rational versus adaptive expectations in present value models using data on stock price and dividends and on long term and short term interest rates we test an important implication of present value models that current value is a linear function of the conditional expectations of the next period value and the current determining variable this implication combined with rational expectations re is strongly rejected combined with adaptive expectations ae it is accepted the latter model can also explain the observed negative relation between the rate of return and stock price thus the re assumption should be used with caution the ae assumption may be useful in econometric practice

relaxing intertemporal separability a rational habits model of labor supply estimated from panel data this article relaxes the assumption of separability of preferences over time that although implausible is usually maintained in life cycle labor supply models an empirically tractable rational habits model is specified and estimated on the basis of a 10 year sample of men from the michigan panel of income dynamics the effect of past hours of work in determining current hours decisions is found to be very important and well determined having allowed for permanent individual differences and for time effects

europe vs america institutional hysteresis in a simple normative model we show how the differences in us and european institutions can arise in a normative model the paper focuses on the labor market and the government s decision to set unemployment benefits in response to an unemployment shock the government balances insurance considerations with the tax burden of benefits and the possibility that they introduce adverse incentive effects whereby benefits increase unemployment it is found that when an adverse shock occurs benefits should be increased most when the adverse incentive effects of benefits are largest adjustment costs of changing benefits introduce hysteresis and can help explain why post oil shock benefits remained high in europe but not in the us desirable features of the model are that we obtain an asymmetry out of a symmetric environment and that the mechanism yielding hysteresis is both simple requires the third derivative of the utility function to be non negative and self correcting empirical evidence concerning the role of corporatism is discussed

annual hours and weeks in a life cycle labor supply model canadian evidence on male behavior estimates of the intertemporal labor supply behavior of males in canada using micro data are reported individuals make the intertemporal labor supply decision on the basis of annual hours and weeks precision of the parameter estimates is improved by using tenure variables as instruments for the wage further the age and tenure variables are allowed to have taste parameters in the structural equations the evidence suggests that this is required only for the two age variables elasticity evidence suggests that evolutionary changes in the wage cause changes in the number of weeks with the elasticity being 0 6 and statistically significant

the long term effects of ui extensions on employment the majority of papers analyzing the employment effects of unemployment insurance ui benefit durations focus on the duration of the first unemployment spell in this paper we make two contributions first we use a regression discontinuity design to analyze the long term effects of extensions in ui durations these estimates differ from standard estimates in that they incorporate differences in ui benefit receipt and employment due to recurrent unemployment spells second we derive a welfare formula of ui extensions that incorporates recurrent nonemployment spells

on the price of recreation goods as a determinant of male labor supply we examine whether and how variations in the price of recreation goods influence men s allocation of market work for the united states individual level data are combined with metropolitan area level price indices to estimate the male elasticity of intertemporal substitution of market work with respect to the price of recreation goods which is found around 0 16 and statistically significant the allocation of market work in response to changes in the price of recreation goods would create movements in the output of an economy moreover it could contribute toward explaining the emerging differences in work and leisure between the united states and europe

labor unemployment risk and corporate financing decisions this paper examines the impact of labor unemployment risk on corporate financing decisions theory suggests that firms choose conservative financial policies partly as a means of mitigating worker exposure to unemployment risk using changes in state unemployment insurance benefit laws as a source of variation in the costs borne by workers during layoff spells we explore the connection between unemployment risk and the corporate financing decisions of public firms in the united states we find that increases in legally mandated unemployment benefits lead to increases in corporate leverage the impact of reduced unemployment risk on financial policy is especially strong for firms that have greater layoff separation rates labor intensity and financing constraints the estimated premium required to compensate workers for unemployment risk due to financial distress is about 57 basis points of firm value for a bbb rated firm these findings suggest that labor market frictions have a significant impact on corporate financing decisions

a model of labor supply fixed costs and work schedules abstract to analyze labor supply allocations we propose a three dimensional labor supply framework that distinguishes between hours worked per day days worked per week and workweeks individuals make labor supply choices given heterogeneous schedule dependent fixed costs of work the three margins are not perfect substitutes leisure on days not worked in a workweek has the largest weight in preferences leisure on weeks off has the smallest weight we use the model to analyze heterogeneous response to changes in fixed costs schedule flexibility and restrictions on weekly hours fixed costs of work affect response to each policy and determine associated losses

the economic effects of unemployment insurance in canada an empirical analysis of ui disentitlement this article provides an overview of the canadian unemployment insurance ui program including its evolution salient features relative size and knowledge about its labor market impacts understanding of these impacts is limited and we conclude that an event study approach is a promising way to further this knowledge we examine the effects of the 1976 ui disentitlement of the elderly on their labor force behavior and find evidence of significant adverse selection effects interactions with the public pension system suggest that poverty among the elderly could be best addressed through changes in programs other than ui

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

implicit contracts life cycle labor supply and intertemporal substitution the implicit contract model is a serious alternative to the spot market interpretation of the labor market however its usefulness has been limited because the wage is unobserved and hence it has not been possible to estimate an intertemporal frisch supply elasticity for the model using microdata in this article we show that one can estimate this elasticity from microdata within the context of the implicit contract model under relatively weak assumptions based on consumer theory we implement our approach on two micro data sets and for both obtain a reasonably precise elasticity estimate of approximately 1 0

state credit programs and the peasantry under populist regimes lessons from the apra experience in the peruvian amazon abstract a study near iquitos peru finds that a national agricultural program implemented in the late 1980s which provided peasants with access to credit secure land tenure and grassroots organization promised to reduce rather than improve the welfare of intended beneficiaries new economic conditions and strategic behaviors engendered by the program threatened to combine through a process of community enclosure and competitive exclusion to undermine the subsistence viability of peasant communities general lessons are drawn for more effective rural development programs ones that pay particular attention to direct and indirect feedback effects of macroeconomic policy the factors that limit peasant economic competitiveness and to the fundamental spatiality of development processes

unemployment insurance and male unemployment duration in canada a model of unemployment duration is estimated with weekly micro data on canadian men entitlement provisions in the unemployment insurance program and demand conditions are found to have a significant effect on the probability of leaving unemployment the probability of a worker leaving unemployment declines with the duration of unemployment holding unemployment insurance entitlement constant when entitlement is allowed to vary the probability of leaving first falls and then generally rises with unemployment duration these results are robust with respect to allowing for person specific unobserved heterogeneity and alternative specifications of duration dependence

how do unemployment insurance and recall expectations affect on the job search among workers who receive advance notice of layoff this paper explores how advance notice of layoffs recall rehiring expectations and unemployment insurance ui benefits affected on the job search among a random sample of arizona ui recipients in 1975 76 the analysis which includes extensive controls for the characteristics of workers and their jobs indicates that pre unemployment search increased with length of notice and decreased with expected recall also among workers not expecting recall pre unemployment search decreased with the level of ui benefits available after layoff the authors argue that improved experience rating would encourage firms to give employees advance notice when layoffs are imminent and re employment bonuses for workers with zero or short unemployment spells would encourage early search

equilibrium taxation and experience rating in a federal system of unemployment insurance abstract this paper seeks to explain why there is apparent redistribution of tax burdens in ui systems from high to low unemployment firms in addition to providing reasons for the direction taken by redistribution the model interprets the accompanying institution of imperfect experience rating defined as the practice of taxing firms by less than a dollar for every dollar of benefits paid a firm s employees the null hypothesis views the design of the ui tax as the result of intentional redistribution of economic rents between industries concluding sections explore the limitations on redistribution imposed by a federal system and discuss alternative explanations for the design of the ui laws empirical evidence is provided on the redistributive hypothesis which generally receives strong support

unemployment insurance recall expectations and unemployment outcomes this paper empirically examines the importance of explicitly accounting for the layoff rehire process in the analysis of unemployment outcomes in the united states we find that the spells of individuals who initially expect to be recalled account for much more of the unemployment of unemployment insurance ui recipients than do spells actually ending in recall our results indicate that the recall and new job escape rates from unemployment have quite different time patterns and are often affected in opposite ways by explanatory variables we also find that the probability of leaving unemployment both through recalls and new job finding increases greatly around the time that ui benefits lapse over the past fifteen years many studies have empirically analyzed the determinants of individual unemployment spell durations in the united states much of this literature has used a job search framework in which the unemployed are viewed as permanently displaced workers who are unattached to jobs the possibility of recall to a former job a process not requiring search has been omitted from explicit consideration in the majority of these studies 2 an explicit treatment of the layoff rehire process is necessary for a proper understanding of the determinants of unemployment durations and of the impacts of unemployment policies in the united states for at least three reasons first temporary layoffs in which workers are often rehired by their original employers are a quantitatively quite important feature of the u s labor market 3 second expectations concerning the likelihood of recall are likely to affect the responses of employers and unemployed workers to labor market interventions such as reemployment bonuses and subsidies

taxes and employment subsidies in optimal redistribution programs this paper explores how to optimally set taxes and transfers when taxation authorities 1 are uninformed about individuals value of time in both market and non market activities and 2 can observe both market income and time allocated to market employment we show that optimal redistribution in this environment involves distorting market employment upwards for low wage individuals through decreasing wage contingent employment subsidies and distorting employment downwards for high wage individuals through positive and increasing marginal income tax rates in particular we show that whether a person is taxed or subsidized depends primarily on his wage with the optimal program involving a cut off wage whereby workers above the cutoff are taxed as they increase their income while workers earning a wage below the cutoff receive an income supplement as they increase their income finally we show that the optimal program transfers zero income to individuals who choose not to work

comments on thomason and burton bruce and atkins anderson and meyer and green and riddell we are in debt to professors thomason and burton in this issue for a thorough survey of the literature and for a careful analysis of an aspect of workers compensation programs in the united states this article raises numerous issues of interest 1 workers compensation both in terms of coverage and in terms of paid benefits is one of the largest social programs in the united states it is distinctive in that it is the only social program that involves extensive use of private insurers the article focuses on one element of the programthe settlement procedure claims can be settled either in court or out of court past studies have suggested that insurers try to pressure plaintiffs into settling out of court and that workers who are economically weaker are more susceptible to these pressures furthermore the plaintiffs lawyers it is argued play an important role in settling out of court to their clients disadvantage thomason and burton reexamine the issue using new york data and confirm earlier findings insurers cut the claim adjustment to pressure claimants into settlements which are substantially less than the compensation claimants could have received through adjudication p s5 the settlement involves a lump sum payment whereas the adjudication payments are paid over the claimant s lifetime or at least as long as the claimant suffers from loss of earnings the authors estimate the discount rate embodied in the lump sum settlement compared with weekly payments and conclude that it is about 20 they recognize that this interest rate may not seem high given the capital market conditions the claimants face actually a lump sum settlement may look like a very good deal given the savings in legal fees and the freedom the worker gains in obtaining a

does unemployment insurance crowd out spousal labor supply previous research on unemployment insurance ui has emphasized the program s effect on individual search behavior this state contingent income may also reduce the labor supply of family members during the unemployment spell we investigate this question within the context of wives labor supply responses to their husbands unemployment spells we find strong crowdout of this form of family self insurance our estimates imply that for each dollar of ui receipt wives earn up to 73 cents less the reduction in spousal hours of work is over 40 as large as previous estimates of the effect of ui on search time of husbands

simultaneously modeling the supply of weeks and hours of work among female household heads this paper explores the differential nature of labor supply decisions regarding weeks of work per year and hours of work per week among female household heads a model of labor supply that separates the weeks hours decision is presented and estimated allowing for simultaneity in the weeks hours decision as well as for the presence of either fixed costs or weeks and hours constraints the results indicate that not only are weeks and hours decisions separate from the labormarket participation decision but they are also quite different from each other although they appear to be simultaneously determined

supply side hysteresis the case of the canadian unemployment insurance system abstract this paper presents results from a 1971 natural experiment carried out by the canadian government on the unemployment insurance system at that time the generosity of the ui system was increased dramatically we find some evidence that the propensity to collect ui increases with a first time exposure to the new ui system hence as more individuals experience unemployment their lifetime use of the system increases this supply side hysteresis effect may explain why unemployment has steadily increased over the 1972 1992 period even though the generosity of unemployment insurance did not

credit constraints and the labour supply of immigrant families in canada the hours of work decisions in immigrant and nonimmigrant families are compared using an intertemporal labor supply model estimated over data from the 1981 and 1991 census of canada surveys the family investment hypothesis is evaluated the hypothesis states that the immigrant family is unable to borrow in the first years after migration and that the immigrant wife responds by working longer hours so as to support family consumption and her husband s labor market adjustment the empirical evidence in general supports the hypothesis since credit constraints are found to significantly distort the labor supply decisions of recently arrived immigrant families

a theory of quits and layoffs with efficient turnover this paper answers the efficient turnover literature s long silence regarding the quit layoff distinction treating quits as worker initiated separations and layoffs as firm initiated separations i establish that the existence of layoffs is compatible with optimizing workers and firms forming and dissolving employment matches to exploit all the gains from trade the efficient turnover approach is shown to be consistent with many empirical regularities that distinguish quits from layoffs structural implications of the model are tested on data from the psid

does the sophistication of use of unemployment insurance evolve with experience the subject of this paper is the repeat use of ui ei benefits in canada the first objective is to investigate empirically the pattern of adjustment that ui users exhibit over a multiple claim horizon our secondary objective is to investigate a behavioural channel that might potentially underlie observed adjustment effects namely individual learning effects we estimate an econometric model of how certain features of their claims change as they file subsequent claims we find strong empirical patterns suggesting that there does appear to be some sort of an adjustment process beneficiaries tend to approach a desired value for these particular facets of their ui claims there appears to be some process of growing sophistication of ui use which some might label gaming the system reflecting the adjustment of claims and the concomitant employment patterns to the provisions and rules of the regime we also uncover evidence in favour of the existence of individual learning effects ce texte examine l usage a repetition des prestations d assurance chomage au canada le premier objectif est d etudier empiriquement le pattern d ajustement des recipiendaires de prestations au fil de multiples reclamations le second objectif est d etudier un canal d ajustement des comportements qui pourrait sous tendre les ajustements observes les effets d apprentissage individuel on calibre un modele econometrique qui expose certains aspects des reclamations qui changent au fil des reclamations qui se repetent des resultats empiriques robustes suggerent qu il semble y avoir un processus d ajustement les beneficiaires tendent a s approcher de valeurs desirees pour certaines facettes de leurs reclamations d assurance chomage il semble y avoir un processus de sophistication dans l usage de l assurance chomage ce que certains pourraient appeler bien jouer avec le systeme reflechissant l ajustement des reclamations et des patterns concomitants d emploi aux dispositions et reglements du regime on decouvre aussi l existence d effets d apprentissage individuel

unemployment insurance and the business cycle an equilibrium model is developed to study the interaction of the business cycle unemployment insurance and the labor market for young men in canada the model combines optimal job oer layo and recall decisions within a numerically solved and restricted bayesian nash equilibrium we consider the long run implications of changes made to unemployment insurance in canada during the 1990s the changes lead to equilibrium increases in average rates of unemployment layos and recalls eliminating ui lowers the equilibrium unemployment

unemployment compensation finance and labor market rigidity abstract the systematic use of experience rating is an original feature of the u s unemployment benefits system at first glance experience rating does not appear to be a desirable choice for a lot of european labor markets which are characterized by high firing costs we provide a simple matching model of a rigid labor market that includes firing costs temporary jobs and a minimum wage in order to analyze this issue our analysis leads us to argue that experience rating is likely to reduce unemployment and improve the welfare of low skilled workers in france and more generally for low skilled workers in a typical rigid continental european labor market

life cycle labor supply with human capital accumulation a dynamic model of labor supply under uncertainty with endogenous human capital accumulation is developed and estimated using 1968 81 panel study of income dynamics male panel data given a learning by doing technology for human capital investment and a translog utility function structural parameters for preferences and technology are estimated from the orthogonality conditions implied by the euler equations assuming rational expectations the parameter estimates conform to economic theory simulations of the model suggest that the intertemporal labor supply elasticity with endogenous wages will rise over the lifecycle producing different policy implications than typical models with exogenous wages and constant intertemporal elasticities copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

winning isn t everything corruption in sumo wrestling although the theoretical literature on corruption is well developed empirical work in this area has lagged because it has proven difficult to isolate corrupt behavior in the data in this paper we look for evidence of corruption in an unlikely place the highest echelons of japanese sumo wrestling this paper provides strong statistical evidence documenting match rigging in sumo wrestling a non linearity in the incentive structure of promotion leads to gains from trade between wrestlers on the margin for achieving a winning record and their opponents we show that wrestlers win a disproportionate share of the matches when they are on the margin increased effort can not explain the findings winning on the bubble is more frequent when the two competitors have met often in the past success on the bubble tends to rise over the course of a wrestler s career but declines in his last year consistent with the game theoretic predictions wrestlers who are victorious when on the bubble lose more frequently than would be expected the next time they meet that opponent suggesting that part of the payment for throwing a match is future payment in kind systematic differences across wrestling stables suggest that the stables play a role in facilitating the corruption in times of increased media scrutiny the match rigging disappears this abstract was borrowed from another version of this item

budget deficit and inflation the peruvian experience the purpose of this paper is to investigate the role of huge budget deficits in peru s near hyperinflation during recent years we use the rational expectations macro model of inflation to find out effect of the anticipated budget deficits on inflation rates by using the quartely data of peru for the period 1973 1 to 1988 1 our major finding has been that the budget deficits as well as the rate of growth of money supply do have significant impact on the inflation rates in peru

moral hazard optimal unemployment insurance and experience rating abstract this paper is concerned with evaluating alternative unemployment insurance ui schemes in a dynamic economy with moral hazard we consider changes in the size and duration of ui benefits and the effects of experience rating and use a dynamic contracting approach to determine a benchmark optimal allocation radical changes in the current ui system increase welfare but not by much a move to full experience rating has distributional effects but the aggregate effects are negligible

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

testing intertemporal substitution implicit contracts and hours restriction models of the labor market using micro data we present new tests of three theories of the labor market intertemporal substitution hours restrictions and implicit contracts the intertemporal substitution test we implement is an exclusion test robust to many specification errors and we consistently reject this model we model hours restrictions as part of an endogenous switching model we compare the implicit probit equation to an unrestricted probit equation for unemployment and reject the hours restriction model for the implicit contracts model we estimate non separable within period labor supply and consumption equations we test a cross equation restriction of the model and cannot reject the implicit contracts model jel e30 j22 j60

unemployment insurance and cigarette smoking abstract we provide evidence for the causal relationship between unemployment insurance ui and individuals smoking behavior using the 1995 2011 current population survey tobacco use supplement data our identification relies on the exploitation of the exogenous variations of the maximum ui weekly benefits across states and over years instead of focusing on all unemployed people we concentrate on those who are eligible for ui benefits we find that when the maximum ui weekly benefit level increases by 100 smoking cessation increases by approximately 2 9 percentage points among the ui eligible unemployed the results are robust to various model specifications we also explore the mechanism and find suggestive evidence that the increase in the maximum ui weekly benefit leads to a decrease in the probability of over work of the respective spouse moreover the unemployed who are less educated are more responsive to the increasing ui benefits

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

the redistributive roles of unemployment insurance and the dynamics of voting abstract public unemployment insurance is analyzed as the majority voting equilibrium policy of a dynamic stochastic economy abstracting from incentive effects we focus on redistribution some results are because of the distribution of heterogeneous employment opportunities public insurance may be democratically chosen even if complete private markets exist and because of the dynamics even when agents are intrinsically homogeneous the equilibrium benefit level or duration benefit schedule deviates from what has been described as optimal in the literature the effects of differences in the average frequency or duration of unemployment on equilibrium taxes and benefits are investigated with some unanticipated results

takeup social multipliers and optimal social insurance abstract this paper examines the optimal provision of unemployment insurance ui in a framework that accounts for behavioral responses along both the intensive and extensive margins two formulations of takeup are considered in the first individuals face a takeup cost that is exogenous in the second the cost depends endogenously on the takeup rate such endogenous costs to takeup lead to a social multiplier a reduced form parameter summarizing the strength of social interactions this paper derives a formula for the optimal replacement rate in terms of the takeup and duration elasticities and the social multiplier the formula is applied by estimating the social multiplier using policy variation in ui benefit levels the results suggest that social multiplier effects account for 35 of the total effect of ui on takeup and yield an optimal replacement rate around 60 of pre unemployment wages 20 higher than previous estimates

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

canadian labour market performance in international perspective my objective is to assess canadian labour market outcomes in recent decades and to compare canada s performance with that experienced in other industrialized countries the focus is on three key dimensions employment unemployment and the structure of earnings although my main purpose in the paper is to examine the canadian record i also ask what we can learn from canada s experience about the causes of some of the salient economic developments in oecd countries the rise and persistence of unemployment in europe and the growth of income inequality in countries such as the united states the united kingdom canada and australia let s begin with the question how well has the canadian economy performed during the past three decades if our reference point is the 1950s and 1960s the answer is likely to be poorly indeed the first twenty five years following the second world war now appear as a golden era since that period real income growth has been slow earnings have become more unequally distributed and unemployment has trended upward reaching levels that would have been considered outside the range of plausibility in the 1960s however most of the advanced countries have experienced a sharp deterioration in their economic performance since the early 1970s the turbulent world economic environment has made it difficult to sustain the kind of outcomes ob

the relationship between inflation and the budget deficit in turkey this article analyzes the empirical relationship between inflation and the budget deficit for the turkish economy by a multivariate cointegration analysis a single equation model shows that the scaled budget deficit as well as income growth and debt monetization significantly affects inflation in turkey the conditional model of inflation is constant and it encompasses a previously estimated model

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

mobility costs frictional unemployment and efficiency with imperfect job information flows it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed with word of mouth communication this condition is derived given this condition steady state equilibrium is not efficient with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral in this way workers become more selective in the jobs they accept

unemployment insurance and cultural transmission theory and application to european unemployment this paper emphasizes the two way causality between the provision of unemployment insurance and the cultural transmission of work ethic values affect the size of the moral hazard problem and hence the policy to be implemented conversely when parents rationally choose how much effort to exert to raise their children to work hard they form expectations on the policy that will be implemented by the next generation in this context we show that the different cultural traits are complementary and that there is some cultural heterogeneity in all steady state equilibria the model could generate a lag between the introduction of unemployment insurance and a deterioration of the work ethic relying on a calibration we argue that it can account for a substantial fraction of the history of european unemployment since world war ii as our explanation is compatible with the co existence of generous unemployment insurance and low unemployment in the 1950s and 1960s it could be seen as an alternative to the dominant story that relies on the occurrence of large shocks since the 1970s supportive empirical evidence is provided

labor market equilibrium with rehiring consistent with the empirical evidence this article analyzes a labor market in which separations are not permanent and reactivated firms prefer to rehire former employees instead of seek new ones workers engage in job search due to the uncertain prospects of rehiring if firms can commit to wages contingent on rehiring they backload wages to provide incentives for workers to reduce their unobservable search effort under risk aversion and incomplete markets if productivity at reactivation is sufficiently high the tension between wage backloading and consumption smoothing leads to excessive search in equilibrium

testing whether unemployment represents intertemporal labour supply behaviour in the lucas rapping 1969 model of the labour market fluctuations in unemployment represent individuals optimally adjusting their labour supply behaviour in response to fluctuations in wage rates over the business cycle in this paper i propose and implement a misspecification test of the lucas rapping treatment of unemployment as labour supply behaviour using panel data this test extends previous such work with micro data by simultaneously allowing for intertemporal substitution uncertainty and endogenous unemployment using the standard specification of intertemporal labour supply behaviour i find strong evidence against this interpretation of unemployment there are two possible interpretations of the test results the first is that it is necessary to turn to alternative models of the labour market in which unemployed workers are off a supply function the second is that the test results indicate the necessity of moving to more complex models of intertemporal substitution however given current econometric techniques and data sets these alternative models of intertemporal substitution will be extremely difficult to test

the wealth of the unemployed many studies have investigated the adequacy of unemployment insurance ui benefits as a form of income replacement but few have looked at other resources with which the unemployed can finance their unemployment spells this paper focuses on one form of resources own wealth holdings the author finds that the median worker s financial assets can cover roughly two thirds of the income loss from an unemployment spell wealth holdings vary tremendously however and almost one third of workers are unable to replace even 10 of their income loss moreover predicted wealth holdings decline precipitously with realized unemployment durations both absolutely and especially relative to actual income loss this finding together with the finding that individuals who are eligible for more generous ui draw down their wealth more slowly than do others during unemployment spells suggests that ui benefit adequacy could be increased if the benefits were targeted to those with longer unemployment spells

wages and the value of nonemployment nonemployment is often posited as a worker s outside option in wage setting models such as bargaining and wage posting the value of nonemployment is therefore a key determinant of wages we measure the wage effect of changes in the value of nonemployment among initially employed workers our quasi experimental variation in the value of nonemployment arises from four large reforms of unemployment insurance ui benefit levels in austria we document that wages are insensitive to ui benefit changes point estimates imply a wage response of less than 0 01 per 1 00 ui benefit increase and we can reject sensitivities larger than 0 03 the insensitivity holds even among workers with low wages and high predicted unemployment duration and among job switchers and recently unemployed workers the insensitivity of wages to the nonemployment value presents a puzzle to the widely used nash bargaining model which predicts a sensitivity of 0 24 0 48 our evidence supports wage setting models that insulate wages from the value of nonemployment