do labor market policies have displacement effects evidence from a clustered randomized experiment this article reports the results from a randomized experiment designed to evaluate the direct and indirect displacement impacts of job placement assistance on the labor market outcomes of young educated job seekers in france we use a two step design in the first step the proportions of job seekers to be assigned to treatment 0 25 50 75 or 100 were randomly drawn for each of the 235 labor markets e g cities participating in the experiment then in each labor market eligible job seekers were randomly assigned to the treatment following this proportion after eight months eligible unemployed youths who were assigned to the program were significantly more likely to have found a stable job than those who were not but these gains are transitory and they appear to have come partly at the expense of eligible workers who did not benefit from the program particularly in labor markets where they compete mainly with other educated workers and in weak labor markets overall the program seems to have had very little net benefits

valuation and control in venture finance this paper presents the model of a relationship between a venture capitalist and an entrepreneur engaged in the formation of a new firm i assume that the entrepreneur derives private nonpecuniary benefits from having some control over the firm i show that to separate the entrepreneur s value of control from the firm s expected payoff the venture capitalist demands disproportionately higher control rights than the size of his equity investment the entrepreneur is compensated for a greater loss of control through better terms of financing ability to extract higher rents from asymmetric information and improved risk sharing venture capital firms often finance projects which at the time of funding have neither revenues nor even a product in existence however by using an intricate system of control rights venture capitalists can overcome many failures inevitable in a complex task of converting entrepreneurial talent into companies products and markets

financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

analyzing u s output and the great moderation by simultaneous unobserved components this paper seeks to determine the causal interaction between structural trend and cycle innovations in an unobserved components framework of aggregate output for the purpose of identification i propose allowing for shifts in volatility this strategy provides good estimation precision when applied to u s industrial production in the early 1980s predominance of cycle shocks gives way to strong negative spillovers of trend impulses consistent with real business cycle theories the coincident reduction of macroeconomic volatility was mainly caused by pronounced dampening of transitory disturbances this is in accordance with an important role of macroeconomic policy in explaining the great moderation

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

new keynesian perspectives on labor market dynamics abstract we find that demand shocks play an important role for business cycle fluctuations in unemployment and job vacancies the reason is that those shocks give a strong incentive to demand constrained firms to adjust production and thereby labor input furthermore we argue that whether real wage rigidity a la hall 2005 employment fluctuations with equilibrium wage stickiness american economic review 95 50 65 helps explain the remaining part of the unemployment volatility puzzle depends critically on assumptions regarding the form of the wage bargain between firms and workers real wage rigidity tends to generate volatility in employment only in the case in which hours are chosen efficiently if on the other hand the real wage is allowed to affect firms s choices of hours directly the feature of real wage rigidity loses its ability to increase employment volatility

productivity and unemployment over the business cycle abstract the low correlation between cyclical unemployment and productivity over the post war period hides a large sign switch in the mid 1980s from significantly negative the correlation became significantly positive using a search model of unemployment with nominal rigidities and variable labor effort i show that technology shocks can generate a positive unemployment productivity correlation whereas non technology shocks i e aggregate demand shocks tend to do the opposite in this context i identify two events that can quantitatively explain the increase in the correlation i a sharp drop in the volatility of non technology shocks in the mid 1980s and ii a decline in the response of productivity to non technology shocks which from procyclical became acyclical in the last 25 years

unforeseen contingencies and incomplete contracts we scrutinize the conceptual framework commonly used in the incomplete contract literature this literature usually assumes that contractual incompleteness is due to the transaction costs of describing or of even foreseeing the possible states of nature in advance we argue however that such transaction costs need not interfere with optimal contracting i e transaction costs need not be relevant provided that agents can probabilistically forecast their possible future payoffs even if other aspects of the state of the nature cannot be forecast in other words all that is required for optimality is that agents be able to perform dynamic programming an assumption always invoked by the incomplete contract literature the foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate moreover we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality however even if renegotiation is allowed the result still remains valid provided that parties are risk averse

strikes scabs and tread separations labor strife and the production of defective bridgestone firestone tires this paper provides a case study of the effect of labor relations on product quality we consider whether a long contentious strike and the hiring of permanent replacement workers by bridgestone firestone in the mid 1990s contributed to the production of an excess number of defective tires using several independent data sources we find that labor strife in the decatur plant closely coincided with lower product quality count data regression models based on two data sets of tire failures by plant year and age show significantly higher failure rates for tires produced in decatur during the labor dispute than before or after the dispute or than at other plants also an analysis of internal firestone engineering tests indicates that p235 tires from decatur performed less well if they were manufactured during the labor dispute compared with those produced after the dispute or compared with those from other non striking plants monthly data suggest that the production of defective tires was particularly high around the time wage concessions were demanded by firestone in early 1994 and when large numbers of replacement workers and permanent workers worked side by side in late 1995 and early 1996

a monetary business cycle model with unemployment abstract to reproduce key features of the post war u s data most monetary business cycle models must assume there are high price markups and that agents have high labour supply elasticities despite the existence of contradictory microeconomic evidence this paper eliminates the need for these assumptions by introducing imperfectly observed effort into a limited participation model the estimated model is better able to capture the sluggish price response to a monetary policy shock than the standard model and is consistent with evidence regarding the qualitative responses of the u s economy to technology shocks fiscal policy shocks and monetary policy shocks

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

optimal unemployment insurance in a matching equilibrium this article considers optimal unemployment insurance ui in an equilibrium matching framework where wages are determined by strategic bargaining it compares the outcome with the standard nash bargaining approach which can be interpreted as union wage bargaining with an insider outsider distortion it also shows that a coordinated policy approach one that chooses job creation subsidies and ui optimally generates a much greater welfare gain than a policy that simply varies ui payments by duration

labour taxes and unemployment evidence from a panel unobserved component model abstract this paper estimates the impact of labour taxes on unemployment using a panel of yearly observations 1970 2005 for 16 oecd countries possible heterogeneity of the unemployment incidence of taxes is taken into account by grouping countries according to their wage setting institutions panel data unit root and cointegration tests show that unemployment and labour tax rates are non stationary but not cointegrated as this finding may be induced by missing non stationary variables we set up a panel unobserved component model labour taxes are found to have a positive impact on unemployment only in countries characterised by strong but decentralised unions

wage rigidity and job creation recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations we use worker level data from the cps to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions the wage of new hires unlike the aggregate wage is volatile and responds almost one to one to changes in labor productivity we conclude that there is little evidence for wage rigidity in the data

market externalities of large unemployment insurance extension programs we provide evidence that unemployment insurance affects equilibrium conditions in the labor market which creates significant market externalities we provide a framework for identification of such equilibrium effects and implement it using the regional extension benefit program rebp in austria which extended the duration of ui benefits for a large group of eligible workers in selected regions of austria we show that non eligible workers in rebp regions have higher job finding rates lower unemployment durations and a lower risk of long term unemployment we discuss the implications of our results for optimal ui policy jel e24 j64 j65 r23

how are product demand changes transmitted to the labour market in the traditional keynesian and classical models the transmission of product demand changes to the labor market generally involves wage price sluggishness or countercyclical real wage movements in practice however real wages are often acyclical or procyclical and wages and prices are flexible over periods of several years this paper examines the main channels whereby product demand can affect employment under these conditions the analysis suggests that the effectiveness of demand management policies under wage price flexibility depends significantly on the availability of a limited number of supply side transmission channels copyright 1994 by royal economic society

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

pay reference points and police performance several theories suggest that pay raises below a reference point will reduce job performance final offer arbitration for police unions provides a unique opportunity to examine these theories as the police officers either receive their requested wage or receive a lower one in the months after new jersey police officers lose in arbitration arrest rates and average sentence length decline and crime reports rise relative to when they win these declines in performance are larger when the awarded wage is further from the police union s demand the findings support the idea that considerations of fairness disappointment and more generally reference points affect workplace behavior

transitions in the german labor market structure and crisis abstract since the so called hartz iv reforms around 2005 and during the global crisis of 2008 2009 the german labor market featured mainly declining unemployment rates we develop a search and matching model with heterogeneous skills to explore the role of structural and cyclical policies for this performance calibrating unemployment benefits to approximate legislation before and after the reforms we find a large reduction in unemployment and its duration with the transition concluding after about three years during the crisis the extended use of short time labor subsidies that prevent jobs from being destroyed is likely to have prevented strong increases in unemployment

the consequences of rigid wages in search models the standard theory of equilibrium unemployment the mortensen pissarides search and matching model cannot explain the magnitude of the business cycle fluctuations in two of its central elements unemployment and vacancies modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude significantly improving the performance of the model despite this the welfare consequences of such rigid wages is negligible jel e24 e32 j30 j41 j63 j64

forecasting unemployment across countries the ins and outs abstract this paper evaluates the flow approach to unemployment forecasting proposed by barnichon and nekarda 2012 for a set of oecd countries characterized by very different labor markets we find that the flow approach yields substantial improvements in forecast accuracy over professional forecasts for all countries with especially large improvements at longer horizons one year ahead forecasts for european countries moreover the flow approach has the highest predictive ability during recessions and turning points when unemployment forecasts are most valuable

from sick man of europe to economic superstar germany s resurgent economy in the late 1990s and into the early 2000s germany was often called the sick man of europe indeed germany s economic growth averaged only about 1 2 percent per year from 1998 to 2005 including a recession in 2003 and unemployment rates rose from 9 2 percent in 1998 to 11 1 percent in 2005 today after the great recession germany is described as an economic superstar in contrast to most of its european neighbors and the united states germany experienced almost no increase in unemployment during the great recession despite a sharp decline in gdp in 2008 and 2009 germany s exports reached an all time record of 1 738 trillion in 2011 which is roughly equal to half of germany s gdp or 7 7 percent of world exports even the euro crisis seems not to have been able to stop germany s strengthening economy and employment how did germany with the fourth largest gdp in the world transform itself from the sick man of europe to an economic superstar in less than a decade we present evidence that the specific governance structure of the german labor market institutions allowed them to react flexibly in a time of extraordinary economic circumstances and that this distinctive characteristic of its labor market institutions has been the main reason for germany s economic success over the last decade

empirics of world income inequality this article employs a common general formula for inequality indexes to answer several basic questions about intercountry income inequality in recent decades has inequality across nations increased or declined and why have earlier studies yielded mixed results have different rates of population growth played a significant role in the trend have large nations dominated the trend are the results robust over different inequality measures and different income series two findings stand out first different rates of population growth in rich and poor nations played the predominant role in determining change in the distribution of per capita income across nations second the centuries old trend of rising inequality leveled off from 1960 to 1989 the dependency theory thesis of a polarizing world system receives no support

long term unemployment and labour force participation a decomposition of unemployment to test for the discouragement and added worker hypotheses we sharpen tests for discouragement and added worker effects by splitting the explanatory variable the unemployment rate into a short term component and a long term component while short t

identifying asymmetric effects of labor market reforms abstract this paper proposes a novel approach to identify structural long term driving forces of the labor market and their short run state dependent effects based on search and matching theory our empirical model extracts these driving forces within an unobserved components approach we relate changes in the labor market structures to reforms that enhance the flexibility of the labor market in expansion and recession results for germany and spain show that labor market reforms have substantially weaker beneficial effects in the short run when implemented in recessions from a policy perspective these results highlight the costs of introducing reforms in recessions

oil and the euro area economy we examine the macroeconomic effects of different types of oil shocks and the oil transmission mechanism in the euro area a comparison is made with the us and across individual member countries first we find that the underlying source of the oil price shift is crucial to determine the repercussions on the economy and the appropriate monetary policy reaction second the transmission mechanism is considerably different compared to the us in particular inflationary effects in the us are mainly driven by a strong direct pass through of rising energy prices and indirect effects of higher production costs in contrast euro area inflation reacts sluggishly and is much more driven by second round effects of increasing wages the monetary policy reaction of the ecb to oil shocks is also strikingly different compared to the fed the inflation objective relative to the output stabilization objective appears more important for euro area monetary authorities than for the fed third there are substantial asymmetries across member countries these differences are due to different labour market dynamics which are further aggravated by a common monetary policy stance which does not fit all gert peersman and ine van robays

employer search training and vacancy duration we develop a model of optimal employer search strategy when information about match quality is endogenous the model is tested using four data sets two of which have not previously been used as theory predicts we find that when filling positions requiring more training employers search more intensively and extensively employers also search more extensively when hiring workers with more education and with prior experience these findings provide strong evidence of systematic variation in search strategies based on the characteristics of the positions and job applicants factors that influence employer search also affect the duration of a vacancy

private information wage bargaining and employment fluctuations shimer 2005 pointed out that although we have a satisfactory theory of why some workers are unemployed at any given time we don t know why the number of unemployed workers varies so much over time the basic mortensen pissarides 1994 model does not generate nearly enough volatility in unemployment for plausible parameter values this paper extends the mortensen pissarides model to allow for informational rents productivity is subject to publicly observed aggregate shocks and to idiosyncratic shocks that are seen only by the employer it is shown that there is a unique equilibrium provided that the idiosyncratic shocks are not too large the main result is that small fluctuations in productivity that are privately observed by employers can give rise to a kind of wage stickiness in equilibrium and the informational rents associated with this stickiness are sufficient to generate relatively large unemployment fluctuations

do matching frictions explain unemployment not in bad times this paper models unemployment as the result of matching frictions and job rationing job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor during recessions job rationing is acute driving the rise in unemployment whereas matching frictions contribute little to unemployment intuitively in recessions jobs are lacking the labor market is slack recruiting is easy and inexpensive so matching frictions do not matter much in a calibrated model cyclical fluctuations in the composition of unemployment are quantitatively large

information and control in ventures and alliances this paper develops a theory of control as a signal of congruence of objectives and applies it to nancial contracting between an investor and a privately informed entrepreneur we show that formal investor control is i increasing in the information asymmetries ex ante ii increasing in the uncertainty surrounding the venture ex post iii decreasing in the entrepreneur s resources and iv increasing in the entrepreneur s incentive consict in contrast real investor control that is actual investor interference is decreasing in information asymmetries control rights are further such that control shifts to the investor in bad states of nature

differences in hours worked in the oecd institutions or fiscal policies we study the determinants of the level and the evolution of per capita hours worked in a panel of oecd countries since the 1970s following pesaran 2006 our empirical strategy allows for the possibility of cross sectionally correlated error terms due to unobserved common factors which are potentially nonstationary we find that much of the variation in per capita hours worked across countries and over time can be explained by differences in the level and structure of taxes and government expenditures differences in the evolution of labor and product market institutions have much less of a role to play our results show that a careful treatment of the time series properties of the data is crucial

measuring the dollar euro permanent equilibrium exchange rate using the unobserved components model this paper employs an unobserved component model that incorporates a set of economic fundamentals to obtain the euro dollar permanent equilibrium exchange rates peer for the period 1975q1 to 2008q4 the results show that for most of the sample period the euro dollar exchange rate closely followed the values implied by the peer the only significant deviations from the peer occurred in the years immediately before and after the introduction of the single european currency the forecasting exercise shows that incorporating economic fundamentals provides a better long run exchange rate forecasting performance than a random walk process

job matching temporary public employment and equilibrium unemployment abstract the paper presents a theoretical analysis of the macroeconomics effects of temporary public employment programs relief jobs the framework is a matching model where wages are determined by nash bargains between individual firms and workers public employment programs have a direct job placement effect which tends to reduce unemployment there is also an effect on wage pressure the direction of this effect hinges on whether the programs are aimed at increasing unemployment outflow of reducing unemployment inflow a policy targeted at unemployment outflow has in general ambiguous effects on equilibrium unemployment since the job placement effect and the wage effect work in opposite directions by contrast a policy targeted at unemployment inflow will always reduce unemployment since the job placement effect is reinforced by the induced wage moderation

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

detecting unemployment hysteresis a simultaneous unobserved components model with markov switching abstract we construct a new markov switching unobserved components framework for analysing hysteresis effects featuring trend cycle decomposition identification of spillovers between the components and asymmetry over the business cycle the decades long upward trend in german unemployment is fully explained by hysteresis the great recession was well absorbed because both hysteresis and structural unemployment were substantially reduced after institutional reforms in contrast u s unemployment was not driven by hysteresis effects

the employment effect of reforming a public employment agency by how much does an increase in operating effectiveness of a public employment agency pea and a reduction of unemployment benefits reduce unemployment using a recent labour market reform in germany as background we find that an enhanced effectiveness of the pea explains about 20 of the observed post reform unemployment decline the role of unemployment benefit reduction explains just about 5 of the observed decline due to disincentive effects resulting from the reform the reform of the pea could have had an even higher impact on unemployment reduction if there had been less focus on long term unemployed workers

a theory of wages and labor demand with intra firm bargaining and matching frictions this article provides a model of labor market equilibrium with search and within firm strategic bargaining we yield explicit closed form solutions with heterogeneous labor inputs and capital the solution exhibits overemployment we show that higher relative bargaining power for some groups of workers may lead to overemployment relative to other groups with such other groups being underemployed instead if they have a lower relative bargaining power similarly the hold up problem between capitalists and employees does not necessarily lead to underinvestment in physical capital beyond the neo classical analysis firms are the field of several strategic interactions between capital owners and labor between marginal employees and incumbents and more generally between different groups with various bargaining positions within the firm it is usually considered that the bargaining power of workers entails an employment level that is lower than in a competitive labor market and any increase in the bargaining power of workers raises unemployment these results are true for a wide class of models and notably in the now standard framework to analyze unemployment namely search and matching models of pissarides 2000 however stole and zwiebel 1996a 1996b show that the above results are totally changed in the intra firm bargaining model where employees engage in individual wage negotiation with the firm in fact under the assumption that contract incompleteness does not enable either party to commit to future wages and employment decisions they show that intra firm bargaining yields no rent for employees and gives rise to overemployment compared to a competitive labor market the basic idea of stole and zwiebel is that a firm with a diminishing marginal productivity of labor can decrease the bargained wage which increases in the marginal productivity of labor by raising employment in stole and zwiebel s setting firms overemploy strategically up to the point where workers get their reservation wage

monetary policy under uncertainty in an estimated model with labor market frictions abstract we study the design of monetary policy in an estimated model with sticky prices search and matching frictions and staggered nominal wage bargaining we find that the estimated natural rate of unemployment is consistent with the nber description of the u s business cycle and that the inflation unemployment trade off facing monetary policymakers is quantitatively important we also show that parameter uncertainty has a limited effect on the performance or design of monetary policy while natural rate uncertainty has more sizeable effects nevertheless policy rules that respond to the output or unemployment gaps are more efficient than rules responding to output or unemployment growth rates also in the presence of uncertainty about the natural rates

what do economists tell us about venture capital contracts venture capital markets are characterized by multiple incentive problems and asymmetric information in an uncertain environment all kinds of agency problems are present moral hazard adverse selection hold up problems window dressing etc entrepreneurs and venture capitalists enter into contracts that influence their behavior and mitigate the agency costs in particular they select an appropriate kind and structure of financing and specify the rights as well as the duties of both parties the typical features of venture capital investments are an intensive screening and evaluation process an active involvement of venture capitalists in their portfolio companies a staging of capital infusions the use of special financing instruments such as convertible debt or convertible preferred stock syndication among venture capitalists or a short investment horizon

robust financial contracting and the role of venture capitalists we derive a role for inside investors such as venture capitalists in resolving various agency problems that arise in a multistage financial contracting problem absent an inside investor the choice of securities is unlikely to reveal all private information and overinvestment may occur an inside investor however always makes optimal investment decisions if and only if he holds a fixed fraction contract where he always receives a fixed fraction of the project s payoff and finances that same fraction of future investments this contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds in this article we develop a model of financial contracting with multiple investment decisions and show how conflicts of interest and informational asymmetries can be effectively resolved by an inside investor i e an investor who not only provides capital but also works closely with the firm monitors it frequently and is generally very well informed about the firm s prospects and investment opportunities venture capitalists are obvious examples of inside investors and their function has been an important motivation for this article banks especially in japan and germany are also involved in monitoring and can be viewed as playing the role of inside investors in this article we examine the potential benefits of inside investors in a context where there are no restrictions beyond limited liability on the type of financial contracts that can be written we address a basic financial contracting problem involving an entrepreneur who has an idea for a project but does not have sufficient capital to fund it an important assumption is that there are several stages in the project s development and that a decision must be made at each stage whether the project should be continued or abandoned if the project is continued the amount of additional capital to be invested must also be determined we assume that the entrepreneur as an insider observes private information about the project s profitability at each stage this information is not

the impact of employment tax cuts on unemployment and wages the role of unemployment benefits and tax structure abstract i model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models competitive union bargaining search and efficiency wages i find that if the ratio of unemployment compensation to wages is fixed the effect of the tax cut is mainly on wages but if income out of work is fixed in real terms there are substantial employment effects when wages are determined by bargaining revenueneutral reforms that make the tax more progressive also reduce unemployment thus policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment

financial intermediaries ownership structure and monitored finance evidence from japan this paper introduces new and unique data from 127 japanese private equity funds that enable a first ever direct comparison of individual owner manager structures versus financial intermediation structures in terms of the governance provided to investee companies through private equity funds the data indicate individual owner manager structures financial disintermediation give rise to much smaller portfolios of entrepreneurial firms and more advice to entrepreneurs across the scope of different financial intermediation structures including banks life insurance companies securities firms corporations and government bodies there are further differences in the provision of governance and value added advice provided to investees the data further indicate us affiliated funds in japan are more likely to have smaller portfolios and provide more advice to entrepreneurial companies possibly due to a greater skill set in providing advice to facilitate the development of small entrepreneurial firms

revisiting the matching function abstract there is strong empirical evidence for cobb douglas matching functions we show in this paper that this widely found relation between matches on the one hand and unemployment and vacancies on the other hand can be the result of different underlying mechanisms obviously it can be generated by assuming a cobb douglas matching function less obvious the same relationship results from a vacancy free entry condition and idiosyncratic productivity shocks a positive aggregate productivity shock leads to more vacancy posting a shift of the idiosyncratic selection cutoff and thereby more hiring we calibrate a model with both mechanisms to administrative german labor market data and show that idiosyncratic productivity for new contacts is an important driver of the elasticity of the job finding rate with respect to the market tightness accounting for idiosyncratic productivity can explain the observed negative time trend in estimated matching efficiency and asymmetric business cycle responses to large aggregate shocks

international inequalities in human development and real income abstract two well recommended measures are used to compute intercountry inequalities in real gdp per capita ry and the index of human development hdi despite very high positive correlation between ry and hdi the inequality measures reveal dramatically different pictures

venture capital financing moral hazard and learning we consider the provision of venture capital in a dynamic agency model the value of the venture project is initially uncertain and more information arrives by developing the project the allocation of the funds and the learning process are subject to moral hazard the optimal contract is a time varying share contract which provides intertemporal risk sharing between venture capitalist and entrepreneur the share of the entrepreneur reflects the value of a real option the option itself is based on the control of the funds the dynamic agency costs may be high and lead to an inefficient early stopping of the project a positive liquidation value explains the adoption of strip financing or convertible securities finally relationship financing including monitoring and the occasional replacement of the management improves the efficiency of the financial contracting

a theory consistent system approach for estimating potential output and the nairu abstract a new approach is proposed for estimating potential output and the nairu identification is achieved using okun s law and a phillips curve the performance of the methodology is exemplified using data from canada the uk and the us

true world income distribution 1988 and 1993 first calculation based on household surveys alone the paper derives world income or expenditure distribution of individuals for two years 1988 and 1993 it is the first paper to calculate world distribution for individuals based entirely on household survey data from 91 countries and adjusted for differences in purchasing power parity between the countries measured by the gini index inequality increased from an already very high 63 in 1988 to 66 in 1993 the increase was driven more by rising differences in mean incomes between the countries than by rising inequalities within countries the most important contributors were rising urban rural differences in china and slow growth of rural incomes in south asia compared to several large developed market economies

the world distribution of income falling poverty and convergence period we estimate the world distribution of income by integrating individual income distributions for 138 countries between 1970 and 2000 country distributions are constructed by combining national accounts gdp per capita to anchor the mean with survey data to pin down the dispersion poverty rates and head counts are reported for four specific poverty lines rates in 2000 were between one third and one half of what they were in 1970 for all four lines there were between 250 and 500 million fewer poor in 2000 than in 1970 we estimate eight indexes of income inequality implied by our world distribution of income all of them show reductions in global inequality during the 1980s and 1990s

labor market dynamics under long term wage contracting abstract recent research seeking to explain the strong cyclicality of us unemployment emphasizes the role of wage rigidity this paper proposes a micro founded model of wage rigidity an equilibrium business cycle model of job search where risk neutral firms post optimal long term contracts to attract risk averse workers equilibrium contracts feature wage smoothing limited by the inability of parties to commit to contracts the model is consistent with aggregate wage data if neither worker nor firm can commit producing too rigid wages otherwise wage rigidity does not lead to a substantial increase in the cyclical volatility of unemployment

unemployment and the business cycle abstract this paper presents a dynamic general equilibrium model where labor effort is imperfectly observable and there is unemployment in equilibrium in contrast to shirking models in the efficiency wage literature detected shirkers are not dismissed instead they face a monetary punishment because they forgo an increase in their compensation estimated versions of the model can generate the high variation in employment and low variation of real wages observed over the business cycle and are consistent with existing qualitative evidence about the responses of the economy to fiscal policy shocks

wage dynamics reconciling theory and evidence u s macroeconomic evidence shows a negative relation between the rate of change of wages and unemployment in contrast most theories of wage determination imply a negative relation between the level of wages and unemployment in this paper we ask whether one can reconcile the empirical evidence with theoretical wage relations we reach three main conclusions first we derive the condition under which the two can indeed be reconciled we show the constraints that such a condition imposes on the determinants of workers reservation wages as well as the relative importance of workers outside options as opposed to match specific productivity in wage determination second in the light of this condition we reinterpret the presence of an error correction term in macroeconomic wage relations for most european economies but not in the united states third we show that whether this condition holds or not has important implications for the effects of a number of variables from real interest rates to oil prices to payroll taxes on the natural rate of unemployment this abstract was borrowed from another version of this item

testing for time variation in an unobserved components model for the u s economy abstract this paper analyzes the amount of time variation in the parameters of a reduced form empirical macroeconomic model for the u s economy we decompose output inflation and unemployment in their stochastic trend and business cycle gap components with the latter linked through the phillips curve and okun s law a novel bayesian model selection procedure is used to test which parameters vary over time and which components exhibit stochastic volatility using data from 1959q2 to 2014q3 we find substantial time variation in okun s law while the phillips curve slope appears to be stable stochastic volatility is found to be important for cyclical shocks to the economy while the volatility of permanent shocks remains stable

preplanned exit strategies in venture capital abstract this paper empirically considers the role of preplanned exits the investor s initial strategy to sell the investee firm via an acquisition or an initial public offering ipo at the time of initial contract with the entrepreneur legal conditions and investor versus investee bargaining power in the allocation of cash flow and control rights in entrepreneurial finance we introduce a sample of 223 entrepreneurial investee firms financed by 35 venture capital funds in 11 continental european countries and these data indicate the following first preplanned acquisition exits are associated with stronger investor veto and control rights a greater probability that convertible securities will be used and a lower probability that common equity will be used the converse is observed for preplanned ipos second investors take fewer control and veto rights and use common equity in countries of german legal origin relative to socialist scandinavian and french legal origin third more experienced entrepreneurs are more likely to get financed with common equity and less likely to be financed with convertible preferred equity while more experienced investors are more likely to use convertible preferred equity and less likely to use common equity

global inequality in well being dimensions abstract this paper contributes to the literature on global inequality in multidimensional well being by examining inter country disparities in the longevity knowledge and standard of material living components of the well known and widely used human development index for the years 1992 2004 it differs from previous studies by examining global inequality in each of the components of this index alongside that of the index as a whole thus side stepping ambiguities over weighting that are inherent to multidimensional well being indices the gini coefficient both population and non population weighted is used to measure the extent of inequality results indicate that the different components often provide very different information to the index as a whole especially with respect to changes in global inequality over time most component variables show declines in global inequality whereas the longevity component exhibits increased inequality since 1992

the impact of ecb policy on structural reforms abstract we estimate the impact of monetary policy on structural reform adoption in the euro area we identify exogenous ecb policy changes through an event study that extracts the unexpected variation in euro area interest rates on policy announcement days we find that surprise monetary expansions increase the number of reforms significantly and that the effect is stronger for countries with weaker macroeconomic fundamentals or tighter public budget constraints these findings are consistent with the hypothesis that expansionary monetary policy by attenuating the short run costs of reforms and increasing governments financial leeway spurs competition friendly supply side policy

the asymmetric business cycle abstract the business cycle is a fundamental yet elusive concept in macroeconomics in this paper we consider the problem of measuring the business cycle first we argue for the output gap view that the business cycle corresponds to transitory deviations in economic activity away from a permanent or trend level then we investigate the extent to which a general model based approach to estimating trend and cycle for the u s economy leads to measures of the business cycle that reflect models versus the data we find empirical support for a nonlinear time series model that produces a business cycle measure with an asymmetric shape across nber expansion and recession phases specifically this business cycle measure suggests that recessions are periods of relatively large and negative transitory fluctuations in output however several close competitors to the nonlinear model produce business cycle measures of widely differing shapes and magnitudes given this model based uncertainty we construct a mode

business cycles unemployment insurance and the calibration of matching models this paper theoretically and empirically documents a puzzle that arises when an rbc economy with a job matching function is used to model unemployment the standard model can generate sufficiently large cyclical fluctuations in unemployment or a sufficiently small response of unemployment to labor market policies but it cannot do both variable search and separation finite ui benefit duration efficiency wages and capital all fail to resolve this puzzle however either sticky wages or match specific productivity shocks can improve the model s performance by making the firm s flow of surplus more procyclical which makes hiring more procyclical too

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

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

new resources and new ideas private equity for small businesses abstract private equity for rapidly growing small business is raised primarily from the organized venture capital market and the informal market comprised of high net worth individuals or angel investors we discuss commercially and publicly available data on private equity the research findings of studies that use these data and some of the more important questions that the available data have been unable to address

why do europeans work much less it is taxes and government spending i introduction the reason why europeans work less than americans is the subject of intense discussion in recent literature prescott 2004 cardia kozhaya and ruge murcia 2003 and roeger and de fiore 1999 emphasize the negative effects of high taxes in europe other authors like blanchard 2004 and alesina glaeser and sacerdote 2005 point to differences in the desire for leisure cultural differences or differences in unionization and labor market regulations may be at the basis of a higher european taste for leisure freeman and schettkat 2005 explain higher employment in the united states as the result of a much more extensive shift of traditional household production to the market lower taxes on wages and higher degrees of labor market flexibility in the united states may be among the factors that have contributed to this shift there is no doubt that these hypotheses contain relevant elements to account for the employment differences between europe and the united states however they are also incomplete first of all each of these hypotheses will have difficulty explaining employment in the nordic countries countries like sweden norway and denmark also have high taxes which increased during the last decades according to nicoletti and scarpetta 2005 they also combine many of the european labor and product market rigidities yet as we show in table 1 for 19952004 the average employment rate in persons in the nordic countries is about the same as in the united states the employment rate in hours is lower than in the united states but it is still much higher than in the core countries of the euro area or in convergence countries like spain and ireland second these explanations ignore the other side of the performance gap between europe and the united states they neglect per capita growth differences a coherent theory should also be able to explain why in the last decade most of the core countries of the euro area have had lower potential per capita growth than the united states while again several of the nordic countries have performed at least as well as the united states or even better table 1 1 our contribution in this paper is double first we explain not only employment differences between the united states and europe as most of the above mentioned literature does but also employment differences within europe 2 second our explanation also accounts for per capita growth differences a critical explanatory variable in our analysis is the composition of fiscal policy taxes are important but not only taxes the allocation of government spending to productive or nonproductive purposes is at least as important by contrast our results would suggest that any differences in taste for leisure or labor market rigidity are not critical the structure of the paper is as follows in section ii we develop a theoretical model that explains both employment and long run growth within a coherent framework we basically build on seminal work by barro 1990 we show the impact of income taxes transfers in the case of nonemployment and productive government expenditures in section ill we calibrate the model on actual data and compare its predictions with the facts reported in table 1 it should be clear from the outset that we take fiscal policy differences across countries as given we investigate their effects on employment and growth but we do not try to explain why policy differs this approach is not unusual in related literature like roeger and de fiore 1999 cardia kozhaya and ruge murcia 2003 and prescott 2004 section iv concludes the paper anticipating we find that our model explains well employment in the united states is higher than in the core euro area thanks to lower income tax rates and much lower transfers in the case of nonemployment the nordic countries have higher employment than the core euro area mainly thanks to a higher share of productive government expenditures and lower nonemployment transfers

search and matching frictions and optimal monetary policy abstract a recent literature has merged the new keynesian and the search and matching frameworks which has allowed the former to analyze the joint dynamics of unemployment and inflation this paper analyzes optimal monetary policy in this kind of hybrid framework i show that zero inflation is optimal when all wages are nash bargained in every period and the economy s steady state is efficient in the more realistic case in which nominal wage bargaining is staggered a case against price stability arises in response to real shocks the central bank should use price inflation so as to avoid excessive unemployment volatility and excessive dispersion in hiring rates for a plausible calibration the welfare loss under the zero inflation policy is about three times as large as under the optimal policy

optimal monetary policy rules with labor market frictions abstract this paper studies optimal monetary policy rules in a framework with sticky prices matching frictions and real wage rigidities optimal policy is given by a constrained ramsey plan in which the monetary authority maximizes the agents welfare subject to the competitive economy relations and the assumed monetary policy rule i find that the optimal rule should respond to unemployment alongside with inflation this is so since models with matching frictions unlike standard new keynesian models feature a congestion externality that makes unemployment inefficiently high a strong response to inflation remains optimal while a response to output is always welfare detrimental

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

the establishment level behavior of vacancies and hiring this paper is the first to study vacancies hires and vacancy yields at the establishment level in the job openings and labor turnover survey a large sample of u s employers to interpret the data we develop a simple model that identifies the flow of new vacancies and the job filling rate for vacant positions the job filling rate moves counter to aggregate employment but rises steeply with employer growth rates in the cross section it falls with employer size rises with worker turnover rates and varies by a factor of four across major industry groups we also develop evidence that the employer level hiring technology exhibits constant returns and that at the employer level and that employers rely heavily on other instruments in addition to vacancies as they vary hires we also develop evidence that effective recruiting intensity per vacancy varies over time accounting for about 41 of movements in aggregate hires in the 2007 to 2009 period our evidence and analysis provide useful inputs for assessing developing and calibrating theoretical models of search matching and hiring in the labor market

how much has labour taxation contributed to european structural unemployment abstract we analyse the effect of labour taxes on euro area unemployment making use of the blanchard and katz 1999 wage dynamics reconciling theory and evidence american economic review 89 2 69 74 nairu model we represent structural unemployment as that made up of two elements an observed part related to labour taxes plus a non stationary unobservable component related to the reservation wage and to the wage mark up contrary to empirical estimates available so far this modelling explicitly acknowledges the existence of non measurable factors responsible for the unemployment non stationarity for the period 1970 2004 we obtain a tax effect that lies in the middle of the estimates that can be found in the literature this study gives support to the view that lowering labour taxes can help to reduce unemployment in continental europe

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

a bayesian model comparison for trend cycle decompositions of output we compare a number of widely used trend cycle decompositions of output in a formal bayesian model comparison exercise this is motivated by the often markedly different results from these decompositions different decompositions have broad implications for the relative importance of real versus nominal shocks in explaining variations in output using us quarterly real gdp we find that the overall best model is an unobserved components model with two features 1 a nonzero correlation between trend and cycle innovations 2 a break in output growth in 2007 under this specification annualized trend output growth decreases from about 3 4 to 1 5 after the break the results also indicate that real shocks are more important than nominal shocks

the determinants of equilibrium unemployment the paper takes the search and matching model of the aggregate labor market to the data it tests the model s empirical validity and employs structural estimation to generate a characterization of the optimal behavior of firms and workers the model is applied to israeli data that are uniquely suited for this kind of empirical investigation the structural estimates are used to quantify the frictions embodied in the model including the costs of search the congestion and trading externality effects and the matching process a calibration simulation analysis then studies the effect of several key variables on equilibrium unemployment

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

employment efficiency and sticky wages evidence from flows in the labor market i consider three views of the labor market in the first wages are flexible and employment follows the principle of bilateral efficiency workers never lose their jobs because of sticky wages in the second wages are sticky and inefficient layoffs do occur in the third wages are also sticky but employment governance is efficient i show that the behavior of flows in the labor market strongly favors the third view in the modern u s economy recessions do not begin with a burst of layoffs unemployment rises because jobs are hard to find not because an unusual number of people are thrown into unemployment

inequality among world citizens 1820 1992 this paper investigates the distribution of well being among world citizens during the last two centuries the estimates show that inequality of world distribution of income worsened from the beginning of the 19th century to world war ii and after that seems to have stabilized or to have grown more slowly in the early 19th century most inequality was due to differences within countries later it was due to differences between countries inequality in longevity also increased during the 19th century but then was reversed in the second half of the 20th century perhaps mitigating the failure of income inequality to improve in the last decades jel d31 f0 n0 o0