the labor market effects of introducing unemployment benefits in an economy with high informality abstract unemployment benefit systems are nonexistent in many developing economies introducing such systems poses many challenges which are partly due to the high level of informality in the labor markets of these economies this paper studies the consequences on the labor market of implementing an unemployment benefit system in economies with large informal sectors and high flows of workers between formality and informality we build a search and matching model with endogenous destruction on the job search and intersectoral flows where agents in the economy decide optimally whether or not to formalize jobs we calibrate the model for mexico and show that the introduction of an unemployment benefit system where workers contribute when employed in the formal market and collect benefits when they lose their jobs even if they obtain informal jobs can lead to an increase in formality in the economy while also producing small increases in unemployment the exact impact of incorporating such benefits depends on the relative strength of two opposing effects the generosity of the benefits and the level of the contributions that finance those benefits we also show important policy complementarities with other interventions in the labor market in particular combining the unemployment benefit program with policies that reduce the cost of formality such as lower employment taxes and firing costs can produce greater decreases in informality and lower impacts on unemployment than when the program is applied in isolation

migration and job search in a dualistic economy abstract by introducing optimal search behavior a la stigler into a todarian dual sector urban economy the probability of urban formal sector entry as a function of the rural urban migrants optimal search intensity is derived and its implications studied

efficiency in a search and matching economy with a competitive informal sector we consider a dual labor market with a frictional formal sector and a competitive informal sector we show that the size of the informal sector is generally too large compared to the optimal allocation of the workers it follows that our results give a rationale to informality reducing policies

unions and profitability over the 1980s some evidence on union firm bargaining in the united kingdom in this paper an attempt is made to assess the behaviour of the rate of return on sales of unionised firms as compared to the non unionised ones in the late 1980s in the united kingdom the main aim is to examine what has happened to the relationship between unionisation and profitability after the changes in the union legislation competition environment and cyclical variations that took place over this period the impact of different forms of union firm bargaining on the union profitability effect is also examined the data reveal that the negative union effect on profitability exists even after controlling for firm specific fixed effects but that it has been sharply reduced over the 1980s

equilibrium urban unemployment in developing countries is migration the culprit this paper challenges the prediction of todaro s model of rural to urban migration that an increase in urban employment increases urban unemployed it is shown that if the urban demand for labor is isoelastic or inelastic creation of urban jobs causes urban unemployment to decline and urban to rural migration to take place moreover urban job creation always reduces the rate of urban unemployment the paper then remodels the urban job search process and derives the result that equilibrium urban unemployment would not vanish even if the urban rural wage gap were eliminated

forms of trust and conditions for their stability of the three principal approaches to trust we decided to investigate in greater detail the one in which trust is regarded as a belief that the individuals involved hold about a relationship trust was defined as a delegatory relationship based on anticipation of the delegatee s behaviour we reached four main conclusions first the solution to the problem posed by the indeterminacy of trust lies in the differentiation and hierarchisation of the various forms of trust contractual organisational and tacit on the basis of their degree of irreversibility and stability second contractual trust is unstable because it comes up against the problem of guarantees of individual intentions this leads to the third conclusion rational evaluation by individuals cannot by itself establish trust which is based on collective beliefs practices and rules fourth we identified two conditions for the stability of trust the creation of irreversibilities through adherence to a rule and the creation of a confidence interval within which different interpretations of contradictory individual strategies are tolerated thus the viability of the various forms of trust depends on the ability of institutions and organisations to create rules that are likely when applied to produce an interval in which tolerance of mutual intentions is the norm these analyses of trust hence highlight the role of time and period of time in the notion of trust

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

make and buy balancing bargaining power abstract we analyze the optimal procurement of labor which can be supplied either internally based on wage negotiations or acquired at terms negotiated with an external subcontractor the novel feature of our model is that the subcontractor s bargaining power is a function of the proportion of output outsourced we demonstrate analytically how multiple sourcing emerges as an organizational mechanism to balance cost advantages associated with outsourcing against a subcontractor s increased bargaining power we find that the optimal proportion of outsourcing is lower with sequential negotiations than with simultaneous negotiations if the supplier to first negotiate can foreclose subsequent negotiations

do more jobs in the modern sector increase urban unemployment abstract this note considers the effect of an increase in the rate of urban job creation on migration and urban unemployment the different results obtained when the issue was previously analyzed are reconciled the period of time allowed for adjustment and the specification of the migration function are crucial in explaining the different results

information flow expectations and job search rural to urban migration process in india abstract probabilistic migration models assume that search for urban jobs is entirely an urban based activity and that employment in free entry activities is a transitional phase during which migrants are actively searching for formal sector employment this paper tests the empirical validity of these assumptions using data collected by the author in a sample survey in delhi in 1975 76 on 1400 migrants from rural areas the evidence indicates that the migration process postulated in probabilistic models is not realistic in the case of delhi over one half of the sample had moved to delhi after lining up specific jobs a sizeable proportion expected to enter on arrival activities generally considered to be characterized by freedom of entry and the majority of entrants into free entry activities did not search for alternative employment and were engaged in the same activities at the time of the survey

hedonic price indexes for spreadsheets and an empirical test for network externalities in this article i first estimate hedonic price equations for computer spreadsheet programs and then use the analysis to empirically test whether network externalities exist in this industry the study shows that consumers are willing to pay a significant premium for spreadsheets that are compatible with the lotus platform and for spreadsheets that offer links to external databases and a similar premium for spreadsheets that offer local area network externalities finally the quality adjusted real price of computer spreadsheets declined by approximately 15 per year from 1986 to 1991

multifirm unions and the incentive to adopt pattern bargaining in oligopoly abstract this paper develops a model of wage bargaining between an industry wide trade union and firms in an oligopoly and considers the circumstances under which the union prefers pattern bargaining that is negotiating contracts in a sequential manner to simultaneous bargaining with the firms the paper goes on to consider the importance of the bargaining order in pattern bargaining when the firms are asymmetric the analysis shows that the union gains by first targeting a firm which is in a relatively weak bargaining position i e impatient to settle or a firm with relatively large profits

environmental taxation and unemployment some evidence on the double dividend hypothesis in europe abstract the employment double dividend hypothesis suggests that an appropriately designed fiscal reform in which emission charges are used to subsidize employers social security contributions may realize at least two relevant policy goals a better quality of the environment and at the same time an increase in employment levels this paper uses a newly developed econometric general equilibrium model for the european union as well as for each member country and presents simulation results up to the year 2010 of the effects of a european carbon tax the revenues from which are recycled to reduce employers social security contributions the results show that recycling carbon tax revenues may provide an employment double dividend only in the short run

marginal q revisited two measures of firm investment behaviour used in the empirical research are tobin s q average q and marginal q the marginal q is a more recently introduced measure than tobin s q and is not as well known this article aims to demonstrate the advantages of using marginal q as a performance measure and is a response to an earlier critical article berglund 2011 claiming an elusiveness bias the pro arguments made in response are that the claimed elusiveness is not a problem furthermore many of the evaluation problems inherent in the empirical use of tobin s q like estimation of replacement cost of assets can be avoided from a pure theoretical standpoint it has long been recognized that marginal q is superior to an average measure of investment behaviour such as tobin s q

dynamic competition with network externalities why history matters we consider dynamic competition among platforms in a market with network exter nalities a platform that dominated the market in the previous period becomes focal in the current period in that agents play the equilibrium in which they adopt the focal platform whenever such equilibrium exists yet when faced with higher quality competition can a low quality platform remain focal in the finite horizon case the unique equilibrium is efficient for patient platforms with an infinite time horizon however there are multiple equilibria where either the lowor high quality platform dominates if qualities are stochastic the platform with a better average quality wins with a higher probability even when its realized quality is lower and this probability increases as platforms become more patient hence social welfare may decline as platforms become more forward looking

job search and mobility in developing countries theory and policy implications abstract a labor market model is developed in which the formal sector is characterized by search frictions whereas the informal sector is competitive we show that there exists a unique steady state equilibrium in this dual economy we then consider different policies financed by a tax on firms profits we find that reducing the unemployment benefit or the firms entry cost in the formal sector induces higher job creation and formal employment reduces the size of the informal sector but has an ambiguous effect on wages we also find that an employment wage subsidy policy and a hiring subsidy policy have different implications in particular the former increases the size of the informal sector while the latter decreases it

green trade unions structure wages and environmental technology this paper investigates the effect of trade union structure on firms technological choices when unions care about environmental protection we compare a decentralized with a centralized union structure in a cournot duopoly our results suggest that a decentralized structure provides higher incentives for the investment in cleaner technologies although emissions may be lower under a centralized structure the effect of the environmental damage parameter on wages and output may be non monotonic

an integration of trade union models in a sequential bargaining framework this paper aims to embed two popular models of trade union behavior the monopoly model and the efficient bargaining model in a more general framework it does this by analyzing sequential bargaining models where wages are determined before employment and the power of the union in the two stages of the bargain differs as well as finding that the monopoly and efficient bargain models are special cases of this model a new class of models is also discovered this framework is used to analyze the relationship between union pow er and efficiency the empirical analysis of trade unions and the effects of trade union legislation copyright 1987 by royal economic society

shadow economies at times of banking crises empirics and theory this paper investigates the response of the shadow economy to banking crises our empirical analysis based on a large sample of countries suggests that the informal sector is a powerful buffer which expands at times of banking crises and absorbs a large proportion of the fall in official output to rationalise our evidence we build a dynamic stochastic general equilibrium model which accounts for financial and labour market frictions and for nominal rigidities in line with the empirical literature on the shadow economy we assume that in the informal sector access to external finance is limited and the production technology is relatively more labour intensive following a banking shock in the official sector the model predicts a large negative transmission to the unofficial economy that substantially dampens the overall effect of the shock

density social networks and job search methods theory and application to egypt we first develop a theoretical model in which individuals are embedded within a network of social relationships we show that conditional on being employed the probability to find a job through social networks relative to other search methods increases and is concave with the size of the network the effects are stronger for the uneducated there is however a critical size of the network above which this probability decreases we then test empirically these theoretical findings for egypt using the 1998 labor market survey the empirical evidence supports the predictions of our theoretical model

environmental taxation employment and public spending in developing countries this paper investigates the consequences of environmental tax reforms for unemployment and welfare in the case of developing countries with a large informal sector rural urban migration and three different assumptions about public spending 1 as part of a revenue neutral policy 2 fixed and 3 varying endogenously under the indexation of unemployment benefits and informal sector income that give rise to a double dividend a lower level of public spending is associated with a smaller negative impact on the after tax income of households and a higher increase in employment these policies however still lead to a reduction in social welfare even more so in the case of endogenous public spending although it is associated with a higher increase in employment and a smaller reduction in private sector incomes the model implies that complementary policy in terms of lower public spending is unlikely to be socially acceptable and does not support the case for a green tax reforms in developing countries

rent shifting and the order of negotiations abstract when two sellers negotiate terms of trade with a common buyer the order in which the negotiations occur can affect the buyer s payoff this suggests that the buyer may have preferences over which seller to negotiate with first we find that when the efficient outcome calls for the buyer to purchase from only one seller the buyer weakly prefers to negotiate first with the inefficient seller and when the efficient outcome calls for the buyer to purchase from both sellers the buyer prefers to negotiate first with the seller that has less bargaining power or offers a smaller stand alone surplus all else being equal these conclusions hold whether or not penalty clauses are feasible

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

union membership in the united states 1973 1981 this paper reports estimates of union membership gathered from may current population surveys from 1973 to 1981 the authors present data by occupation industry selected states and smsas race gender and educational attainment the paper both extends and differs from that by freeman and medoff which presents unionism estimates for the private sector for 1968 75 to facilitate longitudinal analysis this paper reports three year moving averages of occupational and industry data and annual estimates of demographic classifications the data include public sector as well as private sector workers and they exclude workers not covered by the national labor relations act also the authors provide only union membership estimates not estimates on workers covered by union contracts this paper suggests that the percentage of all workers that are unionized in the united states remained fairly constant over the 1973 81 period

brain drain informality and inequality a search and matching model for sub saharan africa abstract this paper revisits the effect of brain drain on development and inequality using a two sector model with formal and informal labor markets contrary to existing studies we use a search and matching setting that allows to endogenize the employment structure and the wage differentials between different skill groups in the same sector and between workers with identical skills employed in different sectors theoretically the brain drain induces ambiguous welfare effects for those left behind as the potential loss gain depends on the parameters of the model we thus parameterize our model on 33 sub saharan african countries and produce comparative results for each of them we find that skilled emigration induces heterogeneous welfare losses for the low skilled population the size of these losses varies between 0 2 and 8 and is influenced by the parameters of the production and education technologies the results are fairly robust to identifying assumptions to the inclusion of technological externalities and to the endogenization of training decisions

to be unionized or not to be a case for cost raising strategies under cournot oligopoly abstract this paper analyses the decision by firms under cournot oligopoly as to recognize unions in order to gain market power despite higher costs considering classical models of union firm bargaining namely right to manage rtm and efficient bargaining eb we show that for a sufficiently low level of union power eb firms might adopt cost raising strategies this theoretical prediction is compatible with some empirical evidence in favour of eb and adds to the theoretical finding that eb might dominate rtm under unionized cournot nash oligopoly it also suggests closer antitrust scrutiny as whether unions can provide cartel like services to oligopoly firms allowing them to distort product market competition at the expense of consumers

formal measures of the informal sector wage gap in mexico el salvador and peru using comparable micro level data from three countries we ask what type of person works in the informal sector and whether informal workers earn lower wages than observationally equivalent workers in the formal sector the characteristics of informal workers are similar across countries surprisingly when we control for these personal characteristics we find a significant wage premium associated with formal employment in el salvador and peru but a premium associated with work in the informal sector in mexico a model of endogenous selection offers little help in explaining the differences in wage patterns the research casts doubt on the received wisdom that the informal sector always and everywhere is a poorly paid but easily entered refuge for those who have no other employment opportunities this abstract was borrowed from another version of this item

plant level concession bargaining the author investigates the reasons for the diversity in concession bargaining experience among plants in the meatpacking and tire industries in 1981 negotiations about one third of the plants in each industry engaged in concession bargaining and the others did not the author hypothesizes that this pattern resulted from interplant differences in the likelihood of layoffs or shutdowns measured by factors such as plant age and size relative wage level and nature of product regression analysis of the data from union and employer sources supports the author s hypothesis

worker substitutability and patterns of unionisation a strategic three party bargaining model is developed in which one distinguished party the firm has to reac h agreements with the other two each of which is a group of workers in the prebargaining stage the two worker groups decide whether to organize jointly or separately the main observation relates the equi librium pattern of unionization to the substitutability in production between the two groups the outcome is joint or separate unions acco rding to whether the two groups are substitute or complementary facto rs of production the analysis also considers possibilities for firm s strategic intervention in the unionization process copyright 1988 by royal economic society

economic growth international competitiveness and environmental protection r d and innovation strategies with the warm model abstract it is often argued that policies designed to protect the environment may harm economic growth moreover if introduced unilaterally by a given country they may reduce the competitiveness of domestic firms these arguments are generally based on the assumption that environmental protection has to be achieved through the introduction of emission charges e g a carbon tax however three issues need to be raised first the tax is not the only policy instrument and is not the most efficient one that can be used to reduce polluting emissions secondly even when a tax policy is implemented it is important to assess the feedback effects induced by recycling the tax revenue thirdly and most importantly the role of technical progress cannot be neglected therefore there may exist a policy mix that provides firms with the correct incentives to adopt energy saving technologies and to invest in environment friendly r d the first two issues have partly been explored both in the theoretical and empirical literature the third issue i e the role of incentives to technical progress still lacks adequate quantitative assessment this is why a new model has been developed which endogenizes technical progress and its effects and feedbacks on economic energy and environmental variables using warm an econometric general equilibrium model for the european union and for each member country this paper presents simulation results up to 2015 of the effects of some industrial environmental policies which are aimed at protecting the environment without necessarily damaging competitiveness and economic growth the results show that policies that stimulate environmental r d technological innovation and diffusion may provide firms with the correct incentives to avoid damaging the environment while preserving their competitiveness in the market moreover such a policy based both on r d subsidies and on innovation incentives may not worsen the public sector budget balance as a result of the positive effects on economic growth

platform selection in the lab abstract emerging literature explores experimental platform selection games these games converge rapidly on the superior platform under a wide range of conditions we replicate the remarkable results of hossain and morgan 2009 in which such a game tips almost perfectly to the superior platform next we show that platform coordination fails when seemingly innocent increases in out of equilibrium payoffs are introduced the inflated payoffs keep the best reply structure unchanged and do not influence players security levels our design allows control for the explanatory force of risk dominance we find that equilibrium selection theory is unable to account for coordination failure while observed behavior is consistent with non rational learning furthermore and contrary to the literature we find that efficiency suffers when an inferior platform is granted initial monopoly

average q marginal q and the relation between ownership and performance abstract using average performance measures as the literature does to investigate the relation between ownership structure and performance suffers from severe drawbacks we propose a marginal tobin s q and argue for its superiority

informality over the life cycle abstract in developing countries informality is mainly concentrated among younger and older workers and low skilled workers in this study we propose a dual labor market theory that highlights how frictions and taxation in the formal sector and educational choices interact to shape the informality rate over the life cycle we develop a life cycle model with search frictions skill heterogeneities and endogenous educational choices we carry out a numerical analysis and show that our model reproduces remarkably well the life cycle patterns of informality non employment and formal employment in argentina we analyze several public policies and show that an educational grant reduces both informality and non employment and may be fully financed by the extra tax revenues generated by the increase in formal employment and wages lowering taxes may achieve similar results but is detrimental to the government budget despite increasing the base on which they are levied

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

unemployment vs mismatch of talents reconsidering unemployment benefits we develop an equilibrium search matching model with risk neutral agents and two sided ex ante heterogeneity unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job we show through calibrations how the mere difference on unemployment insurance when countries experience a common skilled biased technological shock may result in differences in unemployment productivity growth and wage inequality these results are consistent with the contrasting performance of the labour market in europe and the united states in the last twenty five years the model is used to address some political economy issues

labor market institutions taxation and the underground economy abstract the paper aims at qualifying the links between labor market institutions taxation tax monitoring and underground economic activity the proposed model is a continuous time matching model with one commodity roduced either overground or underground underground economic activity arises because of partial compliance with regulations and tax contributions imposed by the government vacancies and workers search are directed at a specific labor market workers are heterogenous in the subjective cost they face when operating in the irregular sector analytical and numerical investigations suggest that interactions between regular and irregular activities can affect standard results of policy interventions in that respect the paper supports the view that policies aiming at increasing individuals benefits of participating in the regular sector are more desirable than a deterrence policy

modelling the informal sector formally abstract the theoretical characterization of formal informal sector dualism by labor market dualism is integrated with its empirical characterization by size dualism by supposing that the minimum formal sector wage is only enforced for firms greater than a certain size a firm s size varies directly with the talent of its enterpreneur manager and the choice between formal and informal sector entrepreneurship is determined endogenously it is then shown that the size gap between the smallest formal sector firm and largest informal sector firm varies directly with the formal informal sector wage differential which in turn is shown as expected to increase the further is the minimum wage above the market clearing wage the comparative statics of changes in the size of the firm above which the minimum wage is enforced are also examined

contractual dualism market power and informality we develop a search theoretic model of contractual dualism in formal and informal labour markets the model i provides the micro underpinnings for endogenous determination of employer market power in the formal and informal sectors ii offers a unified and coherent set up whereby a host of salient features of developing country labour markets can be explained together and iii places for the first time the stiglerian prescription of the optimal unemployment minimising minimum wage in the broader context of labour markets where formal job creation is costly where employer market power is endogenous and where formal employment informal employment and unemployment coexist

bilateral monopolies and incentives for merger the paper presents a model of duopoly in which firms acquire inputs through bilateral monopoly relations with suppliers it combines a bargaining model with a duopoly model to examine how input pri

informal sector the credit market channel abstract we build a model of firms choice between formality and informality complying with costly registration procedures allows the firms to benefit from key public goods enforcement of property rights and contracts that make the participation in the formal credit market possible in a moral hazard framework with credit rationing their decision is shaped by the interaction between the cost of entry into formality and the relative efficiency of formal versus informal credit mechanisms and their related institutional arrangements the model is consistent with existing stylized facts on the determinants of informality

the determinants of strikes in the united states 1900 1977 this study aims to assess the recent debate that has emerged in the literature over the economic and organizational political models of strikes and to propose and test a synthesis of those models as an explanation for the pattern of strike activity in the united states since 1900 the paper begins with a review of strike activity in the post 1900 period and then develops a conceptual framework incorporating six factors the size of union membership economic conditions political events institutional arrangements psychological variables and the extent of rival unionism to explain this historical pattern the second part of the paper contains a regression analysis of strike activity over the 1900 1977 period the regression results show that both the economic factors of unemployment and inflation and various noneconomic factors such as changes in union membership the outbreak of world war ii and enactment of new deal legislation are significant in explaining variations in strike activity during t

break up fees and bargaining power in sequential contracting abstract when a buyer negotiates in sequence with two potential sellers of a good the outcome of each negotiation depends on all three players bargaining powers assuming all parties are symmetrically informed we find that the first seller s payoff is increasing in his own and the second seller s bargaining power on the other hand the second seller s payoff is decreasing in the first seller s bargaining power and in some cases also in his own bargaining power we characterize when contracts will contain break up fees all results extend to the case of a seller negotiating in sequence with two buyers

informality and the labor market effects of financial crises abstract we provide evidence based on a large sample of countries on the effects of financial crises on key labor market indicators including official and unofficial employment unemployment and the participation rate crises are followed by a drop in the official market participation rate and by an increase in informal employment these responses are strongly persistent empirical results are then interpreted with a dsge model which accounts for informality and for financial and labor market frictions in this framework the informal sector acts as a buffer which absorbs workers in bad times and vice versa our simulations suggest the informal sector also is a crisis amplifier for the official economy for a given financial shock the ensuing contraction in the official economy is deeper and more persistent the larger the initial size of the unofficial sector this implies that in less developed economies financial crises cause a relatively stronger reallocation of inputs towards less efficient sectors expose a larger fraction of the population to the adverse effects of informality cause a sharper deterioration of public finances limiting governments ability to supply public goods and to engage in countercyclical fiscal policies

is pattern bargaining dead this paper challenges the common belief that pattern bargaining largely ended in the 1980s applying a measure of pattern bargaining the dispersion of log wages to wage data drawn from the same data set that audrey freedman used in her widely quoted studies of this subject the author shows that the extent of pattern bargaining was actually greater in 1983 than in 1977 the evidence suggests that managers perceptions of changes in the bargaining process which are the basis for freedman s claim that pattern bargaining has eroded are inconsistent with actual changes in wage patterns

the welfare effects of third degree price discrimination in intermediate good markets the case of bargaining this article examines the welfare effects of third degree price discrimination by a monopolist selling to downstream firms with bargaining power one of the downstream firms the chain store can integrate backward at lower cost than rivals bargaining powers also depend on disagreement profits bargaining weights and concession costs if the chain s integration threat is not credible price discrimination reduces the input price charged symmetric downstream firms and often reduces the average input price charged asymmetric downstream firms

bargaining power fear of disagreement and wage settlements theory and evidence from u s industry the paper develops and estimates a theoretical model of wage determination and union nonunion wage differentials in order to overcome the institutional ctiticisms of the formal bargaining literature the paper generalizes the nash zeuthen harsanyi model by linking the solution to the institutional concepts of bargaining power and fear or cost of disagreement and by making the outcome depend not only on endogenous but also on exogenous factors an operational specification of bargaining power and fear of disagreement allows the model to be estimated with data covering twelve companies and trade unions during the period from mid 1950 s to the late 1970 s while giving limited support to the nashzeuthen harsanyi solution the empirical analysis indicates that the bargaining outcome usually deviates from the nash zeuthen harsanyi point and in accordance with the institutionalist claim that it varies significantly with exogenous factors contrary to the traditional labor economics view the results do not support the general conclusion that the bargaining solution lies on the marginal revenue product curve of labor instead the relevant coefficients suggest that for many firms and unions the outcome might be better characterized by the efficient contract vertical contract curve

on the job search in a labor market model ex ante choices and ex post outcomes abstract this paper builds a multi sector labor market model including wage dualism open unemployment underemployment on the job search and expected wage equalization the innovative feature of this model is the distinction between the ex ante allocation of the labor force among search strategies and the ex post allocation of the labor force among labor market outcomes among the findings are more efficient on the job search lowers the equilibrium unemployment rate in a rational expectations equilibrium the average rural and urban wages will not be equal modern sector enlargement may leave labor market conditions in one of the sectors unchanged even when wages and employment in that sector are fully flexible

countervailing power and consumer prices this paper considers the importance of countervailing power manifested as the effects of increased retail concentration on consumer prices and welfare within a market setting where imperfectly competitive retailers negotiate intermediate prices with a monopoly supplier only when retailer services are regarded as very close substitutes do final prices fall following a reduction in the number of retailers even in these circumstances the social benefits of countervailing power may not be realised as the supplier may seek to protect its profits by using a refusal to supply restraint to engage in exclusive trading

multiunit bargaining in oligopolistic industries a model of wage determination in unionized oligopolistic industries is developed and used to compare the outcome of collective bargaining under two different bargaining structures one in which the workers of each firm are represented by separate and independent unions local bargaining and one in which a national union represents all workers in the industry in both cases the bargaining problem has a unique outcome with industrywide bargaining resulting in higher wages in addition industrywide unions are inherently stable in that there are no incentives for independent unions to attempt to cheat on the collusive agreement

on the todaro paradox this paper presents a version of the harris todaro model in which the rural labour market is characterised by monopsonistic behaviour it is shown that the todaro paradox i e that the creation of jobs in the urban sector actually increases urban unemployment does not hold if the urban employed outnumber the urban unemployed the latter is the rule in all ldcs

unions in oligopolistic vertically connected industries a model of two unionized vertically connected oligopolistic industries is analyzed economic performance measured by consumer prices depends on the institutional setting of wage bargaining two externalities may occur namely an integration and a competition externality which have contrary effects with decentralized bargaining no externalities can be internalized resulting in low consumer prices with bargaining at the industry level only the competition externality is internalized resulting in high prices with centralized bargaining both externalities can be internalized resulting again in low prices with at least two firms in each industry the decentralized setting performs best performance improves with an increase in the competition of the product markets author s abstract

inefficient standard adoption inertia and momentum revisited i introduction since the establishment of the theory of network effects economists have been concerned with the question of whether a market with network effects will tend to settle on the socially optimal standard it has been postulated that markets may exhibit excess inertia once a technological standard is in place a new superior standard may not displace it because of installed base effects alternatively markets may exhibit excess momentum consumers may adopt a new standard too quickly ignoring the stranding effect they are having on previous users similar issues arise in the adoption of language and social norms the literature has investigated various conditions under which one of these inefficiencies arises such inefficiencies are of particular concern for open technologies such as the qwerty and dvorak keyboards 1 the situation is somewhat different when individual firms own standards in that case a simple argument seems to indicate that there is no possibility that an inefficient standard will persist if a new standard is superior in any objective sense there are gains to be made from switching to it once the standard has been adopted the firm can appropriate these gains therefore the firm has incentive to lower the initial price enough to induce adoption of the standard the preceding argument is made in liebowitz and margolis 1999 and repeated in spulber 2002 spulber expresses a general skepticism about the likelihood of inefficiencies when property rights are defined and markets exist critics might claim that previous models that imply inefficient standard adoption are unrealistic in some way and that if such models were modified slightly the inefficiency would disappear i reconsider the issue of inefficient standard adoption using a parsimonious yet compelling model assuming only that there are successive generations of finitely lived consumers that preferences are heterogeneous and that there are network effects among users adoption decisions can be inefficient this is true even if consumers can coordinate efficiently within a generation and a firm can act as a coordinating device across generations the model presented here generates some of the same results found in other papers collectively but in a more general setting and with more robust results if there is an established standard and a superior alternative emerges no single generation of consumers will be willing to switch to the new standard if the switching cost the loss of network benefit from breaking with past users is too high it may be that the benefits to future generations of consumers are large enough that from a social standpoint it would be efficient for one generation to adopt the new standard even if it is privately optimal for that generation to retain the old standard on the other hand the current generation considers only its own switching cost and not the cost it imposes on the previous generation leading to potential overadoption of new technology even for proprietary standards it is not clear that the incentive of the firm to induce adoption matches the social incentive in particular if consumer preferences are heterogeneous the firm will not be able to price in such a way to extract all of the additional surplus gained from the new standard on the other hand the firm will be able to appropriate some of the surplus generated by the network effect itself which is present for any standard and thus does not affect the social incentive to change standards it is not possible to address this issue with a two period model as in some of the previous literature see for example choi 1994 choi and thum 1998 katz and shapiro 1986 if a new technology is introduced in the second period but then the game ends the welfare of future generations of consumers is neglected 2 this article also differs from previous infinite horizon models of technology adoption

taxes inequality and the size of the informal sector abstract in this note we develop a simple heterogeneous agent model with incomplete markets to explain the prevalence of a large low productivity informal sector in developing countries in our model taxes levied on formal sector agents are used to finance the provision of a productive public infrastructure which creates a productivity premium from formalization our model offers endogenous differentiation of rich and poor countries complete formalization is an equilibrium only in countries with the appropriate initial conditions we discuss the existence of this equilibrium and highlight the ambiguous effect of taxes

spatial mismatch in search equilibrium we construct a search equilibrium model for a city with central and suburban labor markets that is consistent with the set of empirical regularities commonly associated with the spatial mismatch hypothesis a higher rate of unemployment for central city residents than suburban residents a higher job vacancy rate for suburban firms and reverse commuting and higher suburban wages the effectiveness and welfare implications of public policy programs that might be used to remedy the underlying mismatch are examined

the strategic choice of union oligopoly bargaining agenda abstract this article analyzes the optimal choice of union oligopoly bargaining agenda i e right to manage versus efficient bargaining under possible market entry it is shown that agreement by both the union and the incumbent firm about efficient bargaining emerges as equilibrium in nash strategies even more so under non blockaded entry for deterrence motives this is consistent with the common empirical findings that unionized firms do not behave according to the prediction of the right to manage model that employment will be on the labor demand curve the entry deterrence effect highlighted in this paper also suggests that labor market organization should not be overlooked as a component of the welfare analysis of product market competition

the competition effects of industry wide vertical price fixing in bilateral oligopoly this paper examines the competition and welfare effects of vertical price fixing through industry wide resale price maintenance rpm arrangements such as those benefiting from exemption from a general prohibition against rpm a bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services transactions between the stages involve prices being determined through bargaining we do not find rpm to be universally undesirable however where retailer power is strong the social effects of rpm are likely to be adverse since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising

the effects of labour market policies in an economy with an informal sector in this article we build an equilibrium search and matching model of an economy with an informal sector our model extends mortensen and pissarides 1994 by allowing for ex ante worker heterogeneity with respect to formal sector productivity we use the model to analyse the effects of labour market policy on informal sector and formal sector output on the division of the workforce into unemployment informal sector employment and formal sector employment and on wages finally we examine the distributional implications of labour market policy specifically we analyse how labour market policy affects the distributions of wages and productivities across formal sector matches in this article we construct a search and matching model that we use to analyse the effects of labour market policies in an economy with a significant informal sector what we mean by an informal sector is a sector that is unregulated and hence not directly affected by labour market policies such as severance or payroll taxes we find that labour market policies that apply only to the formal sector nonetheless affect the size and the composition of employment in the informal sector this is important since there is substantial economic activity in the informal sector in many economies particularly in developing countries estimates for some latin american countries put the informal sector at more than 50 of the urban work force 1 the informal sector is also important in many transition countries as well as in some developed economies 2 although much of the literature treats the informal sector as a disadvantaged sector in a segmented labour market framework this interpretation is not consistent with recent empirical evidence from latin america under a segmented or dual labour market interpretation one would expect jobs to be rationed in the primary sector and workers to be in the secondary or informal sector involuntarily and to be queuing for formal sector jobs maloney 2004 presents evidence for several latin american countries that challenges this view and instead interprets the informal sector as an unregulated micro entrepreneurial sector similarly using data from the argentinian household survey pratap and quintin 2006 reject the notion that labour markets are segmented in the greater buenos aires area concluding that there is no evidence of a formal sector wage premium after controlling for individual and establishment we thank mauricio santamaria for stimulating conversations that inspired our interest in this topic we also thank bob hussey and fabien postel vinay as well as our editor steve pischke and two anonymous

regulation of entry labor market institutions and the informal sector abstract this paper develops a two sector matching model that incorporates the main features of latin american labor markets it has an innovation in its matching structure that makes it more consistent with some key stylized facts of the informal sector in these countries the model is numerically solved using brazilian data and several policy simulations are performed reducing formal sector s entry cost significantly reduces the size of the informal sector and improves overall labor market performance increasing enforcement significantly reduces informality but has strong adverse effects on unemployment and welfare thus the results indicate that the tradeoff between lower informal employment and higher unemployment rates is not present when one looks at policies that aim at reducing the costs of being formal as opposed to policies that simply increase the costs of being informal

ranking unemployment duration and wages it explores the implication of one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time this assumption ranking is contrasted with the assumption of random hiring no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching the joint behaviour of unemployment the distribution of unemployment durations and wages are characterized the implication that the re employment prospects of employed workers were they to become unemployed are better than those of the currently unemployed appears to have been an important feature of european unemployment experience in the 1980 s this paper examines the effects of the composition of unemployment on wage determination it explores one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time we refer to this assumption as ranking and contrast it throughout to the assumption of random hiring or no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching we characterize the joint behaviour of unemployment the distribution of unemployment durations and wages ranking has a number of important implications first in addition to the obvious result that the exit rate from unemployment is a decreasing function of duration we show that the effect of duration is stronger the higher the rate of unemployment second with the wage depending on the distributions of prospective unemployment durations the presence of long term unemployed per se has little effect on wages third looking at the relation between the wage and the aggregate level of unemployment and comparing ranking to the case of no ranking the wage moves less with the level of unemployment but more with the change in unemployment put simply ranking and no ranking models show exactly the same aggregate unemployment slightly different long run responses of wages to unemployment and sharply different wage dynamics the paper is organized as follows section i characterizes the matching process and derives a matching function based on an urn ball process with vacancies as urns and applications by unemployed workers as balls thus the distribution of applications per vacancy depends on aggregate unemployment and vacancies vacancies with at least one acceptable application are filled when a vacancy receives more than one acceptable application firms use a rule to choose among applicants thus the rule determines who is hired but does not affect the number of hires section ii uses this matching function in a model of the labour market with continual job creation and destruction and characterizes the equilibrium values of unemployment vacancies and hires

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

pareto improving immigration in an economy with equilibrium unemployment economists from around the industrialized world demonstrate the strength of both theories about the rise of economic inequality that is it the mechanical consequence of changes in such economic fundamentals as technology and demographic parameters and that it is the contingent consequence country specific and time specific changes in institutions they find that though institutions always play a crucial role in shaping inequality and sometimes preventing it still it creeps in

is pattern bargaining dead a discussion in her article is pattern bargaining dead kathryn j ready suggests that pattern bargaining actually strengthened during the period 1977 83 a period commonly thought to mark a sharp decline in union bargaining power and settlements ready s conclusion that hourly wages were more similar across a sample of union firms in 1983 than in 1977 is used to suggest that perhaps unions are still able to enforce pattern bargaining and therefore that their bargaining power did not in fact collapse as is commonly assumed indeed if they are more able to enforce patterns perhaps their power has actually increased this conclusion bears closer scrutiny because it runs counter to a considerable body of evidence on contemporary collective bargaining pattern bargaining refers to relationships between sets of negotiations for example an agreement with one employer may form the basis for bargaining with other firms in the same industry or in some cases across industries unions and their bargaining power have generally

informality in developing economies regulation and fiscal policies abstract this paper proposes a unified theoretical framework where formal and informal firms coexist and face the same type of product and labor market imperfections they have monopoly power in the goods market they are subject to matching frictions in the labor market and wages are determined by bargaining between large firms and their workers through either individual or collective bargaining our model matches the main stylized facts on informality for developing countries and appears to be a good candidate for policy analysis in this framework we study the impact on informality wages and unemployment of policies that may be used to reduce informality we consider changes in product market regulation pmr and in two types of fiscal policies labor taxes and formality enforcement we find that lessening pmr decreases informality and unemployment simultaneously indicating that there is not necessarily a tradeoff between informality and unemployment the tradeoff appears when fiscal policies are used though moreover the impacts of pmr on unemployment and on wages are larger under collective than individual bargaining with respect to wage inequality lessening pmr reduces it while lower taxes tend to increase the formal sector wage premium

the impact of corporate governance on investment returns in developed and developing countries we shed light on three conundrums in the literature on investment why investments out of different sources of finance earn different returns why different studies report different patterns of returns across sources of finance and why companies in developing countries make greater use of external equity capital to finance their investment than do companies in developed countries we show that the strength of corporate governance systems affects the preferred source of financing which in turn helps to explain why investments financed in different ways exhibit significantly different rates of return we find considerable differences between developed and developing countries in the effectiveness of corporate governance systems in aligning managers and shareholders interests

rates of return on corporate investment in the last two decades productivity has lagged in the united states markets have been lost to foreign competition real income per capita has grown slowly this experience has led to considerable discussion of possible causes 7 one possible cause often mentioned is the quality of managerial investment decisions managers have been accused of overinvesting in obsolete technologies of underinvesting in risky projects with long run payoffs of undertaking unprofitable mergers and of overall poor judgment in their investment policies 39 this paper presents evidence on the returns on investment over the 1970 88 period for a sample of 699 large corporations that is consistent with this view

collective bargaining in small firms preliminary evidence of fundamental change this analysis of 481 negotiations in michigan over the period 1987 91 suggests that fundamental changes may have occurred recently in collective bargaining in small firms only 33 of the negotiations conformed to the traditional model of arm s length collective bargaining the balance involved either highly contentious or highly cooperative relations further in only one sixth 17 of the cases was the contract settled within one week before or after the contract expiration delays were more common and longer in negotiations in which settlements were implemented unilaterally by management over labor s objections than in cases involving strikes concessions figured prominently in the majority of the negotiations in the sample with a shift from wage to benefit concessions occurring during the period examined

unionization structure licensing and innovation we show the effects of the unionization structure viz decentralized and centralized unions on a firm s incentive for technology licensing and innovation the incentive for technology licensing is stronger under decentralized unions we identify circumstances under which the benefit from licensing creates a stronger incentive for innovation under decentralized unions if the union s preference for employment is high the benefit from licensing may create higher incentive for innovation under decentralized unions however if the union s preference for wage is high enough the incentive for innovation is higher under a centralized union irrespective of licensing ex post innovation if the centralized union decides whether or not to supply workers to all firms the possibility of higher innovation under decentralized unions increases we further show that perfectly substitutable workers can be better off under decentralized unions if the labor productivity depends on the unionization structure which occurs in our analysis when e g licensing after innovation occurs only under decentralized unions or innovation with no licensing occurs only under a centralized union

informal labor markets and on the job training evidence from wage data i introduction this study explores the role of informal jobs in the formation of human capital among young less educated workers an informal job is a job that fails to comply with some or all of the labor regulations 1 the set of all informal jobs constitute what is typically known as the informal sector due to the lack of compliance with the labor laws informal jobs are not registered with the authorities 2 however it is often argued that compliance with these laws is of great significance in developing countries to ensure social justice for workers berg and kucera 2008 and to protect them against the forces of reallocation in the labor market inter american development bank 2003 in spite of these arguments the lack of compliance with these mandates in developing countries is common practice leading to the existence of sizable informal labor markets especially among the youth and the less educated 3 hence the importance of understanding what role the informal sector is playing in the lives of young less educated workers the traditional views of the informal sector in the literature are that of a sector that is the last resort for many workers who are rationed out of the protected and better paid jobs in the formal sector e g ozorio de almeida et al 1995 or that it is the disadvantaged sector in a segmented labor market e g fields 1975 harris and todaro 1970 4 the support for these views of the informal sector is mixed in the literature the work of maloney 1999 amaral and quintin 2006 and galiani and weinschelbaum 2012 suggests that the existence of informal labor markets is not necessarily evidence of segmentation and that could be an equilibrium outcome in a competitive labor market however the work of arias and khamis 2008 presents some evidence that is consistent with the rationing of formal salaried jobs and with segmentation in the labor market 5 despite the ongoing debate informal jobs play an important role in the work lives of less educated workers maloney 1999 argues that informal salaried jobs serve as the main point of entry for young poorly educated workers into paid employment the current study further explores this idea focusing on the group of young less educated workers in mexico the study explores the extent to which less educated workers in the informal sector experience wage growth and how wage growth in the informal sector compares with wage growth in the formal sector the basic question is whether informal jobs offer wage growth and skill accumulation to less educated workers and how it compares with formal jobs the empirical analysis uses a household survey from mexico the enoe acronym in spanish for encuesta nacional de ocupacion y empleo the panel structure of the survey allows the construction of measures of wage growth and continuing sector participation the results indicate that young less educated workers in the informal sector experience faster wage growth than their peers in the formal sector based on existing models of on the job training acemoglu and pischke 1999a 1999b becker 1993 stevens 1994 this result suggests that informal jobs offer valuable general training opportunities to young less educated workers the literature provides little evidence on wage growth in the informal sector or on how it compares with wage growth in the formal sector there is some evidence on the wage gain or loss from informality for example maloney 1999 and alcaraz et al 2011 provide estimates of the wage change associated with transitions between the formal and informal sectors in mexico the results in both studies indicate that informal to formal transitions are associated with positive wage changes while transitions in the opposite direction are associated with negative wage changes however none of these two studies provide evidence on wage growth experienced by workers in the informal sector or how it compares to wage growth in the formal sector

the determinants of strike incidence and severity a micro level study this paper investigates the determinants of strike incidence and severity during labor contract negotiations the author develops a model that considers the forces influencing both unions willingness to strike and employers willingness to take a strike and estimates it using data describing 1 050 negotiations in u s manufacturing during the 1971 80 period the results indicate that strike incidence is influenced by the gender composition of the labor force demand fluctuations in the product market location in a right to work state the number of workers in the bargaining unit union density in the industry and the extent to which wages kept pace with inflation over the prior contract period on the other hand neither the local unemployment rate when negotiations began nor the inflation rate over the term of the expiring contract influenced strike incidence or severity in this sample