new evidence on implicit contracts from linked employer employee data we improve the precision of the implicit contract model test proposed by beaudry and dinardo 1991 our dataset allows us to define the exact industry and plant of a particular employment relationship link local labor market characteristics to individual level wages and control for composition effects we find evidence in favor of the spot market model of wage setting in the whole sample but there is significant variation across industries and education levels in particular the spot market matters most for low skill workers while the implicit contract model with one sided limited commitment applies better to high skill workers

are consumption taxes really better than income taxes abstract we use political equilibrium theory and the neoclassical growth model to compare consumption and income tax systems if government outlays are used for redistribution through transfers then steady state equilibria in societies that use income taxes are not necessarily worse in welfare terms and may even be better income taxes are attractive precisely because they are more distortionary since this implies low equilibrium transfer levels we also find that switching tax systems typically does not benefit the median voter moreover a change from income to consumption taxes may make everybody worse off

self enforcing employment contracts and business cycle fluctuations abstract this paper incorporates risk sharing employment contracts into an economy in which matching frictions characterize the labour market and in which agents cannot commit in equilibrium the terms of ongoing contracts are affected by those being negotiated in the job market because contracts must be self enforcing in this context risk sharing implies that hours worked and wages are negatively related while enforcement considerations imply the converse overall the sign of this relationship is ambiguous therefore the existence of such contracts may explain why movements in hours worked appear weakly related to those in real wages in u s aggregate data

self enforcing wage contracts we examine long term wage contracts between a risk neutral firm and a risk averse worker when both can costlessly renege and buy or sell labour at a random spot market wage a self enforcing contract is one in which neither party ever has an incentive to renege in the optimum self enforcing contract wages are sticky they are less variable than spot market wages and positively serially correlated they are updated by a simple rule around each spot wage is a time invariant interval and the contract wage changes each period by the smallest amount necessary to bring it into the current interval

raising children to work hard altruism work norms and social insurance children who can count on support from altruistic parents may not try hard to succeed in the labor market moreover parental altruism makes withdrawal of such support non credible to promote work

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

dynamic contracts with worker mobility via directed on the job search this article proposes a model with dynamic incentive contracts and on the job search in a frictional labor market the optimal long term contract exhibits an increasing wage tenure profile with increasing wages worker effort also increases with tenure these two features imply that the probabilities of both voluntary and involuntary job separation decrease with both job tenure and the duration of employment given these results workers experience differing labor market transitions between employment unemployment and across different employers and the equilibrium generates endogenous heterogeneity among ex ante homogeneous workers abstract from author

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

matching to share risk without commitment this paper studies the effect of limited commitment on sorting when two sides of a frictionless market form pairs to share risk on each side agents are identical except for their risk preferences first we provide analytical results when transfers do not condition on the history of shocks more risk averse agents can commit to larger transfers as long as their consumption is less risky than their endowment with sufficiently large idiosyncratic risk and sufficient discounting of the future matching is positive assortative unlike under full commitment second we find positive assortative stable matchings when transfers are history dependent using a numerical algorithm

the cyclicality of the user cost of labor abstract the user cost of labor is the expected difference between the present discounted value of wages paid to a worker hired in the current period and that paid to a worker hired in the next period analogous to the price of any long term asset the user cost not wage is the relevant price for a firm that is considering adding a worker i construct its counterpart in the data and estimate that it is substantially more procyclical than average wages or wages of newly hired workers i demonstrate an application of the finding using the textbook search and matching model

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

on the job search and moral hazard we analyze the interaction between intertemporal incentive contracts and search frictions associated with on the job search in our model agency problems call for wage contracts with deferred compensation at the same time workers do on the job search deferred compensation improves workers incentives to exert effort but distorts their on the job search decisions we show that deferred compensation is less attractive when the value to the worker firm pair of on the job search is high moreover the interplay between search frictions and wage contracts creates feedback effects if firms in equilibrium use contracts with deferred compensation fewer firms with vacancies enter the on the job search market and this in turn reduces the distortions created by deferred compensation these feedback effects between the incentive contracts used and the activity level in the search markets can lead to multiple equilibria a low turnover equilibrium where firms use deferred compensation and a high turnover equilibrium where they do not furthermore the model predicts that firms are more likely to use deferred compensation when search frictions are high and when the gains from on the job search are small

labor market dynamics with search frictions and fair wage considerations fairness considerations in wage setting can improve the ability of the diamond mortensen pissarides search and matching model to account for u s labor market dynamics firms production is influenced by workers effort input which depends on whether workers consider the employment relation as fair a typical worker s effort is determined in a comparison of individual current wage with wage norms including the outside option the individual past wage and the wage level in the steady state the fairness considerations in the search framework give rise to endogenous real wage rigidity and realistic volatilities of unemployment vacancies and labor market tightness jel e24 e32 j64

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

occupational choice and the spirit of capitalism the british industrial revolution triggered a socioeconomic transformation whereby the landowning aristocracy was replaced by industrial capitalists rising from the middle classes as the economically dominant group we propose a theory of preference formation under financial market imperfections that can account for this pattern parents shape their children s preferences in response to economic incentives middle class families in occupations requiring effort skill and experience develop patience and a work ethic whereas upper class families relying on rental income cultivate a refined taste for leisure these class specific attitudes which are rooted in the nature of preindustrial professions become key determinants of success once industrialization transforms the economic landscape i introduction the industrial revolution was more than capital accumulation and growth it also set off a social and political transformation that redefined hierarchies in society and reshaped the distribution of income and wealth before the onset of industrialization in eighteenth century britain wealth and political power were associated with the possession of land over the course of the nineteenth century a new class of entrepreneurs and businessmen emerged as the economic elite for the most part the members of this class rose from humble beginnings and had their social origins in the urban middle classes the landed elite was left behind and eventually lost its political and economic predominance many observers of the time linked this reversal in economic fortunes to differences in values attitudes and ultimately preferences across social classes there are countless examples both in scholarly and in fictional writing of portrayals of members of the landowning class as averse to work unwilling to save ill disposed tocommercialactivity andunabletoconsidermoneyassomething

technology policy interaction in frictional labour markets does capital embodied technological change play an important role in shaping labour market outcomes to address this question we develop a model with vintage capital and search matching frictions where irreversible investment in new vintages of capital creates heterogeneity in productivity among firms matched as well as vacant we demonstrate that capital embodied technological change reduces labour demand and raises equilibrium unemployment and unemployment durations in addition the presence of labour market regulations unemployment benefits payroll taxes and firing costs exacerbates these effects thus the model is qualitatively consistent with some key features of the european labour market experience relative to that of the u s it features a sharper rise in unemployment and a sharper fall in the vacancy rate and the labour share a calibrated version of our model suggests that this technology policy interaction could explain a sizeable fraction of the observed differences between the u s and europe copyright 2007 wiley blackwell

labor market volatility in the search and matching model the role of investment specific technology shocks abstract shocks to investment specific technology have been identified as a main source of u s aggregate output volatility in this paper we present a model with frictions in the labor market and explore the contribution of these shocks to the volatility of labor market variables namely unemployment vacancies tightness and the job finding rate thus our paper contributes to a recent body of literature assessing the ability of the search and matching model to account for the large volatility observed in labor market variables to this aim we solve a neoclassical economy with search and matching where neutral and investment specific technologies are subject to shocks the three key features of our model economy are i firms are large in the sense that they employ many workers ii adjusting capital and labor is costly iii wages are the outcome of an intra firm nash bargaining problem between the firm and its workers in our calibrated economy we find that shocks to investment specific technology explain 40 of the observed volatility in u s labor productivity moreover these shocks generate relative volatilities in vacancies and the workers job finding rate which match those observed in u s data relative volatilities in unemployment and labor market tightness are 55 and 75 of their empirical values respectively

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

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

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

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

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

search nash bargaining and rule of thumb consumers abstract this paper analyses the effects of introducing two typical keynesian features namely rule of thumb rot consumers and consumption habits into a standard labour market search model rot consumers use the margin that hours and wage negotiation provides them to improve their lifetime utility by narrowing the gap in utility with respect to ricardian consumers this margin for intertemporal optimisation has not been studied yet because this class of restricted agents has been mainly used in models with no equilibrium unemployment our approach allows for a deeper study of the effects of shocks on vacancies unemployment hours wages and how they interact as habits increase rot consumers find it optimal after a positive technology shock to negotiate lower hours and higher wages and this mechanism reduces the simulated correlation between the real wage or productivity and total hours to values closer to those obtained empirically thus with the interaction of rot consumers and consumption habits the labour market search model improves significantly in reproducing some of the stylised facts characterising the us labour market

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

human capital technical change and the welfare state i study the interactions between the distribution of human capital technological choice and redistributive institutions i first ask what makes alternative social contracts such as a european style welfare state and u s style laissez faire sustainable and in particular how each is affected by skill biased technical change i then endogenize technological or organizational choice and show that firms respond to greater human capital heterogeneity with more flexible technologies that further exacerbate wage equality i then analyze the simultaneous determination of technology income distribution and redistributive institutions and as well as spillovers between the social contracts of different countries jel d31 o33 j3 h10

job protection the macho hypothesis this paper shows that the stringency of employment protection in mediterranean countries can be partly explained by cultural values embedded in religion both the security provided by this legislation and its redistributive effects in favour of the male breadwinner insiders fit into the framework of mediterranean religions first international individual surveys allow us to document that catholics and muslims are more likely to agree with traditional gender division of work than protestants and the non religious second we develop a political economy model predicting that employment protection should be more stringent in countries where there is a larger share of insiders supportive of traditional family values we then show that this prediction is supported by empirical evidence on oecd countries over the period 1970 99 copyright 2006 oxford university press

the intergenerational transmission of risk and trust attitudes recent theories endogenize the attitude endowments of individuals assuming that they are shaped by the attitudes of parents and other role models this paper tests empirically for the relevance of three aspects of the attitude transmission process highlighted in this theoretical literature 1 transmission of attitudes from parents to children 2 an impact of prevailing attitudes in the local environment on child attitudes and 3 positive assortative mating of parents which enhances the ability of a parent to pass on his or her attitudes to the child we focus on two fundamentally important attitudes willingness to take risks and willingness to trust others we find empirical support for all three aspects providing an empirical underpinning for the literature an investigation of underlying mechanisms shows that socialization is important in the transmission process various parental characteristics and aspects of family structure are found to strengthen the socialization process with implications for modeling the socialization production function and for policies focused on affecting children s non cognitive skills the paper also provides evidence that the transmission of risk and trust attitudes affects a wide variety of child outcomes implying a potentially large total effect on children s economic situation

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

moral hazard vs liquidity and optimal unemployment insurance this paper presents new evidence on why unemployment insurance ui benefits affect search behavior and develops a simple method of calculating the welfare gains from ui using this evidence i show that 60 percent of the increase in unemployment durations caused by ui benefits is due to a liquidity effect rather than distortions on marginal incentives to search moral hazard by combining two empirical strategies first i find that increases in benefits have much larger effects on durations for liquidity constrained households second lump sum severance payments increase durations substantially among constrained households i derive a formula for the optimal benefit level that depends only on the reduced form liquidity and moral hazard elasticities the formula implies that the optimal ui benefit level exceeds 50 percent of the wage the exact identification approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives

regulation and distrust in a cross section of countries government regulation is strongly negatively correlated with social capital we document this correlation and present a model explaining it in the model distrust creates public demand for regulation while regulation in turn discourages social capital accumulation leading to multiple equilibria a key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt we test this and other implications of the model using country and individual level data on social capital and beliefs about government s role as well as on changes in beliefs and in trust during the transition from socialism

wages implicit contracts and the business cyle evidence from canadian micro data evidence of macroeconomic conditions impacting the earnings of men in canada in a manner consistent with an implicit contracting framework is found using data from eleven cross sectional surveys spanning the years 1981 1992 the estimates are similar to those found by beaudry and dinardo 1991 using u s data their analysis is extended to incestigate whether the effects of macroeconomic conditions differ by age evidence is found that the wages of young men and men near retirement are most sensitive to changes in the macroeconomic conditions over their job tenure this abstract was borrowed from another version of this item

embodied technical change and the fluctuations of unemployment and wages a matching model where technological change is partially embodied in the job match is shown to be successful in explaining the variability of unemployment and vacancies if we incorporate long term wage contracts into the model it also explains a number of stylized facts on the dynamics of real wages which have been found in the empirical labor literature

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

unemployment fears and deflationary spirals the interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features in isolation dampen them during recessions fears of unemployment stir up precautionary sentiments which induces agents to save more the additional savings may be used as investments in both a productive asset equity and an unproductive asset money but even a small rise in money demand has important consequences the desire to hold money puts deflationary pressure on the economy which provided that nominal wages are sticky increases wage costs and reduces firm profits lower profits repress the desire to save in equity which increases the fear of unemployment and so on this is a powerful mechanism which causes the model to behave differently from both its complete markets version and a version with incomplete markets but without aggregate uncertainty in contrast to previous results in the literature agents uniformly prefer non trivial levels of unemployment insurance

equilibrium matching and termination in an equilibrium model of the labor market with moral hazard jobs are dynamic contracts job separations are terminations of optimal dynamic contracts transitions from unemployment to new jobs are modeled as a process of random matching and nash bargaining non employed workers make consumption and saving decisions as in a standard growth model as well as whether or not to participate in the labor market the stationary equilibrium is characterized the model is then calibrated to the u s labor market to study quantitatively the worker flows and distributions the compensation dynamics and the effects of ui system

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

unemployment and hours of work the north atlantic divide revisited i examine the dynamic evolutions of unemployment hours of work and the service share since the war in the united states and europe the theoretical model brings together all three and emphasizes technological growth computations show that the very low unemployment in europe in the 1960s was due to the high productivity growth associated with technological catch up productivity also played a role in the dynamics of hours but a full explanation for the fast rise of service employment and the big fall in aggregate hours needs further research taxation has played a role but results are mixed

deep habits and the cyclical behaviour of equilibrium unemployment and vacancies we extend the standard textbook search and matching model by introducing deep habits in consumption this assumption generates amplification in the response of labour market variables to technology shocks by producing endogenous countercyclical mark ups the cyclical fluctuations of vacancies and unemployment in our model can replicate those observed in the us data with labour market tightness being 20 times more volatile than consumption vacancies display a hump shaped response to technology shocks and the numerical simulations generate an artificial beveridge curve that is in line with the data our model preserves the assumption of fully flexible wages for new hires and the calibration is consistent with the estimated elasticity of unemployment to unemployment benefits finally we show that in contrast to models with exogenous mark up shocks the deep habits model does not require an implausible variation in the elasticity of demand to match the volatility of labour market variables and the cyclical properties of the mark up are in line with empirical evidence

the corporate propensity to save why do corporations accumulate liquid assets we show theoretically that intertemporal trade offs between interest income taxation and the cost of external finance determine optimal savings intriguingly we find that controlling for tobin s q saving and cash flow are negatively related because firms lower cash reserves to invest after receiving positive cash flow shocks and vice versa consistent with theory we estimate negative propensities to save out of cash flow we also find that income uncertainty affects saving more than do external finance constraints therefore contrary to previous evidence saving propensities reflect too many forces to be used to measure external finance constraints

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

the impact of tfp growth on steady state unemployment theoretical predictions of the impact of total factor productivity tfp growth on unemployment are ambiguous and depend on the extent to which new technology is embodied in new jobs we evaluate a model with embodied and disembodied technology capitalization and creative destruction effects in econometric estimates with a panel of industrial countries we find a large negative impact of tfp growth on unemployment which implies that embodied technology and creative destruction play no role in the steady state dynamics of unemployment capitalization effects explain some of the estimated impact but a part remains unexplained

cultural constraints on innovation based growth to what extent does the cultural composition of a society impose a constraint on its long run growth potential we study this question in the context of an innovation based model of growth where cultural attitudes are endogenously transmitted from one generation to the next focusing on attitudes regarding patience we analyze the two way interaction between economic growth and the intergenerational transmission of patience exploiting this interaction we compare the long run growth performance of a culturally heterogeneous society where patience is initially underrepresented in the population with a culturally homogeneous society where all agents are perfectly patient our main result is that in the absence of any intrinsic preferences of patient parents to transmit their attitudes to their children the development paths of the two societies are bound to diverge with the culturally heterogeneous society experiencing lower growth rates yet if patient parents ceteris paribus prefer their children to be patient like them we show that the two societies can in the long run grow at the same rate jel d91 e24 o30 o40 z10

the impact of negative cash flow and influential observations on investment cash flow sensitivity estimates abstract kaplan and zingales quart j econ 112 1997 169 and clearly j finance 54 2 1999 673 diverge from the large literature on investment cash flow sensitivity by showing that investment is most sensitive to cash flow for the least financially constrained firms we examine if this result can be explained by the fact that when firms are in sufficiently bad shape incurring cash losses investment cannot respond to cash flow we find that while cleary s results can be explained by such negative cash flow observations the kaplan zingales results are driven more by a few influential observations in a small sample we also record a decline in investment cash flow sensitivity over the 1977 1996 period particularly for the most constrained firms

two questions about european unemployment a general equilibrium search model makes layoff costs affect the aggregate unemployment rate in ways that depend on equilibrium proportions of frictional and structural unemployment that in turn depend on the generosity of government unemployment benefits and skill losses among newly displaced workers the model explains how before the 1970s lower flows into unemployment gave europe lower unemployment rates than the united states and also how after 1980 higher durations have kept unemployment rates in europe persistently higher than in the united states these outcomes arise from the way europe s higher firing costs and more generous unemployment compensation make its unemployment rate respond to bigger skill losses among newly displaced workers those bigger skill losses also explain why u s workers have experienced more earnings volatility since 1980 and why especially among older workers hazard rates of gaining employment in europe now fall sharply with increases in the duration of unemployment

the effect of implicit contracts on the movement of wages over the business cycle evidence from the national longitudinal surveys a 1991 study by paul beaudry and john dinardo found evidence of internal labor markets that augment incumbent workers wages when the external labor market is tight when unemployment is low and shield their wages when it is slack current wages they found depend on the tightest labor market conditions observed since a worker was hired not current labor market tightness or labor market tightness at the time of hiring this paper replicates and extends that research using data from six cohorts of the national longitudinal surveys that together span more than three decades as well as an estimation framework more robust than that in the original study the author finds strong support for beaudry and dinardo s key prediction supplementary regressions confirm other implications of the theory as well recently at least the effect of implicit contracting on wages has been similar for men and women

which workers get insurance within the firm abstract industry level time series data suggest that low skilled workers get less insurance within the firm than high skilled workers in particular wages respond relatively more to productivity shocks in low skilled industries than high skilled industries our theory is that low skilled workers get relatively less insurance from their firms because they have relatively lower displacement costs under limited commitment lower displacement costs make the workers outside options more attractive and hence decrease the amount of risk sharing sustainable within the firm evidence on average displacement costs by industry support the theory s predictions

the long run consumption effects of earnings shocks although prior studies of job displacement and disability have measured the impact of these shocks in terms of lost earnings no previous research has linked these permanent earnings shocks to the

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

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

presidential address institutions and culture how and why does distant political and economic history shape the functioning of current institutions this paper argues that individual values and convictions about the scope of application of norms of good conduct provide the missing link evidence from a variety of sources points to two main findings first individual values consistent with generalized as opposed to limited morality are widespread in societies that were ruled by non despotic political institutions in the distant past second well functioning institutions are often observed in countries or regions where individual values are consistent with generalized morality and under different identifying assumptions this suggests a causal effect from values to institutional outcomes the paper ends with a discussion of the implications for future research jel a10 d7 e00

unemployment insurance benefit levels and consumption changes abstract we use a canadian survey of the unemployed to examine how household expenditures after a job loss respond to the level of income replacement provided by ui we isolate a liquidity constraint or transitory income effect from the permanent income shock of job loss and from the costs of working we find significant effects of varying the replacement ratio among the third of the sample who did not have assets at the job loss we conclude that the consumption smoothing benefit of ui is concentrated wholly on a sub group of the unemployed

where did all the dollars go the effect of cash flows on capital and asset structure this paper documents the short and long term balance sheet effect of cash flows we show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use although in the long run investment exhibits substantial sensitivity to cash flows investment does not absorb the entire cash flow shock in fact the tighter the financial constraints the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction firms stage their response to increases in cash flow delaying investment while building up cash stocks and reducing leverage these results suggest that much of the short run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market especially when financing constraints tighten

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

how sensitive is investment to cash flow when financing is frictionless i analyze the sensitivity of a rm s investment to its own cash ow in the benchmarkcase where nancing is frictionless this sensitivity has been proposed as a measure of nancing constraints in earlier studies i nd that the investment cash ow sensitivities that obtain in the frictionless benchmarkare very similar both in magnitude and in patterns they exhibit to those observed in the data in particular the sensitivity is higher for rms with high growth rates and low dividend payout ratios tobin s q is shown to be a more noisy measure of near term investment plans for these rms does a high sensitivityof a rm s investment to its own cash ow indicate that the rm is nancially constrained a large body of research starting with fazzari hubbard and petersen 1988 hereafter fhp suggests that rms facing nancing constraints should exhibit high investment cash ow sensitivities re ecting the wedge between the costs of external and internal funds empirical ndings seem to give support to this hypothesis since rms classi ed as constrained on a priori criteria such as size dividend payout or leverage do have higher cash ow sensitivities even after controlling for their investment opportunities by conditioning on tobin s q however the reliability of these results critically depends on whether q is a proper control for the investment opportunity set if q performs worse for certain classes of rms higher sensitivities may obtain for these rms simply because cash ow re ects information about investment opportunities this critique is not new in his discussion of fhp poterba 1988 was the rst to point out that measurement error in q may cloud the empirical results similar concerns have been raised in subsequent studies as well while the qualitative point is well known its quantitative impact on the investment cash ow sensitivity has not been analyzed can the linkbetween cash ow and the investment opportunity set account for the observed magnitudes of the sensitivity or are these magnitudes too large to be explained without nancing frictions