cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

law enforcement and transition abstract we present a simple model to analyze law enforcement problems in transition economies law enforcement implies coordination problems and multiplicity of equilibria due to a law abidance and a fiscal externality we analyze two institutional mechanisms for solving the coordination problem a first mechanism which we call dualism follows the scenario of chinese transition where the government keeps direct control over economic resources and where a liberalized non state sector follows market rules the second mechanism we put forward is accession to the european union we show that accession to the european union even without external borrowing provides a mechanism to eliminate the bad equilibrium provided the accessing country is small enough relative to the european union interestingly we show that accession without conditionality is better than with conditionality because conditionality creates a coordination problem of its own that partly annihilates the positive effects of expected accession

the willingness to pay for work family policies a study of teachers recent evidence suggests that employers and employees may benefit from work family policies and that even non beneficiaries may support such policies the authors posit that these policies generate not only use values values for those who rely on them but also based on a particular norm of social justice need values values received by all individuals regardless of expectations of direct benefit combining the median voter model with the contingent valuation method which was designed to measure the willingness to pay for environmental goods such as national parks the authors capture the willingness to pay for seven distinct work family policies within a sample of 343 public elementary school teachers the results suggest that referenda to initiate work family policies in exchange for payroll deductions from teachers would pass depending on the specific deduction even respondents with no expectation of direct benefit may place a positive value on the policies consistent with the notion of need values

nominal and real wage cyclicality during the interwar period although there have been numerous attempts to study the cyclicality of real wages in the u s no consensus has formed as to the implications of the various findings for business cycle theory this paper will demonstrate that separating the real wage into its nominal and price level components can shed new light on the interwar u s labor market more specifically we will show that an evolution from a relatively laissez faire labor market during the 1920s to a more highly regulated labor market during the 1930s may have resulted in a more countercyclical real wage rate if we could be certain that equilibrium business cycle models provided the correct specification of the labor market then interpretation of real wage cyclicality would be relatively straightforward during periods dominated by labor demand shocks real wages would move procyclically and during periods dominated by labor supply shocks real wages would move countercyclically in a disequilibrium model context however interpretation of real wage cyclicality is much more problematic if nominal wages are sticky then unanticipated price level changes can induce countercyclical real wage movements that mimic the real wage movements generated by shifts in the supply of labor perhaps the most famous and controversial example occurred during the first three years of the great depression when a massive decline in hours worked and production was associated with a sharp increase in the aggregate real wage rate see figure 1 even greater complexity results from governmental attempts to influence the aggregate nominal wage policies that attempt to artificially change the nominal wage rate can result in either procyclical or countercyclical real wages depending on whether the direct impact of changes in the price of labor on the quantity of labor demanded outweighs the impact of wage changes on aggregate demand and output separating the aggregate real wage rate into its nominal and price level components will allow us to discriminate between these two hypotheses if labor markets are correctly characterized by equilibrium models then the price level and real wage are determined independently and separating the real wage into its nominal and price

labour quality and aggregate real wage dynamics the real wage plays an important role in many aggregate econometrics studies of the labour market however average wages like any other average quantity can change for two reasons either through an underlying movement in the earnings potential of a unit of labour of given quality or alternatively through compositional changes which alter the relative proportions of different types of labour within the employed labour force using data from the general household survey to estimate earnings functions the paper seeks to examine the contribution of these two factors for britain from 1979 to 1989 it is shown that in periods of rising unemployment compositional changes can have a bigger effect on real earnings growth than any underlying change in reward to labour of give quality this raises the question of what economists actually are measuring when considering the behaviour of the aggregate real wage

real wages over the business cycle some further evidence over the past 50 years economists have been puzzled by the movement of real wages over the business cycle neoclassical and early keynesian theories advanced the view that real wages are countercyclical varying inversely with employment and output over the business cycle 12 13 on the other hand early empirical evidence by dunlop 9 and tarshis 25 suggested that in fact real wages move procyclically the macroeconomic disequilibrium analysis of barro and grossman 3 provided a theoretical explanation for the possibility of procyclical real wages despite this theoretical work numerous recent empirical tests of the movement of real wages over the business cycle have reached no definite conclusions one reason these studies have reached no definite conclusion lies in the fact that they have been performed at the aggregate level 2 they have ignored the possibility that the agesex race composition of the labor force may change considerably over the course of the business cycle but the human capital theory of becker 4 and oi 21 and the more recent implicit contract theory of azariadis 1 and baily 2 predicts that employment shares of different demographic groups will vary over the business cycle consider the consequences of changing employment shares suppose for instance that firms tend to lay off lower skill and or less senior workers during cyclical downturns and retain workers who on the average are higher skilled and or more senior than the workers laid off the result will be that the quality of the workers still employed will rise as a consequence the aggregate real wage which is typically constructed by dividing the aggregate straight time payroll by aggregate straight time manhours will tend to rise even when no real wage growth has in fact occurred per unit of quality adjusted labor to reverse the example during cyclical expansions employment increases may come disproportionately from among lesser skilled less senior workers because employment is becoming more skewed towards lower paid workers the aggregate real wage may show a decline even when no workers have actually

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

fiscal policy in real time in this paper i estimate the ex ante or intentional cyclical stance of fiscal policy in oecd countries i use the fiscal plans reported at the time of budgeting together with other information available to fiscal policy makers in real time indeed fiscal plans might be significantly different from ex post outcomes because governments do not have complete control over their implementation which is influenced by several exogenous factors when fiscal policy rules are estimated using real time data i show in this paper that oecd countries have often planned a counter cyclical fiscal stance especially during economic expansions this contrasts with conventional findings based on actual data which tend to point towards a cyclicality or pro cyclicality forecast errors for the government structural balance and the output gap play a central role in explaining the differences between estimates based on ex ante and ex post data

trading off positive and negative service changes in childcare a choice experiment using a latent class modelling approach theoretically the choice of childcare mode should be influenced by the quality of the childcare attributes however such preference relations have been difficult to identify in past studies one

disaggregating the effect of the business cycle on the distribution of income this paper disaggregates total household income into a complete set of components and studies the comparative cyclicality of these com ponent to economic growth comparisons of the relative responsiveness to gnp growth of wages hours of work and total labor market income of heads and wives and transfer income sources of households are made across income race sex and age groups this provides a picture of the channels by which economic growth produces income change significant differences in elasticities are found to exist both between different income components and between different population groups for the same component the narrowing income distribution in times of high growth occurs primarily because of large elasticities on head s labor market income among the poor both wages and hours show evidence of cycli cality the labor market earnings of women both wives and household heads is far less responsive to growth cyclicality in transfer income varies enormously between population groups and by type of transfer

determination of employment with wage and price speculation the purpose of this paper is to investigate whether aggregate fluctuations in employment may be explained within a market clearing framework as intertemporal substitution in labor supply and demand an intertemporal substitution model for the firm is derived this model is estimated with a lucas rapping type supply equation empirical results with finnish data lend support to the intertemporal substitution model particularly concerning the demand function specification on the other hand the results for the supply equation are somewhat mixed being rather sensitive to the dynamic specification

the real wage employment relationship an industry analysis abstract estimates of industry differences in the strength and direction of the real wage employment relationship are used to draw implications for the magnitude of aggregation bias and the role of employment contracts

sticky wage or sticky price analysis of the cyclical behavior of the real wage the study of business cycles has been at the heart of macroeconomic theory for decades theoretical efforts have focused on providing an adequate explanation for sources of economic fluctuations new keynesian explanations have emphasized rigidity that interferes with market forces increasing the effect of demand shocks on the output produced the form of rigidity is in sharp contrast between sticky wage and sticky price models the former imposes rigidity on the shortrun adjustment of wages to demand shocks 20 47 the latter in contrast imposes rigidity on the short run price adjustment to demand shocks 2 34 40 9 43 4 the theoretical plausibility of competing explanations of business cycles has stimulated interest to establish their empirical validity 32 28 1 8 11 23 21 26 these efforts have focused attention on cyclical fluctuations of the real wage in response to demand shocks the real wage may move procyclically or countercyclically according to the relative adjustment of wages and prices the interest in studying the cyclical behavior of the real wage relates to its implications to the real effects of aggregate demand shocks in the context of sticky wage models nominal wage rigidity reinforces the countercyclical response of the real wage to demand shocks and the real effect of these shocks on output growth sticky price models in contrast advocate that price rigidity increases the procyclical response of the real wage to demand shocks and their real effect on output growth the results of earlier investigations of the cyclical behavior of the real wage appear conflicting and therefore do not lend support to a given explanation 2 the present investigation seeks to contribute to this literature unlike previous empirical research on the subject the objective of this investigation is to study the cyclical behavior of the real wage and the relative flexibility of the nominal wage and the price level that determines this behavior in response to demand shocks using data for the united states in the preand post world war ii sample periods the cyclical

customer markets credit market imperfections and real price rigidity according to standard theory an increase in demand should raise prices of goods given factor prices empirically however prices appear to be unaffected by short run variations in demand this paper suggests an explanation of this observation if customers react slowly to price changes and credit markets are imperfect prices may be unchanged or even fall when demand increases the reason is that when demand is high profits are high and firms can compete more intensely for customers without increasing their borrowing copyright 1991 by the london school of economics and political science

wage bargaining in a macroeconomic model with rationing a model of a single commodity closed economy is constructed in which the commodity price is fixed and its market clears by quantity adjustment the distinctive feature is that the real wage and employment are determined by bargaining between unions representing workers and firms there are several possible regimes some with labor hoarding the effects of changes in autonomous spending and the reservation wage on the endogenous variables of the model including employment and the real wage are discussed some interesting possibilities emerge for the cyclical movement of productivity and the real wage

fiscal policy and monetary integration in europe fiscal policy economists policy makers and the media often argue that the maastricht treaty and the stability and growth pact make it difficult for governments of emu countries to stabilize their economies with appropriate fiscal policy and to provide adequate public investment our empirical analysis offers little support to this view discretionary budget deficits have actually become more counter cyclical in emu countries after the maastricht treaty as well as in the other eu and non eu industrialized countries we study and while public investment has declined recently in emu countries a similar tendency is apparent in other countries and started well before the maastricht treaty was signed jordi gali and roberto perotti

the intra unit wage structure and unions a median voter model this study adopts the median voter model to analyze the influence of unions on wage structures within collective bargaining units the model predicts that the intra unit wage structure will be changed to increase the share of the total wage bill received by the median members of the bargaining unit this prediction is examined through a case study of a collective bargaining unit the faculty of the state university system in minnesota the changes in the wage structure of the unit proposed by the union and those ultimately implemented are both consistent with the median voter model

planning to cheat eu fiscal policy in real time using real time data from europe s stability and convergence programs we explore how fiscal plans and their implementation in the eu are determined we find that 1 implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon 2 variability in the eventual fiscal outcomes is dominated by the implementation errors 3 there is a limited role for traditional political variables 4 stock flow adjustments are more important when plans are more ambitious and 5 most importantly both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions we emphasize also the importance of credible plans for the eventual fiscal outcomes roel beetsma massimo giuliodori and peter wierts

unemployment in britain male unemployment in britain has risen from around 2 per cent in the 1950s to around 17 per cent in 1985 see figure 1 the figures are for male unemployment because there is no consistent series for women 1 even more remarkably unemployment has fallen in only three years out of the last twenty 1973 1978 and 1979 to account for this we need a model that explains both changes in the natural or non accelerating inflation rate of unemployment nairu and deviations from it we use a three equation supply side model centred on the labour market this has two main features the first concerns the determination of employment in the short run the labour demand function that we use cuts through the fruitless debate now raging especially in europe as to whether current unemployment is classical or keynesian according to the classical view employment is too high because real wages are too high according to the keynesian view real wages are not binding and unemployment is high because the product market does not clear with prices too high relative to nominal demand the whole debate is set in the framework of perfect competition yet in perfect competition prices are set by impersonal forces and it is not clear what could possibly stop prices clearing the market it is much more reasonable to think of prices as being set by imperfectly competitive firms existing prices being the best they can think of given the demand they face in this context firms demand for labour will depend on both the real product wage and the level of real aggregate demand this is the demand function we estimate and it conforms both to common sense and to the data however this does not imply that employment can be made to grow without limit by pumping up real demand for in the medium term when price surprises are eliminated our model determines three variables employment real wages and real demand on the basis of three equations an employment equation a price equation and a wage equation thus in the medium term there is a natural level of employment and corresponding to this a natural level of real aggregate demand the second key feature of our model concerns the medium term determination of unemployment in the medium term the planned mark up of wages over prices in wage settlements must be consistent with the mark up of prices over wage costs in employers pricing behaviour for if wage setters try to set real product wages higher than is consistent with employers pricing behaviour this generates ever increasing inflation thus the key to understanding unemployment in the medium term is the behaviour of wage setters if events occur that push them towards too high real wages then unemployment has to rise to offset these influences we shall call these influences wage pressure variables or push factors and they are clearly crucial in understanding unemployment the variables here include the social security system employment protection

fiscal rules discretionary fiscal policy and macroeconomic stability an empirical assessment for oecd countries does aggressive use of discretionary fiscal policy induce macroeconomic instability in terms of higher output and inflation volatility three main conclusions arise from our cross section and panel analysis for a sample of 20 oecd countries first discretionary fiscal policy has a significant and sizeable effect on volatility of gdp per capita and all of its components second there is no direct effect on inflation volatility since output volatility is an important determinant of inflation volatility discretionary fiscal policy indirectly exacerbates inflation volatility these results turn out robust with respect to alternative fiscal policy measures and endogeneity concerns finally many of the fiscal rules introduced since 1990 appear to have reduced the use of discretionary fiscal policy

the family gap for young women in the united states and britain can maternity leave make a difference in the united states and britain there is a family gap between the wages of mothers and other women differential returns to marital and parental status explain 40 50 of the gender gap another 30 40 is explained by women s lower levels of work experience and lower returns to experience taking advantage of quasi experiments in job protected maternity leave in the united states and britain this article finds that women who had leave coverage and returned to work after childbirth received a wage premium that offset the negative wage effects of children

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

real wage growth technical change and competition in the labor market the paper measures the rate of growth of average labor cost and the real wage for the twenty u s two digit manufacturing industries 1948 76 it is argued that these rates of growth give interesting information which other studies on the real wage ignore the results suggest that the gains from technical advance are shared equally across all labor markets consistent with the competitive paradigm a simple and appealing rationale for the observation that high growth industries show the slowest relative rate of growth of prices is also given t he general theory keynes 1936 unleashed many controversies one of the earliest and still topical controversy is the cyclical behavior of the real wage essentially the real wage employment debate has focussed on whether or not the demand schedule slopes downwards and there have been many studies on this topic producing a variety of conflicting findings a common feature of the real wage employment studies is to abstract away from the growth in the real wage that is bound to occur in a growing economy these studies are primarily concerned with deviations from trend or innovations in the real wage and the theme of this paper is that to ignore the growth in the real wage is to throw away valuable and interesting information this information on real wage growth tells us a great deal about competition in the labor market this study should be seen as being complementary rather than conflicting with the real wage employment studies the existence of a downward sloping demand curve for labor is after all not sufficient and probably not necessary for the functioning of competitive labor markets over the span of years 1948 76 i find that individual u s manufacturing industries record widely varying rates of productivity growth however these same industries tend to show a common rate of growth of the real wage this feature of productivity growth was emphasized by the late salter 1960 in his pathbreaking analysis of technical change he writes there is no tendency for above average increases in labour productivity to be accompanied by above average increases in earnings

fiscal policy in central and eastern europe with real time data cyclicality inertia and the role of eu accession this article evaluates the cyclicality inertia and effect of eu accession on fiscal policy in central and eastern europe cee using a real time dataset budget balances are found to react in a stabilizing way to economic activity every extra percentage point of economic growth is associated with an improvement in the budget balance of 0 3 percentage points of gross domestic product gdp and there is no evidence of an asymmetric reaction to the cycle balances are much less inert than is typically found in western europe however there is clear evidence of a fiscal loosening in the run up to eu accession this began in 1999 in larger central european countries often identified as front runners the other seven began loosening in 2001 after the nice treaty was agreed for both sets of countries this loosening cumulatively amounts to some 3 of gdp

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

non nested tests of efficient bargain and labour demand models abstract in this paper efficient bargain and labour demand models derived from a variety of product market structures are compared using non nested test procedures data on wage employment outcomes are drawn from actual contract data from the canadian unionised sector results indicate that efficient bargain models are preferred to labour demand models

the impact of expenditure rules on budgetary discipline over the cycle we study the impact of expenditure rules on the propensity for governments to deviate from their expenditure plans in response to surprising cyclical developments theoretical considerations suggest that due to political fragmentation in the budgetary process expenditure policy might be prone to a procyclical bias however this tendency may be mitigated by strictly enforced expenditure rules these hypotheses are tested against data from a panel of eu member states our key findings are that 1 deviations between actual and planned government expenditure tend to be positively related to output gap surprises and 2 expenditure rules reduce this procyclical bias these results are particularly pronounced when the analysis is confined to spending items with a high degree of budgetary flexibility

real time data and fiscal policy analysis a survey of the literature abstractthis paper surveys the empirical research on scal policy analysis based on real timedata this literature can be broadly divided in three groups that focus on 1 the statisticalproperties of revisions in scal data 2 the political and institutional determinants of scaldata revisions and of one year ahead projection errors by governments and 3 the reactionof scal policies to the business cycle it emerges that rst scal data revisions are largeand initial releases are biased estimates of nal values second the presence of strong scalrules and institutions leads to relatively more accurate releases of scal data and smalldeviations of scal outcomes from government plans third the cyclical stance of scalpolicies is estimated to be more counter cyclical when real time data are used instead ofex post data finally more work is needed for the development of real time datasets for scalpolicy analysis in particular a comprehensive real time dataset including scal variablesfor industrialized and possibly developing countries published and maintained by centralbanks or other institutions is still missing

the contingent valuation debate why economists should care t he contingent valuation method involves the use of sample surveys questionnaires to elicit the willingness of respondents to pay for generally hypothetical projects or programs the name of the method refers to the fact that the values revealed by respondents are contingent upon the constructed or simulated market presented in the survey a spirited and occasionally mean spirited battle over such methods is currently being waged involving competing factions within the federal government economists and lawyers representing business and environmental groups and interested academics as well at issue is a seemingly quite specific question should environmental regulations currently under development at both the department of the interior and the department of commerce sanction the use of the contingent valuation method in estimating the damage done by spills of oil chemicals or other substances covered by federal law more generally the debate raises broad questions about what economists have to say about the values that individuals place on public or private goods the two papers that follow this one make cases for and against the use of the contingent valuation method my aim here is to provide an overview of the technique and the debate surrounding it i also want to suggest why this debate should matter to economists both professionally and in their roles as citizens and consumers

work environment and opt out rates at motherhood across high education career paths observing a sample of harvard alumnae in their late thirties the authors study the relationship between workplace flexibility and the labor force participation of mothers they first document a large variation in labor force participation rates across higher education fields mindful of the possibility of systematic patterns in the types of women who complete various graduate degrees they use the rich information available for the sample supplemented by the longitudinal nature of a subset of these data to assess the extent to which these labor supply patterns may reflect variation in the difficulty of combining work with family although ruling out systematic sorting entirely is not possible their evidence suggests that inflexible work environments push women out of the labor force at motherhood

granger causality real factor prices and employment a re appraisal with uk data this paper reports the results produced by applying tests for granger causality of post war u k real wage and employment data the results suggest that real wages granger cause employment with no feedback this result is robust to the inclusion of real materials prices the results are not robust to changes in the sample period real wages and employment appear independent with data up to 1977 4 the oscillations of real wages between 1976 and 1978 when a stern wage policy was implemented and dismantled are responsible for these different results this explains the contradictory results reported in previous studies

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

relative prices and the demand for labour in british manufacturing the existence of an aggregate demand for labour schedule derived from profit maximization of the individual firm and giving a negative relationship between the labour capital ratio and the real wage is central to most traditional theoretical macroeconomics even though such a relationship is typically not embodied in macroeconomic models but beginning with the work of dunlop 1938 and tarshis 1939 the negative relationship could not be found in the data a more modern reference is bodkin 1969 this evidence led naturally to disequilibrium analysis notably that of barro and grossman 1971 more recently sargent 1978 has attempted with some success to rehabilitate the demand for labour schedule by showing that costly adjustment of the workforce obscures the current relationship between the wage and labour demand while leaving it essentially intact that paper and the related one by neftci 1978 was criticized by geary and kennan 1979 because it had used retail prices to represent output prices and they showed that for a number of countries employment could not be explained satisfactorily by the real product wage however geary and kennan failed to allow for the simultaneous effect of the real prices of raw materials and capital services in this paper we shall see that allowing for the effects of other relative prices notably the price of inputs relative to output and the real interest rate the real wage has a powerful but slow acting negative effect on the demand for labour the long run elasticity is about 2 and the mean lag is over 18 months we also find that the price of inputs has a long run elasticity of about 2 and that high values of the real interest rate have a powerful depressant effect on the level of employment in manufacturing the most striking implication for policy of our analysis is that measures of demand output money government spending do not have a significant influence on manufacturing employment controlling for the effects of relative prices thus government macroeconomic policy can affect the level of employment in manufacturing if and only if it can affect relative prices

estimation of a fiscal policy rule for emu countries 1984 2005 the primary objective of this article is to estimate a fiscal policy rule for each of the emu member states from 1984 to 2005 in order to know if there has been a systematic response of the cyclically adjusted primary balance to output gap and debt level variations also we aim to discover whether the change in the fiscal framework which took place after 1992 has had a substantial impact on the fiscal policy applied the principal novelty is that the estimation is performed simultaneously by means of a seemingly unrelated regression estimator model we are thus able to obtain different coefficients for each country while developing possible correlations between national fiscal policies which would reveal the existence of common factors the results provide clear evidence of a structural break in the rule after the introduction of the new fiscal regulations and as the hypothesis of equality in the national coefficients of the rule is clearly rejected reveal a need to consider specific national factors

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

insider forces and wage determination this paper investigates the relative importance of firm specific factors i e insider forces in wage determination using firm level data on 219 u k companies over 1974 82 it finds that a 1 percent rise in a firm s prices or productivity relative to the aggregate economy leads to a rise in relative wages of 0 1 0 2 percent as a corollary to this outside factors like the aggregate wage and the unemployment rate also play an important role there is evidence for insider based hysteresis effects but these are inversely related to the extent to which firms take national agreements into account copyright 1990 by royal economic society

neoclassical demand for labour functions for six major economies can real factor prices and in particular the real wage explain the level of employment over the business cycle the question is of fundamental importance for macroeconomic policy and is of course the subject of longstanding controversy dunlop i938 failed to find the expected negative relationship between employment and the wage in the data and the subsequent debate is summarised in bodkin i969 crudely the data seemed to refute the competitive model of the labour market for if product markets are competitive and firms operate on their demand curves employment should be explained by real factor prices relative to product prices the capital stock and the state of technology to explain the lack of relationship barro and grossman i97i suggested that at times mutuality reinforcing quantity constraints could emerge in labour and output markets so that firms employed fewer workers than one would predict from the level of real wages and other relative prices however recently sargent i978 has attempted with some success to rehabilitate the demand for labour function by showing that costly adjustment of the workforce obscures the current relationship between the wage and labour demand while leaving it essentially intact in his account firms adjust slowly towards an employment level which is influenced by future expected real wages which might themselves reflect the past history of real wages his paper and the related one by neftci i978 was criticised by geary and kennan i979 for using retail prices to represent output prices and they showed for a number of countries that employment could not be satisfactorily explained by the real product wage taken on its own however geary and kennan failed to allow for the simultaneous effect of the real price of raw materials in symons i 982 one of us showed that allowing for this effect the real wage has a powerful elasticity about 2 but slow acting two year mean lag negative effect of the demand for labour in british manufacturing this was strong evidence but it was not completely conclusive the model fitted well only over subperiods and whereas the various breakdowns of the model could be ascribed to firms discounting certain transient shifts in the real wage there still seemed to be scope for reasonable doubt about the results however recently andrews and nickell i 982 a b working with annual rather than quarterly data and for the british economy as a whole have developed a demand for labour function with similar dynamics and with signifi

identifying discretionary fiscal policy reactions with real time data we propose a method of identifying discretionary fiscal policy reactions using real time data automatic stabilizers should depend on true gdp while discretionary fiscal policy is contingent on the information that policy makers have in real time we can compute a real time measurement error by comparing the first release of gdp data with later revisions discretionary fiscal policy is influenced by this measurement error whereas automatic fiscal policy is not we use this identification approach to test the central identifying assumption of blanchard and perotti s 2002 seminal structural vector autoregression var according to this assumption fiscal policy makers do not react to gdp developments contemporaneously in a discretionary fashion we find that government expenditure is adjusted upward if gdp growth in real time is lower than true gdp this suggests that fiscal policy makers use short term funds to buy goods and services in response to their perception of gdp dynamics

fiscal rules inertia and discretionary fiscal policy in current practice changes in the cyclically adjusted budget balance cab are interpreted as reflecting the effort of discretionary fiscal policy this paper shows that such an interpretation is not a sufficiently accurate description of the behaviour of fiscal policy as in some cases it may conceal an important deficit bias specifically as growth projections are an important building block of budgetary plans systematic optimism in forecasting growth coupled with pervasive lags and inertia in the implementation phase of the budget will result in a fiscal expansion compared to plans even in the absence of discretionary measures in order to track down this kind of passive behaviour in the light of growth surprises or sanguine growth assumptions the traditional reading of the cab needs to be adjusted this is achieved by relaxing the benchmark assumption according to which under unchanged fiscal policy the deficit to gdp ratio is invariant to growth an empirical application to public finance

the employment real wage relationship an international study the neoclassical and keynesian theories of employment both predict an inverse relationship between employment and real wages in the short run the observed correlation between employment and real wages however has usually failed to conform to this prediction dunlop 1938 and tarshis 1939 reported a positive correlation between real and money wages which given procyclical movement of money wages was interpreted as evidence against the theoretical prediction the statistical significance of these results was however challenged by ruggles 1940 and tobin 1948 more recent studies by kuh 1966 and bodkin 1969 failed to detect a significant relationship between real wages and employment these findings stimulated a series of contributions by solow and stiglitz 1968 barro and grossman 1971 1976 and others developing alternative models not apparently refuted by the evidence barro and grossman recast macro theory under the assumption that markets did not clear modigliani 1977 argued that the observed relationship between employment and real wages could be accounted for in an oligopolistic model of firm behavior thus both the competitive and equilibrium assumptions of the classical model were diagnosed as the sources of its apparent empirical refutation

efficient estimation methods for closed ended contingent valuation surveys closed ended contingent valuation surveys can be very useful in the evaluation of nonmarket resources respondents merely state whether they would accept or reject a hypothetical threshold amount either as payment for giving up access to the resource or as a fee for its use the authors develop a maximum likelihood procedure which exploits the variation in the threshold values to allow direct and separate point estimates of regression like slope coefficients and error standard deviations without truncation bias their illustration uses data from a survey of recreational fisherman to examine factors which influence individuals willingness to pay copyright 1987 by mit press

demand shocks supply shocks and the cyclicality of real wages the behaviour of real wages over the business cycle has received increasiing attention in recent years the cyclicality of real wages constitues an important aspect of recent models of the business cycle however empirical studies undertaken to determine whether real wages are procyclical or countercyclical have reported conflicting findings in thiis paper we use vector autoregressions to analyse the cyclicality of real wages we find that the source of the disturbance plays a decisive role in the cyclical behaviour of real wages in particular we demonstrate that a supply shock generates procyclical real wages whereas a demand shock yields countercyclicality

macroeconomic structure and labor s share of income united states 1950 to 1980 we test several hypotheses derived fr om marxist crisis theories regarding the impact of macroeconomic performance on the distribution of income between labor and capital in the united states during the period 1950 to 1980 using annual data on compensation profits and employment we estimate the short term effects of cyclical variations in unemployment inflation growth and capacity utilization on labor s income share with an additive decomposition of labor s income share we then estimate the extent to which the observed effects can be attributed to changes in compensation output and employment we find little support for the hypothesis that tight labor markets increase labor s income share by increasing the bargaining position of labor the hypothesis that labor compensation lags behind profits over the business cycle is supported our results therefore favor the realization failure rather than the reserve army theory of cyclical crisis

wage pension trade offs in collective agreements analyzing 98 matched collective agreements and flat benefit pension plans in ontario in 1984 the authors find evidence of a significant trade off between wages and an actuarially constructed summary measure of the expected future pension costs for employers with respect to the separate components of the pension plans they find a significant trade off between wages and the main item that is bargained over the flat benefit rate but not between wages and most of the early and postponed retirement options these results obtain when the pension variables are specified as a proportion of wages to capture the assumption that the generosity of pension plans is reflected in replacement rates and when simultaneous equation procedures are used to account for the possible endogeneity of pensions the trade off disappears however when the pension variables are specified in dollar amounts

the costs of recession the paper measures the cost of business cycles by asking what proportion of consumption representative households whose head is currently employed would be prepared to give up to avoid the risk of unemployment previous estimates by lucas suggested that the costs of macroeconomic fluctuations measured in this way are surprisingly small the first part of the paper presents a critique of the lucas aggregate method showing that his estimates are not robust an alternative disaggregated framework is then developed and shows that the costs of macroeconomic fluctuations are significantly higher than those obtained by lucas consequently the view that inflation matters whereas business cycles are unimportant events is questioned copyright 1994 by royal economic society