cyclical behavior of real wages in japan this paper studies the cyclicality of aggregate real wages in japan by using both static and dynamic approaches i measure comovements between real wages and business cycle indicators this paper finds that while real wages constructed using the consumer price index and the gdp deflator are procyclical real wages constructed using the producer price index are countercyclical this result is robust to the data and methods used to compute the comovements

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

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

inventories rational expectations and the business cycle abstract the simplest macroeconomic models in which markets clear instantaneously and expectations are rational preclude the existence of business cycles that is of serially correlated deviations of output from trend this paper studies one of several mechanisms that can be used to make these so called new classical models produce business cycles the mechanism is the gradual adjustment of inventory stocks two macroeconomic models of inventory holdings are formulated both imply first that current output should be a decreasing function of the stock of inventories and second that inventories once perturbed from equilibrium levels should adjust only gradually these two features are then embedded into an otherwise standard macroeconomic model in which markets clear instantaneously and expectations are rational two principal conclusions are reached first disturbances such as unanticipated changes in money will set in motion serially correlated deviations of output from trend second if desired inventories are sensitive to the real interest rate then even fully anticipated changes in money can affect real variables

the determination of escalator clauses in collective agreements u ntil very recently the literature on the wider usage of escalator clauses has dealt mainly with their impact on inflation unemployment the trade balance and the exchange rate it is equally important however to understand why and in what circumstances employers and labor unions agree to incorporate such clauses in work contracts in the past few years shavell 1976 azariadis 1978 and blinder 1978 have outlined a theoretical framework for explaining the emergence of indexation to the best of our knowledge however none of the assumptions deriving from these models have been subjected to empirical testing the purpose of this paper is first to develop and test a number of these assumptions and second to consider the problem of simultaneity between two types of adjustments to inflation indexation versus shorter contract duration in the first section we summarize the contributions of the three aforementioned authors to the theory of wage indexation and extract from them a number of verifiable assumptions the second section provides an empirical framework since adjustments to uncertainty about inflation can take the form of shorter contract duration or indexation those two variables are simultaneously determined to overcome the problem of dummy endogenous variables in a simultaneous equation system we have applied the method suggested by heckman 1978 based on the use of maximum likelihood estimators in the third section we analyse the results and in the conclusion we draw their implications for economic policy

wage rigidity in canadian collective bargaining agreements the authors search information on the provisions of 10 947 wage contracts signed in the canadian unionized sector between 1976 and 1999 for evidence of downward nominal wage rigidity the disinclination of wages to fall in nominal dollars below their established level over the sample period real wage reductions were common but nominal wage reductions were rare the probability of downward nominal wage rigidity increased substantially during low inflation periods during such periods apparently there was no reduction in the incidence of real wage cuts but the magnitude of those cuts was modest suggesting a lesser ability of wages to adjust to labor market conditions than at other times

dynamics and seasonality in quarterly panel data this article presents an empirical analysis of the dynamics of individual earnings using spanish quarterly earnings i propose a new econometric methodology to control for the seasonality in my dataset moreover i apply this methodology to the study of earnings mobility in spain using transition probabilities among earnings quintiles for the period 1985 1996 i find substantial mobility from one year to the next however earnings changes are basically among adjacent quintiles workers with university education are more mobile than workers with primary and secondary education on the other hand i observe greater negative mobility among earnings quintiles and more persistence of low earnings situations in the 1990s especially for workers with primary education

inflation money interest rate exchange rate and casuality the case of egypt morocco and tunisia this study provides further evidence of the inflationary efects of the rates of growth of money supply gross domestic product efective exchange rate and imported inflation for egypt morocco and tunisia using quarterly data from 1964 to 1990 in addition it examines the granger causality between inflation and money supply as well as between inflation and the real exchange rate in the countries under consideration most of the results are consistent with extant theory and empirical evidence

us inflation and the dollar exchange rate a vector error correction model many studies investigating the relation between inflation and exchange rates have found that exchange rates influenced inflation while other studies have failed to do so or reported mixed results these findings however might be spurious as the majority of the earlier investigations suffered from misspecifications of one kind or another the current paper addresses the problem by employing an up to date and powerful cointegration method developed by johansen 1988 in a system of five equation vector error correction model this paper finds that the us inflation exchange rate money supply income and interest rate are cointegrated the cointegration analysis of the data covering the 1973 95 period reveals that the dollar exchange rate has a significant negative impact on the inflation measured by the producer price index it is further established that the exchange rate granger causes the inflation

dollar movements and inflation a cointegration analysis many studies have concluded that changes in us dollar values affect us prices however since exchange rates may reflect underlying economic conditions this result may be spurious if those conditions are ignored recent advances in time series analysis permitted investigation of both the short and long term interactions between the us price level and the yen dollar exchange rate taking into account the effects of changes in domestic economic activity such as income interest rates and monetary policy examination of these interactions helps to determine to what extent the yen dollar exchange rate impacts the domestic price level the finding is that there is no long term relation between the two variables in addition the results suggest that in the short run monetary authorities respond to changes in the consumer price index and japanese exchange rates however the price level does not respond to change in the exchange rate

inflation and productivity shocks abstract we examine whether sectoral productivity shock distributions are conditioned by inflation regimes we conclude that this is not the case our results have implications for the literature on downward nominal wage rigidity and on inflation as a labor market lubricant

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

downward nominal wage rigidity evidence from canada 1901 1950 this paper tests for the presence of downward nominal wage rigidity in canadian wage data for 26 occupations in 38 cities from the first half of the 20th century the sample is of particular interest as it contains periods with average inflation rates that are close to zero as well as two sharp deflations results from a variety of different tests indicate that wage change distributions are consistent with the presence of downward nominal wage rigidity however for two subsamples containing sharp declines in output and prices estimates of the extent of downward nominal wage rigidity are much lower this suggests that downwards adjustments did occur during times of severe depression and deflation

a theoretical and empirical evaluation of the functional forms used to estimate the food expenditure equation of food stamp recipients the food expenditure equation of food stamp recipients is obtained as a generalization of roy s identity this equation rationalizes a larger marginal propensity to spend on food out of food stamps than out of income and is an alternative to the traditional southworth formulation the only previously estimated functional form found to be flexible is due to senauer and young estimates of this specification using data from the san diego cash out demonstration illustrates that flexibility is important an example of welfare reform demonstrates that substantial errors can occur if flexibility is ignored

do intra household effects generate the food stamp cash out puzzle previous empirical studies have noted the higher marginal propensity to consume food out of food stamps in the united states compared to that out of cash income analyzing data from u s food stamp program participants we find evidence that this discrepancy may be driven primarily by the behavior of multiple adult households single adult households show no evidence of any discrepancy thus our results suggest that food stamp and cash income welfare or market may have very different impact on the intra household allocation process and that this is reflected empirically in the cash out puzzle

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

expenditure response to increases in in kind transfers evidence from the supplemental nutrition assistance program recent studies on food stamp participant households marginal propensity to spend out of food stamps versus income have had contradictory results experimental studies have found household behavior aligns with standard economic theory where households marginal propensity to spend on food out of food stamps is equivalent to cash income observational studies nd that households have a larger marginal propensity to spend out of food stamps than cash income in this study we re examine this question by estimating how an unprecedentedly large increase in food stamp benets due to the implementation of the american recovery and reinvestment act aects food at home expenditure we nd that the policy change caused households to increase food at home expenditure as well as increase households share of total expenditure allocated toward food at home expenditure we compare these results to a time period without a meaningful food stamp policy change and nd our results are unique to the arra implementation time period

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

downward nominal wage rigidity in canada evidence from micro level data we assess the importance of downward nominal wage rigidity dnwr in canada using both firm and worker level microdata in particular we analyze employer level administrative data from the major wage settlements mws and household based survey data from the survey of labour income dynamics slid

the effects of benefit timing and income fungibility on food purchasing decisions among supplemental nutrition assistance program households the supplemental nutrition assistance program snap is the largest nutritional safety net in the united states prior research has found that participants have higher consumption shortly after receiving their benefits followed by lower consumption towards the end of the benefit month known as the snap benefit cycle this consumption pattern has been found to have negative effects on beneficiaries we hypothesize two behavioral responses of snap participants may work in tandem to drive much of the cycle 1 short run impatience a higher preference to consume today and 2 fungibility of income the degree of substitutability between a snap dollar and a cash dollar using data from the national food acquisition and purchase survey foodaps a newly developed nationally representative survey of daily food acquisitions by snap households we find evidence of both behavioral responses however the degree of short run impatience and fungibility of income is found to differ significantly across poverty levels and use of grocery lists to plan food purchases snap households could gain from food purchase planning education

an empirical model of wage indexation provisions in union contracts this paper describes the responses of index linked wage rates to concurrent price increases for a sample of canadian union contracts and then analyzes theseresponses in terms of a simple model of indexation to the aggregate price level the model highlights the importance of aggregate price movements in conveying information about industry specific prices the empirical analysis confirms that industry specific correlations between input and output prices and the consumer price index are important determinants of the flexibility of wages to prices across indexed contracts

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

wage contract settlements in u s manufacturing a bstruactusing a large scale longitudinal micro data base this paper tests for the determinants of union wage settlements in manufacturing alternative specifications of wage change relationships were tested in data covering the years 1957 to 1980 among the most important determinants of union wage changes were the expected inflation rate inflationary surprises in indexed agreements incomes policy dummy variables and spillovers from key national agreements catch up effects from lagged inflationary surprises were not important in determining the size of new settlements

on the power of dickey fuller tests against fractional alternatives abstract we examine the properties of dickey fuller unit root tests under fractionally integrated alternatives and find that these tests have quite low power

nominal and real wage rigidity in a friction model abstract nominal wage adjustment in contract data is examined for evidence of nominal and real rigidities a friction model encompassing many special cases is used to analyse data from a rich inflation period

an experiment on cash and in kind transfers with application to food assistance programs the impact of providing food assistance in kind via food stamps or restricted debit cards vs cash has long been a subject of debate prior efforts to causally identify the effects of the two types of transfers have been hindered by concerns over non random selection into assistance programs misreporting of program benefits and identification of inframarginal households who theoretically should treat cash and in kind transfers identically this paper reports the results of an economic experiment designed to cleanly test some conceptual issues associated with in kind vs cash giving in a lunchroom meal setting given current debates about the healthiness of food assistance recipients diets we also consider the impacts of placing restrictions on in kind transfers that either prohibit soda purchases with the transfer or require the transfer be spent on fruits and vegetables overall we find that as theory predicts in kind transfers have the same effect on food expenditures as an unrestricted cash transfer for inframarginal consumers and for extramarginal consumers food expenditures are higher for in kind than cash transfers participants also respond to the fruit and vegetable restriction as theory would predict however in contrast to the theoretical prediction the soda restriction reduces soda expenditures for more than half the inframarginal consumers

cost of living escalators in major union contracts this paper analyzes the price indexation provisions of a sample of major canadian collective bargaining agreements concluded between 1968 and 1975 under these contracts escalated wage increases comprised about one third of total wage increases and represented a major source of erosion in the relative wages of skilled workers the author argues that indexation provisions are usefully characterized by the marginal elasticity of the contractual wage rate to increases in prices measures of this responsiveness indicate that on average contractual wage rates are only slightly less than unit elastic with respect to price increases there is considerable variation across industries however in the extent to which wages respond to price changes

the relative adjustment of wages and prices direct tests within a multiple equation system in order to assess the relative rigidity of the aggregate price level and the nominal wage rate most researchers have focused on the implied behaviour of the real wage rate in response to a purely demand disturbance the present work examines the explicit behaviour of the two variables and is therefore able to analyse the variables short run responses within the context of their defined long run behaviour while the paper reports evidence of long run stability in the real wage rate additional evidence is presented which supports both sticky price and sticky wage models the determining factor is the choice of lag

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

the effect of import price changes on domestic inflation an empirical test of the ratchet effect note the possibility of downward rigidity of wages and prices has been considered in the literature at least since keynes general theory many argue that monopolistic forces such as oligopolies and unions respond to inflationary pressures by raising wages and prices but resist wage and price reductions l to the extent that these entities resist downward wage and price movements they contribute to the existence of a ratchet effect in which wages and prices behave asymmetrically the issue of a possible ratchet effect is particularly important in the context of international price movements commonly known as the mundell laffer hypothesis 2 the ratchet effect implies an upward bias in the response of domestic prices to changes in import prices consider the effect of an exchange rate movement on prices depreciation raises import prices thereby increasing the domestic price level the question is whether appreciation causes an equal downward movement in prices for example a 10 percent exchange rate depreciation followed by 10 percent appreciation would leave the exchange rate intact but may leave domestic prices higher than the original level if prices adjust asymmetrically throughout the world such an exchange rate movement would result in higher world prices despite the attention this issue has received in the theoretical literature little empirical work has been devoted to it in a discussion of the literature ahmad 1984 p 4 assumes the ratchet effect is significant and inflationary in empirical research sachs 1985 and feldman 1984 among others make the opposite assumption in the only paper devoted to empirical testing of the ratchet effect goldstein 1977 presents evidence that price movements are symmetric but his

exchange rate pass through in emu acceding countries empirical analysis and policy implications abstract countries that joined the european union in 2004 have to decide when to adopt the euro this decision depends on the evaluation of the relative costs and benefits associated with giving up the exchange rate instrument recent empirical work on several new eu members has questioned the role of the exchange rate as a shock absorber thus downplaying the potential costs in terms of macroeconomic stabilization in this paper we address the issue from a different perspective emphasizing the role of pass through from exchange rate to domestic inflation in new eu members the focus is on four countries czech republic hungary poland and slovenia nm 4 that have adopted some form of floating or managed exchange rate regimes the paper reports empirical results indicating high pass through coefficients and links them to the degree of policy accommodation high exchange rate pass through in nm 4 indicates that stabilization of nominal exchange rates would lower inflationary pressures and help fulfill criteria to enter the emu

an analysis of the impact of sample attrition on the second generation of respondents in the michigan panel study of income dynamics only a few studies have tried to estimate the trend in the elasticity of children s economic status with respect to parents economic status and these studies produce conflicting results in an attempt to reconcile these findings we use the panel study

do snap participants expand non food spending when they receive more snap benefits evidence from the 2009 snap benefits increase this study examines the expenditure response to the largest increase in supplemental nutrition assistance program benefits instituted in april 2009 investigating the effects in both food and non food spending categories i find that the rise in snap benefits increased not only food at home expenditures but also housing transportation and education expenditures of snap households relative to those of non snap households specifically the snap benefit increase leads to the reduced out of pocket spending on food for infra marginal snap recipients and the freed up resources allowed households with bounded budgets to fund other essential needs such as paying mortgage rent utility fee transportation expenses as well as tuition examining non food expenditures provides a more complete picture of the impact of the snap benefit increase by shedding light on the spillover effect of the policy change the result also derives policy implication on ongoing debate about snap allotment generosity

a comparison of the cyclical behavior of union and nonunion wages in the united states this paper presents an extensive analysis of the behavior of union and nonunion wages over the business cycle using quasi panels developed from the current population survey in an attempt to resolve or reconcile competing claims about the cyclical behavior of union and nonunion wages union wages were roughly as procyclical as nonunion wages were prior to the early 1980s substantial reductions in union wage procyclicality since then are associated with reductions in the procyclical exercise of bargaining power

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

a comment on the great canadian slump in this comment on fortin 1996 the authors argue that the sluggishness in economic activity in canada in the 1990s is better explained by a combination of factors than by monetary policy alone they find that 1 it is difficult to explain the sluggishness on the basis of the historical relationship between monetary conditions and real activity 2 fortin s evidence of downward nominal wage rigidity is seriously overstated 3 there are several reasons why technological change may have had a larger impact on employment in canada in the 1990s than in the united states and 4 the build up of government debt in the 1980s and 1990s was much more than a cyclical problem associated with monetary policy

why are wages cyclical in the 1970 s this article investigates cyclicality in real wages between 1969 and 1982 using panel study of income dynamics data there is little evidence that movements in and out of the labor market induced aggregate wage cyclicality during these years however cyclicality in the movement of workers between heterogeneous labor market sectors affected aggregate wage cyclicality while sector location is important sector selectivity is not correlated with wages yet even within sectors cyclicality is present in real wages over this time period and is the result of cyclicality in overall wage levels as well as in the coefficients associated with particular worker characteristics

food stamps and food spending an engel function approach estimation of food stamp program fsp effects has been complicated by self selection and by a contradiction between observed spending patterns and the economic theory of consumer choice we developed a modified version of the traditional theory in which participant households may be partly extramarginal even if they have some cash spending on at home food using current population survey cps data for 2001 2005 we estimated engel functions for at home and away from home food spending for fsp participants and nonparticipants compared to nonparticipants with the same level of total income participants had higher at home food spending and lower away from home food spending copyright 2007 oxford university press

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

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

the dynamic relationship between the dollar and us prices an intensive empirical investigation abstract the empirical bivariate relationships between the dollar and us prices during the recent floating rate period are analyzed using time series methodology results indicate a long distributed lag from the dollar to the cpi but no relationship in the opposite direction and that a permanent 10 per cent decline in the dollar was ultimately followed by a cpi rise of 4 85 per cent similar results are obtained for various components of the cpi including services while substantially smaller price responses are reported in other studies that typically employ shorter lag structures in the context of structural econometric models

spatial dynamics and heterogeneity in the cyclicality of real wages neither the issue of how local and aggregate labor markets interact over time nor the issue of how heterogeneity by education race and other factors interacts with these spatial dynamics has prev

in search of a stylised fact do real wages exhibit a consistent pattern of cyclical variability the paper surveys the studies on the cyclical behaviour of real wages published from the twenties onwards the traditional simple neoclassical model of the labour market suggests that real wages tend to move countercyclically however from a theoretical viewpoint there are few reasons to expect this behaviour once the simple model is extended to account for imperfect competition uncertainty lagged responses or contracting between firms and workers empirical studies give different answers to the problem the contributions reviewed in the paper are arranged roughly in a chronological order the interwar period the postwar pre econometric studies the econometric work using aggregate data the evidence produced on the basis of longitudinal data the analyses of the shock responsiveness of real wages and finally the most recent papers attempting a reconciliation of the somewhat conflicting evidence derived from aggregate and panel data

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances