shown to exist and is fully characterized rt generally involves a phase of mixed strategies during which the seller tries to deter speculation by injecting uncertainty into its price dynamics while speculators store in increasing numbers with possibly a final run on the good the stochastic price policies of a large number of such firms are shown to aggregate back to a price index growing at the rate of general inflation in response to which they arose the model thus establishes that a a constant rate of aggregate inflation can at the same time generate and cover up significant uncertainty and social costs at the microeconomic level b speculation can be destabilizing and socially wasteful even in the absence of shocks and imperfect information most importantly they provide a theoretical foundation for the frequently encountered claim that inflation causes price uncertainty