the economics of worldwide stagflation the last fifteen years have witnessed dramatic changes in economics not only in the manner in which the economics profession views economics but also in the manner in which the general public views economics and economists by the late 1960 s there had emerged more or less a consensus macroeconomic framework that is an agreed upon structure to be used to study economic problems at the aggregate level robert solow stated as quoted in leijonhufvud 1968

the heckscher ohlin samuelson model with implicit contracts in a world with multiplicative production uncertainty and implicit labor contracts we show that the rybczynski theorem retains its validity therefore the quantity version of the heckscher ohlin theorem survives as well we also show that the stolper samuelson theorem may not hold a small increase in the price of the capital intensive good may benefit labor we derive a strong version of the factor price equalization theorem that shows free trade tends to equalize sector specific unemployment rates and sector specific factor prices across countries finally we relate trade patterns to international differences in the degree of risk aversion

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

trade and search generated unemployment we argue that trade economists should begin to seriously consider environments in which unemployment is carefully modeled we introduce such a model derive several results and compare them to results derived in full employment models we argue that some traditional results are probably too narrow the determinants of comparative advantage and that some results do not generalize to models with unemployment the link between trade and income distribution for employed factors we also show that in some important cases results do generalize there is an extended stolper samuelson theorem that links trade to the distribution of income for searching factors and that our model allows us to address issues that traditional models cannot handle the impact of trade on unemployment and the welfare of the unemployed 1999 elsevier science b v all rights reserved

centralisation employment and wage dispersion this paper is about bargaining institutions and their influence on wage dispersion and employment using novel statistical measures it compares labor market performance in seventeen oecd countries since 1973 it concludes that countries with highly centralized wage bargaining have generally achieved the best performance combining high employment with low wage dispersion thereby avoiding certain major inequalities prevalent elsewhere the paper also presents a formal model of bargaining based on the work of l calmfors and j driffill 1988 simulations are used to illustrate how this model generates the kind of outcomes described in the empirical part of the paper copyright 1992 by royal economic society

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

the structure of simple general equilibrium models with frictional unemployment we develop a two sector general equilibrium model in which equilibrium unemployment arises endogenously because of trading frictions in the labor market of one sector externalities inherent in the search process lead to inefficient equilibria and this has important implication for the basic structure of the economy in particular the relationship between factor rewards and commodity prices is fundamentally different from the analogous relationship in a frictionless economy one implication is that the economy s relative supply curve may be downward sloping especially when the search sector is small we also present several applications of the analysis

union egalitarianism as income insurance it is a common observation that unions often try to compress the wage distribution among their members as compared with the productivity distribution a troublesome aspect of standard theories of redistributive unions is the question why high productivity workers choose to enter the union in the first place this paper develops and explores the implications of an alternative insurance rationale for egalitarian wage objectives apart from providing a simple explanation of why heterogeneous union members may agree on egalitarian wage policies it also suggests a more guarded attitude toward the welfare costs of pay compression copyright 1992 by the london school of economics and political science

estimating the natural rate of unemployment and testing the natural rate hypothesis how should one measure the natural rate of unemployment this paper proposes a systems procedure as an alternative to nairu the natural rate is treated as an unobserved state variable in a system that includes measurement equations for the unemployment rate the rate of wage growth and the rate of inflation the model is derived from a version of the wage bargaining model of blanchard and embodies a version of the natural rate hypothesis the model is estimated by embedding the kalman filter within the full information maximum likelihood procedure for us data the estimated model implies substantial post war variation in the natural rate and a negative but weak effect of inflation surprises on unemployment copyright 1999 john wiley sons ltd

unobserved ability efficiency wages and interindustry wage differentials interindustry wage differentials in wage regressions estimated for individuals have been interpreted as evidence consistent with efficiency wage models a principal competing explanation is that these differentials are generated by differences across workers in unobserved ability this paper tests the unobserved ability hypothesis by incorporating test scores into standard wage regressions as error ridden indicators of unobserved ability the results indicate that differences in unobserved ability explain relatively little of interindustry or interoccupation wage differentials this abstract was borrowed from another version of this item

empirical tests of budget ratcheting and its effect on managers discretionary accrual choices abstract in this paper we investigate whether budgets ratchet using business unit data from a large multinational corporation we find evidence consistent with ratcheting where favorable budget variances result in performance budget increases that are larger than decreases associated with unfavorable variances of the same magnitude we argue that under ratcheting the cost of reporting positive transitory earnings surprises outweigh the short term benefits of the current period bonus consequently we hypothesize that managers make income decreasing discretionary accruals to offset transitory earnings surprises beyond the level expected under fixed budgets using a proxy for transitory earnings surprise we find evidence consistent with this hypothesis

do turnover costs protect insiders the ability of insiders to extract rents associated with exogenous turnover costs is addressed in a dynamic model the higher these rents the higher is the incentives for outsiders to obtain future insider status and thus to underbid current insiders as a consequence there is a lower limit to the number of insiders that can avoid entrance of outsiders and the insiders cannot in each period obtain a rent equal to the turnover costs the insider model never explains a lower but may result in a higher employment level than in the case where all workers are wage takers copyright 1994 by royal economic society

union cooperation and nontraded goods in general equilibrium a general equilibrium model of a small open economy with traded and nontraded goods and sector specific trade unions is set up wage formation is either noncooperative or cooperative egalitarian union wage policy is shown to be the equilibrium under cooperation important asymmetries are encountered and an alternative model of cooperative behavior called bargaining cooperation is proposed bargaining cooperation is shown to have qualitatively different implications than simple cooperation the welfare and employment effects of bargaining cooperation compared to simple cooperation are ambiguous

adjustment of wages and equilibrium unemployment in a ricardian global economy abstract this paper develops a dynamic ricardian model of the world economy exhibiting endogenous wages and equilibrium unemployment it is shown that international trade serves to give workers an increased stake in job holding and in general equilibrium leads to higher real earnings and lower equilibrium unemployment economic shocks emanating in one country affect the trading partner s equilibrium unemployment rate by shifting the terms of trade the generality of the results are discussed along three dimensions replacing efficiency wages with bargaining in labor market introducing role for market sizes and factor proportion differences and introducing firm specific training to generate dynamics

selected works of michael wallerstein centralized bargaining and wage restraint the literature on corporatism has presented much evidence associating highly centralized systems of collective bargaining with wage restraint and relatively successful macroeconomic performance in addition centralized bargaining is associated with relatively small wage differentials this paper presents a model of the impact of centralized wage setting on both real wages and relative wages the central assumption is that the centralization of wage setting at the national level unites unions who are complements in production since a wage increase for one group of workers negatively affects the welfare of other workers who are complements in production centralized wage setters choose wages below the equilibrium of decentralized wage setting it is also shown that if the union confederation maximizes a utilitarian welfare function with equal weights centralized wage setting decreases wage dispersion while low paid workers clearly gain from centralized bargaining high paid workers may prefer that bargaining be decentralized

are governmental expenditures also sticky evidence from the operating expenditures of public schools abstractexisting research on cost stickiness focuses primarily on for profit companies this study investigates cost behaviour in the public sector a new setting that deserves more research attent

natural rate theory and oecd unemployment our mission is to examine from the perspective of the intertemporal equilibrium models of endogenous natural rate theory the huge swings in unemployment among the oecd countries in recent times we first look at the huge rise in jobless rates between the early 1970s and the early 1990s throughout the oecd in the united states a rise from about 51 per cent to 7 per cent canada from about 6 to 10 japan from 11 to 21 italy from 31 to about 71 the united kingdom from about 33 to about 9 france from about 23 to about 10 and west germany from 4 to 5 1 we then look at the developing recovery of the general unemployment rate most notably in the united kingdom and the united states amid a generally continued elevation of jobless rates among the less educated we see the mid 1990s surge of unemployment in germany france and italy as another story there are other older perspectives of course keynesians interpreted events in the 1970s and in the 1980s as signs of effective demand and effective supply shocks feldstein 1986 fitoussi and phelps 1986 malinvaud 1985 pissarides 1990 but if the natural rate was unchanged they had to explain why the subsequent disinflation was short lived why inflation even turned up in the late 1980s or early 1990s despite high unemployment lacking an endogenous natural rate keynesians could explain the durability of the slump only by positing either a permanent expectational disequilibrium or hysteresis i e non ergodicity as in phelps 1972 or a degree of persistence so great as to be empirically indistinguishable from hysteresis as the slump ran on the expectational possibility wore thin so they were down to hysteresis hicks 1974 launched a break with the keynesian monetarist perspective in the 1980s with his appeal to real frictions or rigidities if wage setting mechanisms make the real wage v sticky in the sense of lerner hence predetermined in the short run the unemployment rate u will rise in the short run in response to a shock contracting the demand wage i e a downward shift of the labour demand schedule in the 1 u v plane bruno and sachs 1985 another landmark was a bargaining model with the property that its natural unemployment rate rose in response to several much discussed shocks such as higher taxes and an energy shock reducing labour productivity layard and

relative wages under decentralized and corporatist bargaining systems in studying the relationship between wage inequality and centralization in collective bargaining we distinguish central from local systems of wage determination by assuming that a central union takes the employment effects of negotiated wages into account whereas unions disregard these effects in decentralized systems two different sources of wage differentials are studied separately i heterogeneous workers with different skills and ii heterogeneous firms with varying levels of economic rent per employee with respect to skill levels the impact of centralization is ambiguous whereas inter firm wage differentials are likely to be lower in corporatist systems

how strong is the macroeconomic case for downward real wage rigidity we explore the existence of downward real wage rigidity drwr at the industry level based on data from 19 oecd countries for the period 1973 1999 the results show that drwr compresses the distributions of industry wage changes overall as well as for specific geographical regions and time periods but there are not many real wage cuts that are prevented more important however drwr attenuates larger real wage cuts thus leading to higher real wages there is stronger evidence for downward nominal wage rigidity than for drwr real wage cuts are less prevalent in countries with strict employment protection legislation and high union density

do higher corporate taxes reduce wages micro evidence from germany because of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages we circumvent these problems by using an 11 year panel of data on 11 441 german municipalities tax rates 8 percent of which change each year linked to administrative matched employer employee data consistent with our theoretical model we find a negative effect of corporate taxation on wages a 1 euro increase in tax liabilities yields a 77 cent decrease in the wage bill the direct wage effect arising in a collective bargaining context dominates while the conventional indirect wage effect through reduced investment is empirically small due to regional labor mobility high and medium skilled workers who arguably extract higher rents in collective agreements bear a larger share of the corporate tax burden

bureaucracy and the divisibility of local public output the empirical results of this paper are derived from a monopoly view of local government decisionmaking in contrast to the competitive view offered by earlier researchers that our results are similar to earlier findings lends additional support to the conclusion that local output is largely private in nature other than park and recreation services there appear to be no economies in consumption for local services nor any economies of density larger cities do not appear to be more efficient than smaller cities 10 of course this result holds only for the sample of cities used here and does not rule out scale economies for communities smaller than those in our sample i e below 25 000 population

efficiency wages and local versus central wage bargaining abstract a simple efficiency wage model is extended to allow for the presence of unions the presence of unions aggravates the unemployment caused by efficiency wage considerations provided the labour demand elasticity is not too much larger than one local firm level wage bargaining gives a higher negotiated wage than central wage bargaining implying higher unemployment under local wage bargaining than under central wage bargaining

trade capital accumulation and structural unemployment an empirical study of the singapore economy the past three and a half decades witnessed a distinctly declining trend in singapore s unemployment rate which dropped from an average annual rate of 7 85 percent in 1966 70 to 2 74 percent in 1991 2000 the authors seek to identify and empirically examine the factors that have influenced singapore s unemployment rate in an environment of low and stable inflation they incorporate a union bargaining framework into a standard factors trade model in which an increase in the relative price or capital stock in the export sector raises the demand wage that firms can afford to pay relative to workers fall back income and consequently lowers equilibrium unemployment the magnitude of the effects depends on the fall back income the weight unions attach to employment and the elasticity of labor demand which the authors estimate using data on singapore the results show that labor unions in singapore care more about employment than wages together with a small fall back income and elastic labor demand the authors show that given the same percentage change in relative export prices and capital accumulation in the export sector the effect on unemployment is larger for the former however the empirical importance of capital accumulation in the export sector dominates increases in relative export prices in reducing unemployment since the manufacturing sector experienced a tremendous increase in capital inputs throughout the sample period whereas the relative price of exports experienced a far smaller increase and only in the early part of the sample period the authors conclude that through a very open trading regime the tremendous increase in capital stock of the exporting sector has been the main reason behind singapore s declining unemployment rate

bureaucratic choice and nonoptimal provision of public goods theory and evidence local governments allocation decisions are modeled in the context of a slack maximizing bureaucrat who produces public goods according to a production function that includes both provision and the constituents socio economic characteristics to gain a better understanding of the determinants of slack comparative statics and an empirical study of illinois municipalities are conducted the indirect output distance function provides efficiency scores upon which we regress several variables representing socio economic characteristics costs and competition measures we find that slack or inefficient behavior is associated with richer communities lower education levels and a lack of competition for residents among municipalities

does trade expansion still promote employment in korea according to the heckscher ohlin samuelson hos model trade can be an important source of job gains for developing economies but conversely result in job losses for developed economies empirical research to date however has provided mixed results regarding the direction and size of the employment effects for both developing and developed economies this paper attempts to evaluate the employment implications of trade for korea over the 1975 2000 period korea merits attention because it has successfully transformed itself from a developing to a semi developed economy during this period empirical results show that trade has indeed played an important role in enhancing job opportunities in korea throughout this period but its role as a job creator has diminished since 1985 suggesting that such a role could soon end or even reverse copyright 2008 the author journal compilation 2008 blackwell publishing ltd

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation