compensation and span of control in hierarchical organizations this article presents evidence on the relationship between compensation ratios and spans of control within hierarchical organizations we find that compensation ratios are lower than span of control at any position within the hierarchy which is consistent with an elasticity of compensation to a number of subordinates lower than one managers human capital endowments determine a significant part of the salary differences throughout hierarchical levels as predicted by models of talent allocation in hierarchies differences in the size of firms should be attributed more to differences in their number of hierarchical levels than to variations in the span of control

employment policies wage formation and trade union behavior in a small open economy a model of trade union determined wages is developed which provides an explanation of underemployment based on optimizing behavior it is shown that fiscal policy will in general affect employment under perfect foresight and immediate wage flexibility future consequences of short run stabilization policies are discussed ratchet effects with respect to government expenditure and game theoretic interdependence between government and trade union behavior are emphasized if the trade union takes short run policy measures in order to increase employment as an indication of an employment stabilization rule the future behavior of the trade union changes and the result may be a decrease in long run employment

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

targeted transfers and the fiscal response to the great recession abstract between 2007 and 2009 government expenditures increased rapidly across the oecd countries while economic research on the impact of government purchases has flourished in the data most of the increase in expenditures was in government transfers after documenting this fact we argue that future research should focus on the positive impact of transfers towards this we present a model in which there is no representative agent and ricardian equivalence does not hold because of uncertainty imperfect credit markets and nominal rigidities targeted lump sum transfers are expansionary both because of a neoclassical wealth effect and because of a keynesian aggregate demand effect

bonuses and promotion tournaments theory and evidence standard models of promotion tournaments do not distinguish between wages and bonuses and thus cannot explain variation in the use of bonuses we combine classic and market based tournament theories to develop a model in which wages and bonuses serve distinctly different roles we use this model to derive testable predictions which we test employing both a single firm data set and a data set encompassing a large segment of the finnish economy our empirical analysis supports the testable predictions and shows that our theoretical approach better matches the data than alternative theories of bonus determination based on arguments already in the literature

learning about the nature of production from equilibrium assignment patterns this paper exploits empirically a key insight from lucas 1978 and rosen 1982 that the organization of production and the distribution of earnings across individuals are jointly determined by the equilibrium assignment of individuals to firms and hierarchical positions we study how different classes of production functions generate alternative equilibrium assignments we then use confidential census data on u s law offices to investigate the form that the production function should take to rationalize earnings patterns in legal services we argue that earnings patterns in this industry are consistent with a production function that is characterized by asymmetric sensitivity to the skill of agents in different organizational positions complementarity between managers and workers skill and scale effects in individual skill

ex ante versus ex post optimal promotion rules the case of internal promotion i introduction the literature on promotion practices within the firm identifies two distinct roles for a firm s promotion policies promotions serve both as a way for the firm to efficiently assign workers to tasks and as a way for the firm to reward prior performance 1 in this article i explore the time inconsistency problem that arises as a result of the dual nature of the promotion decision in particular i show that the common practice of favoring internal candidates for promotion can be understood as a response by firms to the problem of time inconsistency 2 consider a firm in which promotions serve as a reward for prior expenditures of effort and or prior investments in human capital the optimal promotion policy for this firm depends on the time frame from which we view the problem the ex ante optimal promotion rule is the optimal rule when the problem is viewed from a date prior to young workers deciding to work at this firm this rule takes into account both the assignment aspects of the promotion decision and that promotions serve as a reward for prior performance there is a second relevant rule however because at the date of the promotion decision the effects of promotion serving as a reward for prior performance are in the past for example in a world where the possibility of future promotion serves to increase the effort levels of young workers by the time of the promotion decision those effort choices have already been made hence the ex post optimal rule only takes into account the assignment aspects of the promotion decision the time inconsistency problem that arises is now clear total profits are maximized when the firm follows the ex ante optimal promotion rule but in the absence of commitment this is not how the firm behaves at the time of the promotion decision the firm has an incentive to ignore the effects of promotion serving as a reward for prior performance and instead follow the ex post optimal rule in other words the profits of the firm are decreased because at the time of the promotion decision the firm maximizes current profits and the anticipation of this behavior by workers has deleterious effects on behavior in prior periods in this article i explore a specific example of this time inconsistency problem consider a firm s decision concerning whether to fill a managerial position by promotion from within or by hiring an outsider i show that when confronted with this decision the firm faces the exact situation described that is the ex post optimal rule shows no preference for promotion from within over hiring from the outside whereas the ex ante optimal rule exhibits a preference for promoting from within the logic here is that the possibility of receiving the higher managerial wage in the future reduces the wage required to attract young workers into the firm but only the ex ante optimal rule takes this into account the result is that in the absence of commitment the firm hires from the outside too often the conclusion is that the establishment of an internal labor market in which the firm favors promotion from within can be understood as a way that the firm avoids this time inconsistency problem this result extends a finding in malcomson 1984 that article also shows that an internal labor market in which hiring from the outside is restricted can arise in a world where promotion serves as a reward for prior performance in that work however there is no time inconsistency problem the reason is that malcomson assumes workers are homogeneous and thus at the time of the promotion decision it is weakly optimal for the firm to have all promotions be from within in contrast i assume that workers are heterogeneous and find that if the firm maximizes ex post profits it lowers total profits the result is an internal labor market that not only limits hiring from the outside but also constrains the firm to behave in a manner different from that which maximizes profits at the time the promotion decision is made

exchange rate policy wage formation and credibility abstract since the collapse of the bretton woods system some european countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector these countries which typically feature centralized wage setting have also tended to experience high nominal wage increases the overall outcome may be described as a devaluation wage spiral this paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union it is shown how a devaluation wage spiral may result from a conflict of interest over the real wage it is also shown how reputational forces may provide a way out of the devaluation wage spiral

public debt and redistribution with borrowing constraints we build a model with financial imperfections and heterogeneous agents and analyse the effects of two types of fiscal policy revenue neutral intratemporal redistribution and debt financed tax cuts which we interpret as intertemporal redistribution under flexible prices the two policies are either neutral or display effects that are at odds with the empirical evidence with sticky prices ricardian equivalence always fails a robin hood revenue neutral redistribution to borrowers is expansionary on aggregate activity a uniform debt financed tax cut has a positive present value multiplier on consumption stemming from intertemporal substitution by the savers who hold the public debt

the optimal composition of public spending in a deep recession abstract we study optimal fiscal policy in an economy plunged into a deep recession characterized by a liquidity trap and in which the government can allocate spending both to consumption and investment goods public investment increases the stock of public capital subject to a time to build constraint the zero lower bound on the nominal interest rate binds as a result of a large shock that increases households desire to save in the risk free asset pushing the natural rate of interest below zero under nominal rigidities and sub optimal monetary policy the shock leads to a large decline in private consumption and investment we show that the optimal response to such a shock is to temporarily raise public spending above the level that would be dictated by classical principles and to tilt its composition towards public investment this compositional shift lasts well after the natural rate has ceased to be negative our results suggest that the american recovery and reinvestment act of 2009 was insufficiently oriented towards public investment

classical unemployment accommodation policies and the adjustment of real wages a model of wage formation and stabilization policy in economies with strong trade unions is developed the analysis provides a theoretical underpinning for the assertion that accommodation policies may cause wage inflation and ultimately reduce employment various methods of accomplishing a real wage adjustment are discussed i a policy of complete nonaccommodation 2 continued accommodation policies but with lower employment targets 3 social contracts and 4 tax based incomes policies tip

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

a theory of trade secrets in firms this article provides a simple theoretical model of trade secrets in hierarchical firms a crucial assumption is that each manager has access to trade secrets pertaining to his own hierarchical level as well as to all lower levels the article explores some implications of this assumption for optimal degree of trade secrets accumulation and protection as well as for the wage structure in firms in addition the model implies that managers may have an incentive to overpay their subordinates and protect their firms trade secrets too much

clearing up the fiscal multiplier morass bayesian prior predictive analysis of five nested dsge models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers multipliers are decomposed into wealth and substitution effects yielding uniform comparisons across models by constraining the multiplier to tight ranges model and prior selections bias results revealing less about fiscal effects in data than about the lenses through which researchers choose to interpret data when monetary policy actively targets inflation output multipliers can exceed one but investment multipliers are likely to be negative passive monetary policy produces consistently strong multipliers for output consumption and investment

robustness and linear contracts abstract we consider a moral hazard problem where the principal is uncertain as to what the agent can and cannot do she knows some actions available to the agent but other unknown actions may also exist the principal demands robustness evaluating possible contracts by their worst case performance over unknown actions the agent might potentially take the model assumes risk neutrality and limited liability and no other functional form assumptions very generally the optimal contract is linear the model thus offers a new explanation for linear contracts in practice it also introduces a flexible modeling approach for moral hazard under nonquantifiable uncertainty jel d81 d82 d86

the signaling role of promotions further theory and empirical evidence an extensive theoretical literature investigates the role of promotions as a signal of worker ability we extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal labor market history of a medium sized firm in the financial services industry our results support signaling being important for understanding the differences between promotion practices concerning bachelor s and master s degree holders while the evidence concerning the importance of signaling for high school graduates and phds is mixed

the ratchet effect and the market for secondhand workers workers in a long term relationship often have an incentive to hide their ability early in the relationship to avoid having the firm increase the level of output expected from them in the future we show that competition for older workers will permit the implementation of efficient piece rate contracts when the difficulty of the job is unobserved by the firm gibbons 1987 has shown that all piece rate contracts will be inefficient together these results may explain why piece rates are common in some jobs such as agricultural work and sales and not as popular for many manufacturing jobs

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

is there a j curve abstract if the response of the value of the trade balance to movements in the real exchange rate is described by a j curve then a real depreciation initially worsens a balance of trade deficit only improving it over time this paper investigates whether a j curve can be detected in the last twenty five years of american data no statistically reliable evidence of a stable j curve is detected the model is checked extensively to support this finding

market based incentives we study optimal incentives in a principal agent problem in which the agent s outside option is determined endogenously in a competitive labor market in equilibrium strong performance increases the agent s market value when this value becomes sufficiently high the threat of the agent s quitting forces the principal to give the agent a raise the prospect of obtaining this raise gives the agent an incentive to exert effort which reduces the need for standard incentives like bonuses in fact whenever the agent s option to quit is close to being in the money the market induced incentive completely eliminates the need for standard incentives

job transfers and incentives in complex organizations thwarting the ratchet effect many complex organizations such as planned soviet enterprises and the u s military routinely transfer employees between jobs since this sacrifices job specific human capital the practice is puzzling this article shows that regular job transfers may be part of an optimal incentive scheme in organizations plagued by the ratchet effect the ratchet effect arises when an employer is uncertain as to the productivity of the various positions or jobs within an organization workers in highly productive jobs then have an incentive to disguise the productivity of their jobs by expending low effort and producing low output this avoids having the employer construct more demanding remuneration schemes once the high productivity of a job becomes known job transfers break the link between current performance and future incentive schemes and hence remove the incentive stifling implications of the ratchet effect this article examines the tradeoff between providing more effective incentives via job transfers and the accompanying sacrifice of job specific human capital establishes conditions under which job transfers are optimal and develops comparative static results

wage formation in norwegian manufacturing an empirical application of a theoretical bargaining model abstract this paper is concerned with the modelling of quarterly wage inflation in norway we develop a bargaining model which we believe is a sound theoretical base for econometric work in this field among other things the model does not lend support to the practice of imposing phillips curve restrictions on the data without further test a parsimonious model is estimated and is made subject to misspecification tests there is no natural rate of unemployment or nairu in our model any constant unemployment rate is compatible with a constant rate of inflation and a real wage growth equal to the productivity growth however the level of the real wage path will be higher the lower is the rate of unemployment

worker allocation hierarchies and the wage distribution economists have traditionally viewed the allocation of workers among jobs through the concept of comparative advantage this paper investigates hierarchical production models which display an absence of comparative advantage in order to demonstrate that for hierarchical production there is a second allocating factor which plays an important role two results are found first the allocation of workers among jobs tends to match high ability workers with positions which value ability highly second despite the fact that the models display an absence of comparative advantage i e the standard theoretical explanation for why wage distributions might be skewed the models wage distributions are skewed to the right relative to the underlying ability distributions

equilibrium income inequality among identical agents the paper offers a theory of income differences in which income inequality exists and persists despite identical tastes and talents teams of unskilled labor supervised by schooled managers produce goods with increasing returns to scale agents are assumed unable to borrow to fund the human capital investment needed to become managers despite ex ante identical agents the model displays the following equilibrium phenomena i risk averse agents accept fair gambles implying an unequal ex post distribution of unearned income ii agents agree to publicly subsidize education although those receiving the subsidy have the highest material wealth and iii income and educational differences are perpetuated from generation to generation

some fiscal calculus what is the impact of fiscal policy on the econ omy how large are the multipliers of govern ment spending and tax cuts this old question has recently received considerable attention in par ticular in the context of the american recovery and reinvestment act arra of 2009 i contribute to answering that question by calculating fiscal multipliers in a baseline neo classical growth model with endogenous labor supply and fiscal policy allowing for govern ment spending transfers government debt and distortionary taxes on labor and capital income the policy experiments are conducted holding transfers consumption taxes and capital income taxes fixed i e changes in taxation require changes in the distortionary labor tax the model is simple and fairly standard as an additional contribution i provide the model in an elegant and tractable form starting from a fairly general formulation and pointing out the key functional form properties for characterizing the dynamics the formulation of the model here or versions

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

optimal risk sharing and borrowing constraints in a continuous time model with limited commitment abstract we study a continuous time version of the optimal risk sharing problem with one sided commitment in the optimal contract the agent s consumption is a time invariant strictly increasing function of a single state variable the maximal level of the agent s income realized to date we characterize this function in terms of the agent s outside option value function and the discounted amount of time in which the agent s income process is expected to reach a new to date maximum under constant relative risk aversion we solve the model in closed form optimal consumption of the agent equals a constant fraction of his maximal income realized to date in the complete markets implementation of the optimal contract the alvarez jermann solvency constraints take the form of a simple borrowing constraint familiar from the bewley aiyagari incomplete markets models

real wage determination and labour market policies the swedish experience it is a common view that labor market programs reduce unemployment and restrain wages by increasing the competition for jobs the swedish case is often advanced as a blueprint to follow this article questions the conventional wisdom on the swedish labor market policies it finds empirical evidence in favor of the hypothesis that job creation and training programs weaken the incentives for wage restraint as a consequence it appears likely that labor market programs have strong crowding out effects on regular employment copyright 1991 by royal economic society

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

career concerns contracts and effort distortions a two period career concerns model with symmetric information but uncertainty about each worker s ability is analyzed contracts are unobservable but incomes are observable it is shown that effort is distorted upward by contracts being unobservable and that the distortion depends positively on turnover

characterization of a risk sharing contract with one sided commitment in this paper i provide a stopping time based solution to a long term contracting problem between a risk neutral principal and a risk averse agent the agent faces a stochastic income stream and cannot commit to the long term contracting relationship to compute the optimal contract i also design an algorithm that is more efficient than value function iteration

government investment and fiscal stimulus effects of government investment are studied in an estimated neoclassical growth model the analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus implementation delays for building public capital and expected fiscal adjustments to deficit financed spending implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run anticipated fiscal adjustments matter both quantitatively and qualitatively for long run growth effects when public capital is insufficiently productive distorting financing can make government investment contractionary at longer horizons

tournaments as a response to ambiguity aversion in incentive contracts we study a principal agent problem with multiple identical agents where the action dependent stochastic relationship between actions and output is perceived to be ambiguous and agents are ambiguity averse we argue that ambiguity and particularly ambiguity aversion make it more attractive for the principal to choose a tournament if agents are risk neutral but ambiguity averse we show that the set of optimal incentive schemes contains a tournament moreover if ambiguity is rich enough all optimal incentive schemes must be such that realized output levels affect only the distribution of wages across agents and not the total wages paid out as it is true for tournaments when agents are both risk averse and ambiguity averse tournaments need not be optimal but ambiguity and ambiguity aversion still favor in many cases the use of tournaments or tournament like schemes over e g incentive schemes that only depend on each agent s own output level

classic promotion tournaments versus market based tournaments as initially formulated in the seminal analysis of lazear and rosen 1981 an important perspective for understanding the role of promotions in firms is the tournament perspective that is a promotion and in particular the wage increase associated with a promotion is a prize that serves as an incentive for workers to exert effort and take other actions beneficial to the firm such as the accumulation of human capital in this paper i consider whether the best way to model promotion tournaments is by having firms commit to prizes ex ante as in lazear and rosen s initial formulation or whether promotion prizes should be modeled as arising from the signaling role of promotions and the competition between firms for promoted workers

estimating the impact of welfare programs on agricultural output evidence from india rural welfare programs are implemented for a variety of reasons however of key importance is to understand how government spending under such programs affects local agricultural output which is a key measure of economic activity in developing economies this article estimates the local multiplicative effects of transfer spending by the government using a novel data set of state level expenditure under rural welfare programs in india using government records as narrative evidence i use the motivation to implement new programs at the national level to construct changes in transfer spending that are largely exogenous to fluctuations in agricultural output at the state level i estimate local multipliers using this narrative shock series and find government transfers to be quite consequential for local economic activity

when is the government transfer multiplier large transfers to individuals were a larger part of the 2009 u s stimulus package than government purchases using a two agent new keynesian model this paper shows analytically that the multiplier on targeted transfers to financially constrained households is i larger than the purchase multiplier if the zero lower bound zlb binds and ii is more sensitive to the degree of monetary accommodation of inflation targeted transfers provide the same boost to demand as purchases but lower aggregate supply relative to purchases as those receiving transfers want to work less when the aggregate demand curve inverts such as when the zero lower bound binds the extra inflation from lower supply boosts the multiplier this result also holds quantitatively in a medium scale version of the model

exchange rate variability and wage formation in open economies abstract exchange rate variability is shown to influence wage formation in open economies with strong unions increased exchange rate variability may thus increase real and product wages and lower employment hence a stable and predictable exchange rate policy may have some gain

the determination of wages employment and work hours in an economy with centralised wage setting sweden 1950 83 a key component of recent explanations for the growth in unemployme nt in western europe is a negative relation between wage rates and employment this paper examines the evidence for such a relationship for swedish manufacturing industry and also investigates the corresponding movements of hours of work the findings form the ingredients of a structural model of the labor market which is estimated using time series observations from 1951 t o 1983 the greater volatility of employment relative to earnings is measured by a specific parameter which in this model relates to the objectives of trade unions copyright 1988 by royal economic society

robust contracts with one sided commitment abstract we consider a robust contract with limited commitment in continuous time in which the principal firm is ambiguity averse and seeks robust decisions first we find the existence of limited commitment not only attenuates the negative effect of model uncertainty on the firm value but also makes the firm less pessimistic moreover concerns regarding model misspecification motivate the firm to increase the worker s exposure to the productivity shocks via the optimal contract finally our theoretical model predicts that the combination of limited commitment and ambiguity generates both right skewness and decreases in the wage dynamics as the empirical data

macroeconomic strategies towards internal and external balance in the nordic countries the aim of this paper is to clarify the policy strategies pursued in the nordic countries in the 1970s and 1980s to attain internal and external balance a distinction is made between i a bridging strategy ii a sheltering or adaptive strategy and iii a production strategy of export led growth these strategies are characterized and related to the experience of the

trade unions and the choice of capital stock this paper considers the interaction between a firm and trade union in determining employment wages and capital stock we take the monopoly trade union model of oswald 1982 where the union sets the wage and add the firms choice of capital stock the standard predictions of the union literature are highly dependent on the degree of strategic dominance of the union vis a vis the firm

the savers spenders theory of fiscal policy the macroeconomic analysis of fiscal policy is usually based on one of two canonical models the barro ramsey model of infinitely lived families or the diamond samuelson model of overlapping generations this paper argues that neither model is satisfactory and suggests an alternative in the proposed model some consumers plan ahead for themselves and their descendants while others live paycheck to paycheck this model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation and it yields some new and surprising conclusions about fiscal policy

the rise in unemployment a multi country study one of the most remarkable features of recent economic history has been the remorseless rise in unemployment throughout the industrialized countries however while the trend to higher unemployment is universal the experience of individual countries also differs widely the increase is especially marked within the european community where unemployment rates rival those reached in the interwar years by contrast in the scandinavian countries and japan unemployment is lower and has risen very much less experience in the united states lies somewhere between these extremes and in the last few years unemployment there has fallen sharply

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

asymmetric employer information promotions and the wage policy of firms abstract this paper provides evidence that inefficient promotion strategies and large wage increases upon promotion may both arise as a consequence of asymmetric employer information building on the seminal work by waldman 1984a and milgrom and oster 1987 we first present a model that illustrates how both phenomena may jointly arise due to the information revealing character of promotions using experimental labor markets we find evidence consistent with asymmetric employer information being a causal factor for both inefficient promotions and large wage increases upon promotion furthermore we analyze the effect of asymmetric employer information on profits and turnover

the new keynesian cross abstract the new keynesian nk cross is a graphical and analytical apparatus for heterogeneous agent hank models expressing key aggregate demand objects mpc and multipliers as functions of heterogeneity parameters it affords analytical insights into monetary fiscal and forward guidance multipliers and replicates the aggregate implications of quantitative hank the key parameter the constrained agents income elasticity to aggregate income depends on fiscal redistribution when it is larger smaller than one the effects of policies and shocks are amplified dampened with uninsurable idiosyncratic uncertainty this translates intertemporally through compounding discounting in the aggregate euler equation into further amplification dampening of future shocks

downward nominal wage flexibility real or measurement error this paper presents a new method to correct for measurement error in wage data and applies this method to address an old question how much downward wage flexibility is there in the united states we apply standard methods developed by bai and perron to identify structural breaks in time series data applying these methods to wage histories allows us to identify when each person experiences a change in nominal wages the length of the period of constant nominal wages is left unrestricted and is allowed to differ across individuals as are the size and direction of the nominal wage change we apply these methods to data from the survey of income and program participation the evidence we provide indicates that the probability of a cut in nominal wages is substantially overstated in data that are not corrected for measurement error

a continuous time version of the principal agent problem this paper describes a new continuous time principal agent model in which the output is a diffusion process with drift determined by the agent s unobserved effort the risk averse agent receives consumption continuously the optimal contract based on the agent s continuation value as a state variable is computed by a new method using a differential equation during employment the output path stochastically drives the agent s continuation value until it reaches a point that triggers retirement quitting replacement or promotion the paper explores how the dynamics of the agent s wages and effort as well as the optimal mix of short term and long term incentives depend on the contractual environment the understanding of dynamic incentives is central in economics how do companies motivate their workers through piece rates bonuses and promotions how is income inequality connected with productivity investment and economic growth how do financial contracts and capital structure give incentives to the managers of a corporation the methods and results of this paper provide important insights to many such questions this paper introduces a continuous time principal agent model that focuses on the dynamic properties of optimal incentive provision we identify factors that make the agent s wages increase or decrease over time we examine the degree to which current and future outcomes motivate the agent we provide conditions under which the agent eventually reaches retirement in the optimal contract we also investigate how the costs of creating incentives and the dynamic properties of the optimal contract depend on the contractual environment the agent s outside options the difficulty of replacing the agent and the opportunities for promotion our new dynamic insights are possible due to the technical advantages of continuous time methods over the traditional discrete time ones continuous time leads to a much simpler computational procedure to find the optimal contract by solving an ordinary differential equation this equation highlights the factors that determine optimal consumption and effort the dynamics of the agent s career path are naturally described by the drift and volatility of the agent s pay offs the geometry of solutions to the differential equation allows for easy comparisons to see how the agent s wages effort and incentives depend on the contractual environment finally continuous time highlights many essential features of the optimal contract including the agent s eventual retirement in our benchmark model a risk averse agent is tied to a risk neutral principal forever after employment starts the agent influences output by his continuous unobservable effort input the principal sees only the output a brownian motion with a drift that depends on the agent s effort the agent dislikes effort and enjoys consumption we assume that the agent s utility function has the income effect that is as the agent s income increases it becomes costlier to compensate him for the effort also we assume that the agent s utility of consumption is bounded from below

managerial talent motivation and self selection into public management the quality of public management is a recurrent concern in many countries calls to attract the economy s best and brightest managers to the public sector abound this paper studies self selection into managerial and non managerial positions in the public and private sector using a model of a perfectly competitive economy where people differ in managerial ability and in public service motivation we find that if demand for public sector output is not too high the equilibrium return to managerial ability is always highest in the private sector as a result relatively many of the more able managers self select into the private sector since this outcome is efficient our analysis implies that attracting a more able managerial workforce to the public sector by increasing remuneration to private sector levels is not cost efficient

empirical analysis of occupational hierarchies using data on u s engineers and the position of engineering jobs within firms this paper estimates a model of hierarchies within firms the model extends rosen s 1982 model of recursive production to two skills and multiple hierarchy levels the model generates an empirical model that is nested within a general roy 1951 model of self selection maximum likelihood estimates of the parameters of the production technology and the skill experience profiles are estimated the results suggest that approximately two thirds of changes in employment shares across hierarchy levels across time are explained by demographic shifts in the stock of engineering skills most of the returns to experience and to assignment to higher hierarchy levels within firms are caused by skill accumulation and self selection rather than technological dierences across hierarchy levels

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

strategic promotion and compensation within a hierarchical firm structure this paper details how the composition of a worker s skills and the non observability of a worker s ability affect wage and promotion paths promotionbased compensation schemes derive naturally from the worker s asymmetrically observed ability promotion takes place over time and is inefficient since employers strategically exploit their knowledge of an able worker s ability conversely employers may be unable to efficiently demote and retain bad managers without paying bonuses employers are led to promote educated employees before their equally or more able but uneducated counterparts explanations for fast track promotions plans and other empirical regularities are provided

worker turnover industry localization and producer size abstract empirically large employers have been shown to devote greater resources to filling vacancies than small employers following this evidence this paper offers a theory of producer size based on labor market search whereby a key factor in the determination of a producer s total employment is the ease with which workers can be found to fill jobs that are periodically vacated since the geographic localization of industry has long been conjectured to facilitate the search process the model provides an explanation for the observed positive association between average producer size and the magnitude of an industry s presence within local labor markets

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

was the new deal contractionary can government policies that increase the monopoly power of firms and the militancy of unions increase output this paper shows that the answer is yes under certain emergency conditions these emergency conditions zero interest rates and deflation were satisfied during the great depression in the united states the new deal which facilitated monopolies and union militancy was therefore expansionary in the model presented this conclusion is contrary to a large previous literature the main reason for this divergence is that this paper incorporates rigid prices and the zero bound on the short term interest rate jel e23 e32 e52 e62 j51 n12 n42