relative wage positions and quit behavior evidence from linked employer employee data the authors analyze the importance of relative wage positions within firms in western germany in the context of individual quit decisions as an inverse measure of job satisfaction using a linked employer employee data set liab for the years 1996 2005 whose sample consists of full time male prime age workers in western germany without college degrees they ascertain whether workers find status or signal effects stronger motivators for quit decisions they find that workers with higher relative wage positions within their firms are on average more likely to quit their jobs than those with lower relative wage positions and that workers who experience a loss in their relative wage positions are also more likely to accept a wage cut associated with their job transition overall results suggest that a signal effect is on average stronger than a status effect

disadvantageous collusion and government regulation abstract the semi collusion model indicates that when firms collude on outputs and compete on capacities cartel members may be worse off why do rational firms choose such kind of disadvantageous collusion in order to solve the puzzle this article uses taiwan s flour cartel case to investigate firms incentives and finds that government regulation seems to be the primary reason to create such a predicament

a note on keynesian unemployment as a worker discipline device abstract keynesian sales constraints are introduced into a model with endogeneous wages and involuntary equilibrium umemployment the result is a lower real wage and a higher unemployment rate

an empirical test of the effect of excess capacity in price setting capacity constrained supergames abstract in a multi period game industry excess capacity may act to deter firms from cheating on a non cooperative oligopoly price a model is developed that translates the deterrrent influence of excess capacity into predictions about the relationship between excess capacity and oligopoly price cost margins the model is tested with time series data from the u s aluminum industry results are consistent with those predicted by the model

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

testing rent sharing using individualized measures of rent evidence from domestic helpers wing suen the market for resident domestic helpers offers a rare opportunity where the surplus from employment relationship can be quantitatively measured for each individual employee using the difference between employer s cost of time and employee s wage as a measure of rent it is found that wages for domestic helpers are positively related to rent however the apparent sharing of rent is better explained by matching than by efficiency wage models rent sharing is observed even in households where monitoring or turnover costs are low rent sharing is not observed among newly arrived foreign domestic helpers whose ability remains to be revealed jel j41 i introduction this article studies the pattern of wages for resident domestic helpers in hong kong no one would lure economists into paying attention to this arcane labor market were it not for one feature of the market for housework a measure of employment rent can be plausibly assigned to each individual employee having an individualized measure of rent at the worker level instead of a general measure at the firm level will shed considerable light on the large and growing literature of rent sharing in wage determination since 1975 the hong kong government has allowed the importation of foreign domestic helpers into the territory because of large wage differences between hong kong and some of its asian neighbors the program is highly popular the census and statistics department 1995 estimates that 92 700 households or 5 6 of all domestic households in hong kong employed domestic helpers in 1993 the figure is even more dramatic for high income households 44 of households with monthly income of over hk 50 000 had one or more domestic helpers 1 one consequence of the availability of market procured housework is that women who employ helpers have more time for market work in suen 1994 i estimate that the probability of labor force participation among married women who had domestic helpers is 22 percentage points higher than that for women without domestic help other things equal if hiring a helper enables a married woman to engage in market work then a plausible measure for the rent or surplus from this employment relationship is the difference between the woman s wage and her helper s wage if a woman with a domestic helper decides to stay home nonetheless the size of the surplus can be measured by the difference between the shadow value of leisure and the helper s wage wage information is readily available from census data and shadow wages can be estimated using standard techniques this article utilizes this rare opportunity to impute a measure of rent for each employer employee pair studying how the wages of domestic helpers vary wi th the magnitude of rent will provide direct evidence for rent sharing in the labor market there is a large literature which documents the fact that the characteristics of the employer such as industry affiliation and firm size are significantly correlated with the employees wages krueger and summers 19881 brown and medoff 1989 groshen 1991 helwege 1992 and many others offer convincing evidence that inter industry wage differentials and employer wage effects exist rent sharing is often invoked to account for such wage patterns however few studies in the literature offer a plausible account for the existence of or a measure for the size of the rent that is supposedly shared 2 at the industry level dickens and katz 1987 use variables such as concentration ratio capital labor ratio research and development expenditures and average rate of return on capital as covariates in wage equations these variables provide at best an indirect and error prone measure of employment rent campbell 1993 makes use of firm level characteristics instead of industry characteristics but t here is no information on profits in his firm level data

employment and wage strategies of the firm over a business cycle abstract by using control theory we analyze the behaviour of a firm which expects a demand cycle and occupies a monopsonistic position on the labour market consequently the relative wage rate is used as a tool for regulating the flow of applicants and the rate of quits of employees the dynamic wage policy is governed by the demand trend but the marginal propensity of workers to quit and the level of hiring costs are also relevant factors in setting the wage rate the recession period is characterized by a relative wage decrease associated with voluntary quits rather than firing however the wage rate starts increasing when demand is still declining and labour hoarded

competitive advantage and collusive optima cost differences may often be important in real oligopolies if side payments are impossible the standard cartel objective total industry profits lacks plausibility when costs differ this essay considers plausible alternatives four different technologies for effecting collusion which are essentially identical when costs are equal define sets of possible profits axiomatic bargaining models are used to select unconstrained optima from among these possibilities simple functional forms are employed low cost firms with large shares in cournot equilibrium may have little to gain from collusion if collusion is effective low cost firms will have relatively low estimated conjectural variations

the effect of taxes on labour in efficiency wage models abstract this paper analyses the effects of labour taxation on wage and employment in a moral hazard efficiency wage model where effort is a continuous variable and workers are risk averse in the model examined ad valorem and specific taxes on labour do not have the same consequences on the real wage both taxes have a negative effect on employment but the imposition of a specific tax causes an increase in the net real wage including firms to raise the quality of their workers these results are compared with those obtained in other versions of the shirking efficiency wage model

the link between ability and specialization an explanation for observed correlations between wages and mobility rates wage levels and turnover rates are negatively correlated across types of employment and this fact is often interpreted as evidence that high wage jobs are rationed a simple training model illustrates however that this correlation may arise because able workers have an incentive to choose highly specialized jobs in any job the most able workers possess the most valuable stocks of specific skills and therefore face the highest mobility costs thus able workers may have a comparative advantage in specialized employments data from the national longitudinal survey of youth provide an opportunity to evaluate the merits of the training model developed here data on worker training and mobility provide support for several implications of the model the model also provides new ways to interpret existing results in the literature on interindustry wage differentials

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

worker inflow outflow and churning linked employer employee data from finnish business sector is used in analysing worker turnover the data set is an unbalanced panel with over 219 000 observations in 1991 97 the churning excess worker turnover worker inflow and worker outflow rates are explained by plant and employee characteristics the probabilities of observing non zero churning inflow and outflow rates increase with plant size the magnitudes of the non zero churning and inflow rates depend positively on size but the magnitude of outflow rate depends negatively on size high wage plants have low turnover plants with large within plant variation in wages have high turnover average tenure of employees has a negative impact on turnover high plant employment growth increases churning and separation but reduces hiring in the next year also controlled are average age and education of employees shares of women and homeowners among employees foreign ownership ownership changes and regional unemployment

a model of involuntary unemployment and wage rigidity worker incentives and the threat of dismissal this paper analyzes a model that highlights imperfect monitoring and the threat of dismissal as microeconomic underpinnings for the efficiency wage hypothesis my major innovation is to allow the rules for dismissal as well as the wage to be determined endogenously as the equilibrium of a stackelberg game played between firms and workers the key results are as follows a nontrivial equilibrium where positive output is produced must involve involuntary unemployment in that employed workers are strictly better off than are the unemployed in addition the equilibrium wage is rigid with respect to exogenous shifts in productivity

testing static oligopoly models conduct and cost in the sugar industry 1890 1914 we explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior direct measures of marginal cost and conduct indicating small market power serve as benchmarks the more competitive models yield better cost estimates the best cost estimates occur when conduct is estimated as a free parameter which in turn only slightly underestimates our direct measure it also tracks the decline in market power accompanying the industry s structural changes the methodology is largely validated although partial cost information can improve its predictive power conclusions are robust to demand function

testing and valuing dynamic correlations for asset allocation we evaluate alternative models of variances and correlations with an economic loss function we construct portfolios to minimize predicted variance subject to a required return it is shown that the realized volatility is smallest for the correctly specified covariance matrix for any vector of expected returns a test of relative performance of two covariance matrices is based on work of diebold and mariano the method is applied to stocks and bonds and then to highly correlated assets on average dynamically correct correlations are worth around 60 basis points in annualized terms but on some days they may be worth hundreds

good bad cojumps and volatility forecasting new evidence from crude oil and the u s stock markets abstract in this article we investigate the impacts of jumps cojumps and their signed components on forecasting oil futures price volatility in the framework of the heterogeneous autoregressive realized volatility model our empirical results reveal several noteworthy findings first the effects of signed jumps and cojumps based on the daily and intraday jump tests on future volatility are asymmetric and the negative components are much more powerful in forecasting volatility moreover our proposed models including the signed jump and cojump components are able to generate higher forecasting accuracy and we find that disentangling the effects of positive and negative jumps and cojumps can significantly improve forecasts of future volatility lastly our findings are reliable for various robustness checks and our study provides some new insights into forecasting oil price realized volatility which are useful for researchers market participants and policymakers

cyclical variations in wage differentials and unemployment this paper attempts to reformulate in a general equilibrium framework reder s model which explains cyclical variations in wage differentials and their general tendencies to narrow specifically i focus on the three aspects of his model the microeconomic behavior of a firm under imperfect information about labor quality the mechanism of the economy creating unemployment and the interaction between wage differentials and unemployment i also explore its implications for the macroeconomic issues on the characteristics of current unemployment and the question of why aggregate employment fluctuates

okun s micro macro system a review article prices and quantities is the brilliant and disturbing last work of arthur m okun 1928 1980 for more than a decade okun was the foremost practitioner of macroeconomics in the united states his critical intelligence at both the theoretical and empirical ends of economics was unsurpassed these facts were virtually a manufacturer s warranty that the book whatever its argumentation and evidence would be significant we want to know what okun thought but this background was no guarantee of an important treatise and it must have taken some courage to venture a big theoretical work in an accessible style on urgent questions in fact okun has delivered a creative and virtuosic study in economic theory the book s contribution is to provide a complete description of an economy in which rational economic agents consider the distributional consequences of wage and price decisions the perspective adopted one which is winning growing favor of late is contract theoretic because they wish to economize on their costly transactions with one another people trade repeatedly with the same agent so trust and fidelity to understandings are important the ensuing analysis lodges some basic dissents from the informational expectational paradigm developed over the last score of years it is particularly stimulating and troubling on the main policy controversy of the decade the question of disinflation

a multivariate garch model of international transmissions of stock returns and volatility the case of the united states and canada this study examines the short run dynamics of returns and volatility for stocks traded on the new york and toronto stock exchanges the main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross market dynamics in volatility are modeled moreover much weaker cross market dynamics in returns and volatility prevail during later subperiods and especially for canadian stocks with shares dually listed in new york implications for international asset pricing hedging strategies and regulatory policy are discussed

hedging with futures does anything beat the naive hedging strategy this paper investigates out of sample performance of the naive hedging strategy relative to that of the minimum variance hedging strategy in which the covariance parameters are estimated from 18 e

do firms pay efficiency wages evidence with data at the firm level this study tests the efficiency wage hypothesis by estimating wage and quit equations with data from the employment opportunity pilot project survey of firms an efficiency wage model is derived that predicts effects of turnover costs and unemployment on wages as functions of first and second derivatives from the quit equation the model is tested by examining the relationships between the coefficients in the wage and quit equations the results are generally favorable to efficiency wage theory other important findings are that firm characteristics raising workers productivity tend to raise wages and that a rise in turnover costs reduces quits

capital subsidies versus labor subsidies a trade off between capital and employment this paper investigates regime switching in the response of u s output to a monetary policy action we find substantial statistically significant time variation in this response that corresponds to high response and low response regimes we then investigate whether the timing of the regime shifts are consistent with three particular manifestations of asymmetry by modeling the transition probabilities governing the switching process as functions of state variables we find strong evidence that policy actions taken during recessions have larger effects than those taken during expansions we find less evidence of asymmetry related to the direction or size of the policy action

premiums to employment in larger establishments evidence from peru abstract examination of the employer size wage effect for males in urban peru suggests the following higher wages in larger establishments do not merely compensate for higher worker quality or inferior working conditions size differences in the use of rising wage tenure profiles cannot provide a market clearing explanation for the employer size wage effect unless workers are extremely impatient thus larger employers appear to pay premiums unionization explains none of the premiums and minimum wage compliance explains at best a small fraction shirking based efficiency wage explanations for premiums are implausible because peruvian job security legislation greatly inhibits dismissals in larger establishments explanations meriting further research involve the use of high wages to reduce turnover and to improve productivity enhancing morale

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

realized garch a joint model for returns and realized measures of volatility summary we introduce a new framework realized garch for the joint modeling of returns and realized measures of volatility a key feature is a measurement equation that relates the realized measure to the conditional variance of returns the measurement equation facilitates a simple modeling of the dependence between returns and future volatility realized garch models with a linear or log linear specification have many attractive features they are parsimonious simple to estimate and imply an arma structure for the conditional variance and the realized measure an empirical application with dow jones industrial average stocks and an exchange traded index fund shows that a simple realized garch structure leads to substantial improvements in the empirical fit over standard garch models that only use daily returns copyright 2011 john wiley sons ltd

continuous time models realized volatilities and testable distributional implications for daily stock returns we provide an empirical framework for assessing the distributional properties of daily speculative returns within the context of the continuous time jump diffusion models traditionally used in asset pricing finance our approach builds directly on recently developed realized variation measures and non parametric jump detection statistics constructed from high frequency intra day data a sequence of simple to implement moment based tests involving various transformations of the daily returns speak directly to the importance of different distributional features and may serve as useful diagnostic tools in the specification of empirically more realistic continuous time asset pricing models on applying the tests to the 30 individual stocks in the dow jones industrial average index we find that it is important to allow for both time varying diffusive volatility jumps and leverage effects to satisfactorily describe the daily stock price dynamics copyright 2009 john wiley sons ltd

are wages too low empirical implications of efficiency wage models firms may pay efficiency wages to enhance productivity the conventional presumption is that efficiency wages are inefficiently high because they lead to unemployment that is also inefficiently high government policies that lower wages raise output using a simple and general efficiency wage model this paper finds a necessary and sufficient condition for the opposite conclusion if the condition holds wages are inefficiently low leading to productivity that is also inefficiently low it is the high wage policies that raise output even if they also lower employment published empirical results support the condition no evidence is found for the conventional presumption

canadian jobs and firm size do smaller firms pay less even after controlling for observable workers characteristics and for occupation and industry specific effects a substantial wage differential remains between large and small firms what underlies the remaining wage differential is unclear direct evidence on pension plan coverage and on lay off rates by firm size is inconsistent with the bad working conditions hypothesis the union avoidance hypothesis does not seem to explain an important portion o f the wage differential as suggested by efficiency wage models part of the remaining wage differential may be due to firms heterogeneity similarly perhaps large firms pay higher wages simply partly beca use they employ workers with more unobserved abilities because differen t explanations of the wage differential may lead to different policy implications determining the source of the wage firm size effect is an important question for future research

illegal immigration in an efficiency wage model abstract this paper studies illegal immigration using an efficiency wage dual labor market model the illegal immigrants are endogenously sorted completely or incompletely into secondary labor markets the effects of immigration on native workers are more complex than in standard models of factor mobility as illegals first enter the country natives may gain because the number of primary sector jobs rises with enough illegals in the country natives are hurt because the migrants increasingly take those primary sector jobs enforcing immigration laws by deporting migrants who work in primary sector jobs is pareto superior to other forms of enforcement

forecasting the realized volatility of the oil futures market a regime switching approach considering nonlinear and highly persistent dynamics of realized volatility we introduce markov regime switching models to the heterogeneous autoregressive model of the realized volatility har rv models to forecast the realized volatility of the crude oil futures market in sample results demonstrate that the high volatility regime is short lived out of sample results suggest that har rv models with regime switching increase the forecasting ability significantly than those without regime switching moreover these findings are robust for different actual volatility benchmarks forecasting windows and model settings

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

effects of job security laws in a shirking model with heterogeneous workers this paper explores the policy implications of job security laws it extends carter and de lancey s 1997 efficiency wage model from the assumption of two types of workers to allow for infinite types of workers one key difference between the models is that the proportion of nonshirking workers in equilibrium is an exogenous constant in their model whereas it is an endogenous variable in this study they find that a job security law increases the welfare of both shirkers and nonshirkers without reducing output in this setting it is shown that the law may increase the welfare of both shirkers and nonshirkers at the cost of lower output or it may result in higher output but the welfare effect of workers is uncertain

optimal minimum wage legislation in this paper we present a model in which minimum wage legislation may be pareto optimal this arises because a higher wage would be preferred to the market clearing wage by demanders for and suppliers of labour even though unemployment is induced and minimum wage legislation is needed to support the preferred equilibrium consider a labour market where the quality of labour depends positively on the wage offered if labour quality is highly sensitive to wage increases effective unit labour cost will fall as the wage rises this would lead the representative firm to prefer paying an above market clearing wage and to ration job slots such an effect has been studied when quality depends on an individual firm s wage offer see for example weiss i980 or stiglitz i974 suppose however that labour quality depended not on any individual firm s wage offer but on the average market wage if firms were atomistic each invidual firm would have an incentive to undercut the optimal above marketclearing wage trying to get the quality benefits of high average wages while paying lower wages itself the high wage solution would not be viable legislation fixing minimum wages might be required to support the preferred equilibrium quality might depend on average market wages when workers must decide whether or not to enter a labour market before they can sample and obtain specific job offers migration into labour markets for example rural to urban migration in less developed countries provides one example as the decision to migrate and therefore the quality of the labour pool will depend on some average of expected wage offers the decision over which profession to enter at the beginning of the educational process provides another example of course imperfect information plays a key role here it is assumed that both firms and workers have imperfect information about the suitability of individual workers for jobs both before and to a lesser extent after employment has begun this lack of information will rule out both profitable selfselection mechanisms and wages strictly proportional to output so that firms will care about the quality of the labour pool the non optimality of market clearing prices which will be demonstrated makes this paper similar to a number of papers on the implications of adverse selection in labour and product markets one may mention two excellent papers on screening in labour markets by guasch and weiss i980 i98i this paper builds on some of the results in those papers stiglitz and weiss i98i show how credit rationing may arise from a similar type of argument wilson

consumer benefited cartels under strategic capital investment competition abstract the purpose of this paper is to refute the genrally accepted idea that a cartel raises producers surplus at the expense of consumers surplus if firms in an industry expect that a cartel in which the output is allocated on the bases of the capital equipment will be formed then each firm tries to make a larger capital investment than before which may lead to larger consumers surplus through this argument i shall present one of the reasons why heavy industries had excess capacity in postwar japan

job recruitment networks and migration to cities in india abstract economists have focused on job search and supply side explanations for network effects in labour transactions this paper develops and tests an alternative explanation for the high prevalence of network based labour market entry in developing countries in our theoretical framework employers use employee networks as screening and incentive mechanisms to improve the quality of recruitment our framework suggests a negative relationship between network use and the skill intensity of jobs a positive association between economic activity and network use and a negative relationship between network use and pro labour legislation furthermore social identity effects are expected to intensify when compared to information sharing and other network mechanisms using data from an all india employment survey we implement a novel empirical strategy to test these relationships and find support for our demand side explanation

just cause employment policies in the presence of worker adverse selection the free market may not lead to the efficient level of just cause employment protection if workers are heterogeneous any firm that switches to just cause will attract a disproportionate share of workers that provide low effort yet are difficult to dismiss with cause thus there is an externality concerning each firm s just cause policy if all firms had just cause policies then the efficiency gains of just cause might outweigh the burden of the undesirable workers nevertheless no single firm may find it in its interest to switch to just cause it is possible for laws that require just cause to increase efficiency

futures hedging with markov switching vector error correction fiegarch and fiaparch abstract markov switching vector error correction asymmetric long memory volatility models with fat tailed innovations are proposed bivariate two state versions of the models are applied to a futures hedge of the s p500 regime switches occur between high and low cost of carry states via changes in the error correction term or basis regime identification is therefore dominated by switches in the mean not volatility relative to a number of alternatives the proposed models provide superior out of sample forecasts of the covariance matrix particularly for horizons greater than 10 days ahead when hedging markov switching with long memory improves the tail risk of hedged returns beyond 10 day horizons however there is mixed support for models with volatility asymmetries these findings have important implications for the development of multivariate models and other applications including portfolio management spread option pricing and arbitrage

profit sharing in a collusive industry abstract we study a model in which collusive duopolists divide up the monopoly profit according to their relative bargaining power we are particularly interested in how the negotiated profit shares depend on the sizes of the firms if each can produce at the same constant unit cost up to its capacity we show that the profit per unit of capacity of the small firm is higher than that of the large one we also study how the ratio of the negotiated profits depends on the size of demand relative to industry capacity and how this ratio changes with variations in demand

wages and the intensity of labor effort efficiency wages versus compensating payments the distinction between efficiency wages and compensating payments is at best rather vague in both the theoretical and empirical literatures positing a relationship between wages and the intensity of labor effort while efficiency wages and compensating payments are both related to work intensity the mechanisms that generate these relationships are in each case quite distinct compensating payments exist in competitive labor markets to equalize overall compensation across identical workers with dissimilar working conditions workers who expend more labor effort must be paid more or they will seek employment elsewhere efficiency wages are employment rents paid by firms in order to ensure adequate labor effort these rents vary with the costs firms face in monitoring labor effort they cannot be competed away because without employment rents profit maximizing levels of work intensity would not be forthcoming in this paper we distinguish between the efficiency wage and compensating payments components in wage differences across workers and firms in the first section of the paper we use a theoretical model of optimal labor effort choice by workers and firms to make these two com

migration and imperfect labor markets theory and cross country evidence from denmark germany and the uk we investigate the labor market effects of immigration in denmark germany and the uk three countries which are characterized by considerable differences in labor market institutions and welfare states institutions such as collective bargaining minimum wages employment protection and unemployment benefits affect the way in which wages respond to labor supply shocks and hence the labor market effects of immigration we employ a wage setting approach which assumes that wages decline with the unemployment rate albeit imperfectly we find that the wage and employment effects of immigration depend on wage flexibility and the composition of the labor supply shock in germany immigration involves only moderate wage but large unemployment effects since immigrants are concentrated in labor market segments with low wage flexibility the reverse is true for the uk and denmark

theoretical foundations for sticky wages abstract the paper compares three different types of theoretical explanation of sticky wages they are implicit contracts efficiency wage models and insider outsider models it then reconsiders keynes rationale for sticky wages which focuses on relative wage issues finally the paper considers possible directions for future research

labor subsidies and just cause employment laws in an efficiency wage model efficiency wage models differ from standard labor market models in that wages do not necessarily clear markets wages act as devices to encourage work effort or more generally to increase productivity firms set their wages above the market clearing level and there is involuntary unemployment there are several reasons firms set wages high one is that this may increase employee morale and so lead to greater effort as observed by solow 12 salop notes that high wages may reduce labor turnover and so allow the firms to avoid turnover costs 10 high wages may also reduce the workers incentive to shirk on the job if shirking increases the chance of losing an attractive position see shapiro and stiglitz 11 akerlof and yellen give examples of other motivations for efficiency wages 1 this article uses a shirking model to discuss optimal government policies economists have placed little emphasis on government policies in such models shapiro and stiglitz do discuss employment subsidies and unemployment benefits 11 2 an employment subsidy or a reduction in unemployment compensation increases employment in their basic model as in most shirking models a suboptimal employment level is the main distortion so the two policies can increase efficiency 3 if firms choose minimum acceptable effort levels to ask of their workers as in this paper there is a second distortion both the employment and the effort levels are too low to be optimal employment subsidies still lead to greater employment but also lead to a reduction in effort these policies reduce one distortion while making the other more severe the net effect on efficiency is ambiguous section ii presents the model section iii considers the welfare effects of unemployment compensation two subsidies and just cause employment laws these two subsidies are wagerate subsidies paid based on the total wage bill and employment subsidies paid per worker

wage policies of a russian firm and the financial crisis of 1998 evidence from personnel data 1997 to 2002 the authors use a rich personnel data set from a russian firm for the years 1997 to 2002 to analyze how the firm adjusts wages and employment during this period in which local labor market conditions changed in the aftermath of the financial crisis in 1998 they relate the development of turnover and wages for various employment categories to alternative models of wage and employment determination the authors argue that the firm s behavior is consistent with the predictions of efficiency wage models of the shirking and turnover type

improving forecasts with the co range dynamic conditional correlation model abstract we introduce a new specification of the dynamic conditional correlation dcc model where its parameters are estimated with the use of closing and additionally low and high prices such prices are often commonly available for many financial series and contain more information about the variation of returns we construct the model with the range based estimator of variance but more importantly also with the range based estimator of covariance the latter estimator and as a consequence the proposed dcc model require however that the range of a portfolio return is given we compare the model with three other specifications of the dcc models and evaluate them based on monte carlo experiments and currencies rates from the forex market we show that the use of low and high prices can improve estimation of covariance and correlation matrices of returns and increase the accuracy of forecasts of covariance and correlation matrices based on this model compared with using closing prices only the proposed model is superior not only to the standard dcc model but also to the competing range based dcc model

modelling and forecasting multivariate realized volatility summary this paper proposes a methodology for dynamic modelling and forecasting of realized covariance matrices based on fractionally integrated processes the approach allows for flexible dependence patterns and automatically guarantees positive definiteness of the forecast we provide an empirical application of the model which shows that it outperforms other approaches in the extant literature both in terms of statistical precision as well as in terms of providing a superior mean variance trade off in a classical investment decision setting copyright 2010 john wiley sons ltd

efficiency wages employment versus welfare this paper analyzes the effects of government policies in an efficiency wage model in such a model wages exceed market clearing rates firms may pay high wages for many reasons levine gives thirteen motivations for efficiency wages 12 in the model used here high wages prevent shirking by workers the model is similar to those of shapiro and stiglitz sparks fairris and alston and others 15 17 7 efficiency wage models are often viewed as providing the microeconomic foundations of involuntary unemployment and keynesian economics 1 2 unemployment is also emphasized in many discussions of government policies 3 4 11 a major example is that of johnson and layard 9 they find that a per capita employment subsidy financed by an ad valorem wage rate tax would reduce unemployment they conclude that this policy would benefit a country because of the employment effect 2 yet this paper shows that the employment effect is misleading here a policy that causes employment to rise fall also must cause income net of effort to fall rise so total welfare falls rises the policy implications discussed by johnson and layard and others are therefore reversed

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

on the forecasting accuracy of multivariate garch models this paper addresses the question of the selection of multivariate garch models in terms of variance matrix forecasting accuracy with a particular focus on relatively large scale problems we consider 10 assets from nyse and nasdaq and compare 125 model based one step ahead conditional variance forecasts over a period of 10 years using the model confidence set mcs and the superior predicitive ability spa tests model per formances are evaluated using four statistical loss functions which account for different types and degrees of asymmetry with respect to over under predictions when consid ering the full sample mcs results are strongly driven by short periods of high market instability during which multivariate garch models appear to be inaccurate over rel atively unstable periods i e dot com bubble the set of superior models is composed of more sophisticated specifications such as orthogonal and dynamic conditional correlation dcc both with leverage effect in the conditional variances however unlike the dcc models our results show that the orthogonal specifications tend to underestimate the conditional variance over calm periods a simple assumption like constant conditional correlation and symmetry in the conditional variances cannot be rejected finally during the 2007 2008 financial crisis accounting for non stationarity in the conditional variance process generates superior forecasts the spa test suggests that independently from the period the best models do not provide significantly better forecasts than the dcc model of engle 2002 with leverage in the conditional variances of the returns

minimum wage laws what does an employment increase imply about output and welfare abstract card and krueger find empirically that minimum wage laws may increase employment the current paper seeks the analytical implications of employment increasing minimum wages for output and welfare the standard supply and demand model cannot be used for this purpose one needs a model in which employment increasing minimum wages are at least possible such as this paper s efficiency wage model here an employment increase is neither necessary nor sufficient for expected welfare gains for either employed or unemployed workers an employment increasing minimum wage raises output but unambiguously lowers labor force participation and hurts those who remain unemployed

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

capacity and product market competition measuring market power in a puppy dog industry abstract in this paper we specify and estimate a structural model which accounts for competition in two variables capacity and prices the model has a two stage setup in the first stage firms make capacity decisions followed by a product differentiated price setting game in the second stage since costs are endogenized through the first stage this has important implications for the measurement of market power in the product market in particular simpler one stage specifications would result in a bias in the measurement of market power which can be linked to the taxonomy for two stage games given in fudenberg and tirole 1984 fudenberg d tirole j 1984 the fat cat effect the puppy dog ploy and the lean and hungry look american economic review paper and proceedings 74 361 366 we then estimate this model demand cost short and long run and conduct for the european airline industry using data for the period of 1976 1990 we perform a number of specification tests and reject a simple one stage specification in favor of our two stage set up in particular we find that some degree of market power in the product market exists however market conduct in the two stage set up is significantly less collusive than in the more widely employed one stage specification which is consistent with the direction of bias in puppy dog games this illustrates that collusiveness of firms market conduct in the product market is significantly overestimated whenever capacity competition is not accounted for

minimum wage legislation in a dual labor market the paper studies the equilibrium effects of minimum wage legislation in an economy with coexisting primary and secondary labor markets owing to difficulties in monitoring relative wages and the threat of job loss play a functional role in eliciting effort from primary sector workers minimum wage laws hence affect the primary wage and employment level even if the law only binds in the secondary labor market furthermore interaction between the two sectors can also alter the secondary outcome relative to the standard analysis and has implications for participation decisions and for the level of unemployment

the welfare effects of rent saving and rent seeking this paper uses an overlapping generations framework to model the allocation of import licences of intermediate goods according to firm capacity it shows that this method of allocation encourages rent seeking and also thereby improves welfare compared with a method that does not allow rent seeking a o kreuger 1975 1974 and j n bhagwati and p desai 1970 describe how turkey and india have allocated imports on the basis of firm capacity which led to rent seeking through overexpansion of capacity j n bhagwati and t n srinivasan 1980 first recognized the possibility that rent seeking may actually improve welfare in the presence of a distortion as it does in this paper

local and personal networks in employment and the development of labor markets evidence from the cut flower industry in ethiopia summary we examine the roles of local and personal networks in the employment process and the emergence and development of the labor market in ethiopia s growing cut flower industry using primary survey data of 320 workers randomly sampled from all 64 farms we find that workers who were recruited informally using the social ties were paid less than the formally recruited workers at hiring however these workers quickly increased their productivity and the effect of social ties on wages disappeared over time further we find that the development of labor market for this newly emerged industry took place particularly within the industrial cluster

interview with edmund s phelps edmund s phelps has been mcvickar professor of political economy at columbia university in new york city new york since 1982 and director of the center on capitalism and society at columbia university s earth institute since 2001 in 2006 he was awarded the nobel memorial prize in economic science for his analysis of intertemporal tradeoffs in macroeconomic policy we interviewed professor phelps at his hotel in san francisco on january 3 2009 while attending the annual meeting of the allied social science associations

government intervention efficiency wages and the employer size wage effect in zimbabwe abstract this paper uses matched employer employee data from a survey of 201 manufacturing firms and 1609 of their workers conducted in zimbabwe in the summer of 1993 the results indicate that there is a substantial premium associated with employment in larger firms and that this premium cannot be explained by differences in worker quality and job characteristics nor is it eliminated by controlling for unionization minimum wages or other forms of government intervention the size premium is much larger for white collar than for blue collar workers these differentials are also found to be substantially larger than those estimated for other developed and developing countries the analysis uses the data about firm characteristics to explore a number of efficiency wage based explanations of the size differential and finds results which are consistent with but not conclusive proof of hiring turnover and morale based notions of efficiency wages

radical political economy and the economics of labor markets this essay is the result of a long process involving many drafts and revisions i am grateful to duncan foley for the careful and constructive criticisms offered throughout the project the following people read the manuscript at different stages and although they often disagreed with me they generously provided helpful comments two anonymous referees for this journal samuel bowles william dickens greg dow robert drago richard edwards kathleen engel richard freeman james galbraith herbert gintis jody hoffer gittel sandfordjacoby tom kochan david levine lisa lynch paul osterman michael piore bob rebitzer gil skilman dan slesnick robert thomas and tsuyoshi tsuru comments from participants in seminars at the massachusetts institute of technology university of massachusetts at amherst and hitotsubashi university are also gratefully acknowledged

asset allocation with correlation a composite trade off abstract we assess the ability of minimum variance portfolio allocation strategies accounting for time varying correlation between assets to provide performance benefits relative to an equally weighted portfolio prior to transaction costs correlation based strategies emphatically outperform the equally weighted benchmark this finding is strongest for short horizon correlation forecasts and attributed to dynamic correlation as opposed to variance forecasts thus estimation error is not found to be the primary obstacle to successful portfolio optimization rather frequent rebalancing and associated transaction costs pose a significant challenge limiting portfolio turnover through short selling restrictions and greater rebalancing error tolerance results in regular outperformance of the correlation based strategies even for large transaction costs taken together these findings provide evidence of a trade off between optimal portfolio performance forecasting horizon rebalancing frequency and transaction costs