fixed production capacity menu cost and the output inflation relationship this paper analyses the impact of inflation when firms face frictions in both price and quantity adjustments a vast literature examines the consequences of price adjustment costs assuming frictionless quantity adjustments however temporary quantity adjustments may be expensive for example because continual adjustments of the optimal production plant are impossible moreover recent findings suggest that frictions in quantity adjustment may remove the linkage between output and inflation in this paper we show that this is not the case when inflation is anticipated on the contrary a predetermined production capacity may significantly amplify the consequences of price adjustment costs

trends in unemployment duration data a method of estimating the distribution of uninterrupted unemploymentspells from aggregate unemployment data is outlined the methodology does not i mpose constant individual hazard rates and allows for heterogeneity characteris tics of the distribution of unemployment spells are then considered including ha zard rates measures of inequality such as gini coefficients and the fraction o f total unemployment associated with s weeks of unemploy ment the relationship between these char acteristics and labor demand variables gnp and supply side variables transfer payments unemployment insurance is considered in or der to better understand the relative role of short and long run unemployment copyright 1986 by mit press

racial discrimination in the labor market theory and empirics we review theories of race discrimination in the labor market taste based models can generate wage and unemployment duration differentials when combined with either random or directed search even when strong prejudice is not widespread but no existing model explains the unemployment rate differential models of statistical discrimination based on differential observability of productivity across races can explain the pattern and magnitudes of wage differentials but do not address employment and unemployment at their current state of development models of statistical discrimination based on rational stereotypes have little empirical content it is plausible that models combining elements of the search models with statistical discrimination could fit the data we suggest possible avenues to be pursued and comment briefly on the implication of existing theory for public policy jel j15 j31 j64 j71

the behavior of unemployment durations over the cycle this paper examines the relationship between unemployment durations and cyclical movements in unemployment using an employment calendar constructed from recent questions in the panel study of income dynamics we find that unemployment durations increase with the unemployment rate with the strongest effects for individuals with the longest elapsed durations copyright 1990 by mit press

inflation costly price and quantity adjustments and time spent in the keynesian regime abstract this paper considers a menu cost firm under inflation due to costly quantity adjustments the firm is sometimes in a keynesian regime where sales are demand determined with a positive real interest rate the proportion of time in the keynesian regime is less than the inverse of the absolute value of the average elasticity of demand in that regime

optimal welfare to work programs a welfare to work wtw program is a mix of government expenditures on various labour market policies targeted to the unemployed e g unemployment insurance m job search monitoring m social assistance sa wage subsidies this paper provides a dynamic principal agent framework suitable for analysing chief features of an optimal wtw program such as the sequence and duration of the different policies the dynamic pattern of payments along the unemployment spell and the emergence of taxes subsidies upon re employment the optimal program endogenously generates an absorbing policy of last resort social assistance characterized by a constant lifetime payment and no active participation by the agent human capital depreciation is a necessary condition for policy transitions to be part of an optimal wtw program the typical sequence of policies is quite simple the program starts with standard ui then switches into monitored search and finally into sa the optimal benefits are decreasing during unemployment insurance and constant during both jm and sa whereas taxes subsidies can be either increasing or decreasing with duration during ui they must decrease increase during a phase of jm in a calibration exercise we use our model to analyse quantitatively the features of the optimal program for the u s economy with respect to the existing u s system the optimal wtw scheme delivers sizeable welfare gains to unskilled workers because the incentives to search for a job can be retained even while delivering more insurance and using costly monitoring less intensively

unemployment dynamics and duration dependence in france the netherlands and the united kingdom this paper analyzes unemployment dynamics in the french dutch and u k labor market it presents a method to distinguish between the effects of duration dependence and unobserved heterogeneity on the exit rate out of unemployment it turns out that for british male unemployed there is strong genuine negative duration dependence for french unemployed there is no strong duration dependence during the first year of unemployment while for dutch unemployed there is nonmonotonic duration dependence for all groups of french and dutch individuals significant unobserved heterogeneity is found for u k male unemployed heterogeneity seems to be empirically unimportant copyright 1994 by royal economic society

are unemployment and out of the labor force behaviorally distinct labor force states this paper tests the hypothesis that the classifications unemployed and out of the labor force are behaviorally meaningless distinctions this hypothesis is rejected distinct behavioral equations govern transitions from out of the labor force to employment and from unemployment to employment the evidence reported in this paper is broadly consistent with versions of search theory in which unemployment is a state that facilitates the job search process in an appendix we demonstrate that log concavity of the wage offer distribution implies that the exit rate from unemployment is an increasing function of the rate of arrival of job offers

the exploitation of relationships in financial distress the case of trade credit this paper develops optimal pricing lending and renegotiation strategies for companies in relationships where one firm is highly dependent on the other long term trade creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors anticipating these larger renegotiation concessions not only do less financially stable firms prefer trade credit but all firms agree to pay a higher interest rate for trade credit the model also explains the existence of teaser interest rates and convenience classes findings are consistent with those of the relationship lending literature

do minimum wage hikes raise us long term unemployment evidence using state minimum wage rates partridge m d and partridge j s 1999 do minimum wage hikes raise us long term unemployment evidence using state minimum wage rates reg studies 33 713 726 several recent studies have challenged the conventional notion that raising the minimum wage reduces employment this study considers a related but relatively unexplored issue by examining the minimum wage s influence on long durations of unemployment by considering long term unemployment rates this study extends the previous minimum wage literature by examining the persistence of minimum wage effects the empirical analysis considers state data from the latter 1980s a unique period when many states raised their minimum wage above the federal level the results suggest that a greater minimum wage increases long term unemployment rates further evidence indicates that increased minimum wage coverage also raises long term unemployment rates subsequent analysis yielded similar patterns for other aggregate labour market measures thus state

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

hyperbolic discounting and the phillips curve using a standard dynamic general equilibrium model we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long run effects on real variables

do employers use unemployment as a sorting criterion when hiring evidence from a field experiment the stigma associated with long term unemployment spells could create large inefficiencies in labor markets while the existing literature points toward large stigma effects it has proven difficult to estimate causal relationships using data from a field experiment we find that long term unemployment spells in the past do not matter for employers hiring decisions suggesting that subsequent work experience eliminates this negative signal nor do employers treat contemporary short term unemployment spells differently suggesting that they understand that worker firm matching takes time however employers attach a negative value to contemporary unemployment spells lasting at least nine months providing evidence of stigma effects

the near optimality of mark up pricing mark up pricing policies result in a loss of profits compared to marginal pricing behavior these losses however are often very small even for large changes in the money supply but by adopting a simple pricing rule the firm does not have to forecast the future and avoids the informational and computational costs required to determine the profit maximizing price each period thus even if these costs are small mark up pricing policies may be optimal or approximately so at least for some firms in a macro model this is likely to imply large monetary non neutralities

racial disparity in unemployment abstract in the united states black workers earn less than their white counterparts and have higher rates of unemployment empirical work indicates that most of this wage gap is accounted for by differences in cognitive skills that emerge at an early age in this paper we demonstrate that the same is not true for black white disparity in unemployment a large unexplained unemployment differential motivates the paper s second contribution a potential theoretical explanation this explanation is built around a model that embeds statistical discrimination into the subjective worker evaluation process that lies at the root of the efficiency wage theory of equilibrium unemployment

social employment of welfare recipients in belgium an evaluation in belgium welfare agencies receive a subsidy to employ welfare recipients for a period sufficiently long to entitle them to unemployment benefits we investigate the effect of this programme on the exit rate from welfare we propose a grouping iv estimator of the programme effect that eliminates selection bias the estimator is consistent even if the selection into the programme depends on the average unobserved characteristics of welfare recipients in a region and in a welfare duration interval without correction for selectivity we find that the programme reduces welfare dependence but after correction this conclusion is reversed

job search stigma effect and escape rate from unemployment this article formulates job search models incorporating certain types of the stigma effect of unemployment it is assumed that the probability of getting a job offer given the unemployment individual contacts the firm is influenced by the duration of unemployment and is justified in a signaling context the optimal search is analyzed for one sector as well as across several independent labor market segments it is shown that there are reasonably general conditions on the search environments for which both the individual reservation wage and escape rate are negative duration dependent a fact observed in empirical studies

liquidation costs and capital structure abstract we investigate the relation between liquidation costs of assets and composition of capital structure for firms that reorganized under chapter 11 of the bankruptcy code firms with high liquidation costs emerge from chapter 11 with relatively low debt ratios the debt of these firms is more likely to be public and unsecured and to have less restrictive covenant terms these firms are also more likely to raise new equity capital assets with high liquidation costs thus lead firms to choose capital structures that make financial distress less likely

unemployment dynamics in britain we examine the inter related dynamics of the unemployment flows and stock our model allows them to be linked through the standard accounting identity but also through behavioural relationships we find that for the uk the bulk of the correlation between duration and the unemployment stock arises from the dependence of duration on unemployment taking careful account of the inter temporal identity outflow shocks have contributed little to the evolution of unemployment since the late 1960s given that the correlation of duration and unemployment arises from the behavioural relationship we show that unemployment dynamics arise mostly from shocks to the inflow unemployment remains one of europe s more pressing economic and social problems as highlighted in the eu s lisbon declaration of 2000 a dynamic approach to unemployment starts from the recognition that unemployment is a stock and changes through shocks to the outflow and inflow the research and policy focus has generally been on the outflow process or equivalently unemployment duration a glance at figure 1 shows why this might be so it reveals a very strong co movement of the unemployment rate and the proportion of the unemployed out of work for a year or more analysts have used data like this to argue that the source of unemployment fluctuations has been changes in the outflow process 1 possibly as a consequence of this most policies directed at reducing unemployment focus on improving the search effectiveness and employability of the currently unemployed the unemployment flows and stock are related in quite complex ways and in this paper we focus on these inter related dynamics the model we use allows them to be linked in two ways first there is the simple accounting relationship whereby shocks to the flows accumulate in the stock second search and matching models suggest behavioural relationships of the flows depending on unemployment the presence of the nonlinear accounting identity in the model makes the analysis of the joint system problematic so we proceed sequentially investigating first one link and then the other we find that for the uk the bulk of the correlation between duration and the unemployment stock displayed in figure 1 arises from the dependence of the former on the latter we find a strong dependence of the outflow rate on unemployment taking careful account of the inter temporal identity on the other hand outflow shocks have contributed little to the evolution of unem

job information networks neighborhood effects and inequality this paper explores the theoretical and empirical literature to examine the use by different social groups of informal sources of information provided by friends relatives and acquaintances during job search and its consequences for the job market it also addresses the role of network structure and size the resource endowments of contacts and nature of the links between contacts to explain differences in the effects of job information networks in doing so the paper also turns to the sociology literature on job information networks and provides an economic perspective on such sociological concepts as strong versus weak ties inbreeding distance from structural holes etc the paper distinguishes between models of exogenous job information networks that is where individuals obtain job related information through a given social structure and endogenous job information networks which are social networks that result from individuals uncoordinated actions the paper pays special attention to such issues as physical and social proximity and sharing of information and discusses them in the context of the recent social interactions and neighborhood effects literature finally the paper outlines a model that integrates job information networks where interactions occur in business cycle frequencies with the dynamics of human capital formation which include the joint effects of parental community and neighborhood human capital and are set in life cycle frequencies for the purpose of organizing suggestions for future research and examining earned income inequality

does unemployment compensation affect unemployment duration abstract we use a flexible hazard rate model with unrestricted spell duration and calendar timeeffects to analyse a dataset including all norwegian unemployment spells during the1990 s the dataset provides a unique access to conditionally independent variation inunemployment compensation we find that a marginal increase in compensation re duces the escape rate from unemployment significantly irrespective of business cycleconditions and spell duration the escape rate rises sharply in the months just prior tobenefit exhaustion while men are more responsive than women with respect to mar ginal changes in compensation women are most responsive with respect to benefitexhaustion keywords unemployment spells business cycles unemployment compensation non parametric duration analysis jel classification c41 j64 the ragnar frisch centre for economic research oslo we wish to thank the re search council of norway for financial support and christian brinck harald goldstein costas meghir espen moen steinar strom rolf aaberge and three anonomyous referees for helpful comments cor respondence to knut roed the ragnar frisch centre for economic research gaustadalleen 21 0349oslo norway e mail knut roed frisch uio no

output and welfare effects of inflation with costly price and quantity adjustments there exists by now a burgeoning literature concerned with the consequences of a fixed cost of price adjustment due to this cost a monopolistic firm does not necessarily adjust its price even though the current price deviates from the price that would maximize the firm s current profit as a result the production generally differs from what it would be in the absence of a menu cost with the effect of inflation on the average output and welfare under monopolistic competition being ambiguous and depending in a complicated way on the profit and demand functions 1 however one strong result holds unambiguously for all profit and demand functions at low inflation rates the average output and welfare are above their levels at full price stability where firms charge the static monopoly price 2 the driving force is that discounting makes a firm more concerned with its real profits earlier in a period with a constant nominal price than with its real profits later in the period in fact as the inflation rate approaches zero the firm s initial real price converges to the profit maximizing real price while the terminal real price converges to a smaller real price at low inflation rates therefore a firm s price is most of the time below the price that would maximize the current profit since output and welfare under monopolistic competition are inversely related to price average output and welfare are higher than under full price stability the inevitable conclusion is that the economy benefits from a little bit of inflation a critical assumption underlying this result is that firms can continuously adjust their production to satisfy demand so while the menu cost literature explicitly assumes that there is a small fixed cost incurred at each price adjustment it also implicitly assumes that it is costless to continuously adjust the quantity of output 3 this is however a questionable assumption there is some empirical evidence indicating the existence of a cost of quantity adjustment part of which is fixed in that it does not depend on the size of the adjustment 4 the cost of quantity adjustment stems from the need to rearrange and reorganize the factor inputs for the new level of production and includes managerial time and effort a fixed cost of quantity adjustment rules out any continuous adjustment of the production to satisfy the increasing demand that results from a decreasing real price within a period with a constant nominal price under the reasonable assumption that the menu cost does not exceed the fixed cost of quantity adjustment 5 in an inflationary environment a firm chooses to adjust its nomi

can skill decay increase search effort abstract we consider the search behaviour of a worker whose expected matching gains are assumed to be decreasing over the spell of unemployment the search effort is linked positively to future earnings and negatively to the reservation wage this may give rise to non monotonous hazard rates

on the infrequent adjustment of price by firms i introduction recent research by blinder 1991 indicates that as many as 75 percent of all firms change price no more than twice a year according to the wall street journal these findings seem to have caused considerable surprise 1 there is however nothing unusual about these results infrequent price adjustment by firms can be readily explained by the existence of very small price adjustment or menu costs and the fact that deviations from optimal price adjustment policies often result in negligible reductions in a firm s average rate of profit this paper brings together in a dynamic setting two ingredients in the literature that have previously been linked only in a static framework the small menu cost argument of mankiw 1985 and the near rational argument of akerlof and yellen 1985 numerical examples are used to answer the familiar objection that price adjustment costs are too small to be important the main conclusions of the paper remain valid for a wide variety of plausible parameter values and do not depend on extreme assumptions concerning the flatness of the firm s profit function the basic insight that under imperfect competition first order deviations from optimal behavior imply second order losses was first made by bowley 1924 25 this idea was further developed by akerlof and yellen 1985 since the firm s profit function is flat at its maximum point failure to adjust price in response to small exogenous shocks implies very small losses even if price adjustment is costless if there are some costs associated with changing price a policy of rigid prices in the face of small nominal shocks may be optimal this would seem to provide a micro explanation for sticky prices these ideas are usually expounded in the framework of a static two period model 2 further the conclusions reached are only valid for small deviations from optimal behavior the present paper extends the argument to a dynamic framework of continual inflation and its conclusions are shown to remain valid for large deviations from optimal pricing policies 3 the paper makes two main points first very small price adjustment costs often lead to surprising long intervals between price changes even when the length of this interval is chosen optimally second the loss of profits suffered by the firm when the interval between price changes is much greater than the optimal value is often negligible large deviations from optimal policies typically imply very small losses this is a much stronger claim than the familiar argument that small deviations from optimality imply second order losses and it does not follow from the envelope theorem if a firm adopts a simple rule of say changing price twice a year regardless of the inflation rate it may earn a level of profit practically indistinguishable from that it would earn if it behaved optimally at least for inflation rates experienced in the western democracies since world war ii the standard objection to the menu cost explanation of infrequent price adjustment is that these costs are much too small to explain observed pricing behavior the examples presented below show that this objection can be discounted seemingly trivial price adjustment costs as small as one millionth of the firm s annual revenue can explain price adjustment frequencies as low as once or twice a year at inflation rates of 20 percent per annum and above part of the explanation concerns the flatness of the firm s profit function over a wide range of plausible values of demand and cost parameters profit functions are sufficiently flat to explain observed frequencies of price adjustment even when the interval between price changes is optimal but there is more too it than this large deviations from optimal price adjustment policies imply surprisingly small losses even for profit functions that would never be described as flat in particular the loss in profit caused by large deviations in the interval between price changes from its optimal value are normally very small

output effects of inflation with fixed price and quantity adjustment costs i introduction there is convincing evidence that fixed costs of price adjustment may be large levy et al 1997 found such costs to be 0 7 of a firm s revenue and zbaracki et al 2004 found them to be 1 22 in the presence of fixed costs of price adjustment a monopolistic firm does not adjust its nominal price continuously with the result that the real price and output generally deviate from their static monopoly level at low inflation rates the average output is higher than the static monopoly output if there is positive discounting danziger 1988 and depends on higher order derivatives of the profit and demand functions if there is no discounting benabou and konieczny 1994 1 most of the literature assumes that only price adjustments are costly while output can be continuously adjusted without cost however bresnahan and ramey 1994 document that there may be large fixed costs of quantity adjustments relatedly many publications show that adjusting labor and capital inputs involves significant fixed costs 2 such costs may derive from loss of organizational capital baily et al 2001 jovanovic and rousseau 2001 as well as from job protection rules severance pay and legal and administrative complications in a framework with both price and quantity adjustment costs andersen 1995 and andersen and toulemonde 2004 demonstrate that only intermediate size shock but not large or small shocks may affect output for a constant inflation rate danziger 2001 shows that a firm s permanent production decreases with inflation at low inflation rates if discounting is positive and danziger and kreiner 2002 that output capacity decreases with inflation if the elasticity of demand is constant and there is no discounting see also danziger 2003 the purpose of this article is to provide a simple general characterization of the output effects of a constant inflation rate if both price and quantity adjustments involve fixed costs it is assumed that quantity adjustments are at least as costly as price adjustments which implies that a firm s production is held constant at a permanent level 3 each firm then keeps its nominal price unchanged in periods of equal length and the nominal price is adjusted so that the initial real price is the same in each period thus a firm s optimal strategy consists of the initial real price the duration of the periods with unchanged nominal price and the permanent level of production the article shows that in the absence of discounting the effect of inflation on the aggregate production depends on how fast firms marginal real revenue decreases with demand and that this effect is fully determined by the elasticity of the marginal real revenue with respect to demand thus aggregate production decreases with inflation if the elasticity of the marginal real revenue always exceeds minus unity increases with inflation if the elasticity of the marginal real revenue is always less than minus unity and is invariant to inflation if the elasticity of the marginal real revenue always equals minus unity several studies have found that the comovement between output and prices is typically negative in the long run cooley and ohanian 1991 den haan 2000 den haan and sumner 2004 fiorito and kollintzas 1994 within the framework of the present model the negative comovement indicates that the empirically relevant situation is when the elasticity of the marginal real revenue always exceeds minus unity this will be the case among others if demand functions exhibit a constant price elasticity less than minus unity as assumed in danziger and kreiner 2002 ii the model consider an economy with a unit continuum of identical consumers and a unit continuum of monopolistic firms producing differentiated perishable products each firm and its product are indexed by i which is uniformly distributed on 0 1

on the effects of ranking by unemployment duration abstract we propose a theory based on the firm s hiring behavior that rationalizes the observed significant decline of callback rates for an interview and exit rates from unemployment and the mild decline of reemployment wages over unemployment duration we build a directed search model with symmetric incomplete information on worker types and non sequential search by firms sorting due to firms testing of applicants in the past makes expected productivity fall with duration which induces firms to rank applicants by duration in equilibrium callback and exit rates both fall with unemployment duration in our numerical exercise using u s data we show that our model can replicate quite well the observed falling patterns with the firm s ranking decision accounting for a sizable part

the optimality of partial price adjustment policies this paper studies the optimal price adjustment policies of a monopolistically competitive firm whose profit maximizing price is subject to a serially correlated random disturbance the firm chooses its price by comparing the expected cost of present and future price changes with the expected losses occurring when price deviates from its instantaneous profit maximizing value partial price adjustment often is the best way to minimize the sum of these losses prices tend to be more flexible both in response to large shocks to the firm s profit maximizing price and when much uncertainty exists about the future

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

racial discrimination in labor markets with posted wage offers we analyze race discrimination in labor markets in which wage offers are posted if employers with job vacancies receive multiple applicants they choose the most qualified but may choose arbitrarily among equally qualified applicants in the model firms post wages workers choose where to apply and firms decide which workers to hire labor market frictions greatly amplify racial disparities so mild discriminatory tastes or small productivity differences can produce large wage differentials between the races compared with the nondiscriminatory equilibrium the discriminatory equilibrium features lower net output lower wages for both white and black workers and greater profits for firms this abstract was borrowed from another version of this item

money supply variability in a macro model of monopolistic competition the effects of changes in money supply variability are examined for a macro model of monopolistic competition increases in money supply variability raise demand uncertainty causing individual firms to produce more for inventory in addition expected profits decrease inducing a number of firms to leave the economy aggregate income then falls in spite of an increase in firm level production the result on aggregate income is standard but the results on inventories and the number of firms in the economy distinguish this monopolistic macro model empirically from conventional macro models when changes in money supply variability occur

heterogeneity and unemployment dynamics many previous articles have studied the contribution of inflows and outflows to the cyclical variation in unemployment but ignored the critical role of unobserved heterogeneity across workers thi

anticipated inflation and aggregate employment the case of costly price adjustment even if inflation is perfectly anticipated a firm that finds nominal price adjustments sufficiently costly will reset its price at multi period intervals consequently its average output will change in a direction that depends on properties of its profit function on the basis of this observation which does not involve money illusion the paper shows that anticipated inflation can stimulate aggregate employment through a process that entails changes in the factor demands of individual monopolistic firms and in the intersectoral allocation of consumer expenditure simulations indicate however that the gain in aggregate employment is likely to be modest

tenure dependence in consumer firm relationships an empirical analysis of consumer departures from automobile insurance firms a typical pattern in markets featuring long term consumer firm relationships is for departure probabilities to decline with tenure a crucial question is whether this actually implies increasing consumer preference for firms if so firms should actively try to convince consumers to remain through the early periods of the relationship and should enter new markets quickly however the pattern can also be explained by selection on unobserved heterogeneity the challenge is to use the data available in these markets generally details on the consumers of one firm to distinguish between these explanations i rely on individual price histories in auto insurance findings include an economically relevant level of both relationship effects and heterogeneity but a much more important role for heterogeneity

duration dependence and labor market conditions evidence from a field experiment this article studies the role of employer behavior in generating negative duration dependence the adverse effect of a longer unemployment spell by sending fictitious resumes to real job postings in 100 u s cities our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker s unemployment spell with the majority of this decline occurring during the first eight months we explore how this effect varies with local labor market conditions and find that duration de pendence is stronger when the local labor market is tighter this result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets jel code j64

the un importance of unemployment fluctuations for the welfare cost of business cycles abstract this paper studies the cost of business cycles within a real business cycle model with search and matching frictions in the labor market we endogenously link both the cyclical fluctuations and the mean level of unemployment to the aggregate business cycle risk the key result of the paper is that business cycles are costly fluctuations over the cycle induce a higher average unemployment rate since employment is nonlinear in the job finding rate and the past unemployment rate we show this analytically for a special case of the model we then calibrate the model to u s data for the calibrated model too business cycles cause higher average unemployment the welfare cost of business cycles can easily be an order of magnitude larger than lucas s 1987 estimate the cost of business cycles is the higher the lower the value of nonemployment is or equivalently the lower is the disutility of work the ensuing cost of business cycles rises further when workers skills depreciate during unemployment

business cycles and compositional variation in u s unemployment in this article we study u s unemployment dynamics using grouped unemployment data from the current population survey over the period 1968 1992 we estimate a model that traces variation in these unemployment data both over time and between demographic groups back to the underlying variation in the inflow and the outflow in turn we model the outflow as a transition process in which we allow the exit probabilities to depend on calendar time duration and demographic group we use the estimation results to provide a decomposition of aggregate u s unemployment dynamics in various incidence and duration components

unemployment duration and economic incentives a quasi random assignment approach abstract we investigate how economic incentives and spell duration affect hazard rates out of insured unemployment we take into account that insured unemployment not always ends in employment but also in disability training programs or benefit sanctions our empirical basis is norwegian register data containing variation in economic incentives and spell duration similar to that of random assignment experiments we find that the employment and benefit sanction hazards are negatively affected by the unemployment insurance replacement ratio but that the effects vary considerably among individuals there is negative duration dependence in the employment hazard and positive duration dependence in the disability hazard

estimating incentive and welfare effects of nonstationary unemployment benefits the distribution of unemployment duration in our equilibrium matching model with spell dependent unemployment benefits displays time varying exit rates building on semi markov processes we translate these rates into an expression for the aggregate unemployment rate structural estimation using german microdata allows us to discuss the effects of an unemployment benefit reform hartz iv the reform reduced unemployment by less than 0 1 percentage points contrary to general beliefs the net wage for most skill and regional groups increased taking the insurance effect of unemployment benefits into account however the reform is welfare reducing for 76 of workers

true and spurious duration dependence the identifiability of the proportional hazard model lancaster and nickell 1980 have argued that in the proportional hazard model the effects of time dependence true duration dependence and unobserved sample heterogeneity spurious duration dependence cannot be distinguished we show that both effects can be distinguished if the model allows for observed explanatory variables in the hazard we also discuss the application of our result to practical situations

competition between employed and unemployed job applicants swedish evidence we use the swedish applicant database to investigate empirically whether being unemployed per se reduces the probability of getting contacted by a firm all searchers looking for a new job are invited to submit their personal details to this database over the internet since we have access to exactly the same information as the firms we can minimize the problems associated with unobserved heterogeneity our results show that an unemployed applicant faces a lower contact probability than an otherwise identical employed applicant thus supporting the notion that firms view employment status as a signal of productivity

economic distress financial distress and dynamic liquidation many firms emerging from a debt restructuring remain highly leveraged continue to invest little perform poorly and often reenter financial distress the existing literature interprets these findings as inefficiencies arising from coordination problems among many creditors or an inefficient design of bankruptcy law in contrast this paper emphasizes that creditors lack the information that is needed to make quick and correct liquidation decisions it can explain the long term nature of financial distress solely as the result of dynamic learning strategies of creditors and suggests that it may be an unavoidable byproduct of an efficient resolution of financial distress financial distress is often a long term process and has an impact on the capital structure investment policies and performance of many firms even after they emerge from debt restructurings james 1995 finds that many firms increase their investment expenditures only by very little in the first two years after a debt restructuring hotchkiss 1995 shows that in each of the first five years after emerging from bankruptcy between 35 percent and 41 percent of all firms have negative operating income according to gilson 1997 more than 75 percent of firms that complete debt restructurings emerge with a leverage ratio that is higher than industry median and most are still significantly more highly leveraged than before the onset of financial distress furthermore between one quarter and one third of all distressed firms

stock flow matching and the performance of the labor market we estimate outflow equations for vacancies and unemployed workers in britain departing from the stock based analysis of matching in two ways first we deal with the temporal aggregation problem that arises when discrete time data are used to describe continuous time processes second we allow for a stock flow matching mechanism in which the stock of traders on one side of the market matches with the flow of traders on the other side our estimates are in line with the predictions of stock flow matching in terms of higher exit rates of flows and of matching combinations between labor market stocks and flows furthermore employer search effectiveness did not seem to decline between the 1960s and the 1990s nevertheless some deterioration in worker search effectiveness is detected however less severe than that implied by previous stock based work

the anatomy of unemployment dynamics abstract this paper examines the relation between individual unemployment durations and incidence inflow size on the one hand and the time varying macroeconomic conditions in the economy on the other we develop a model for the analysis of aggregate unemployment incidence and duration data and estimate this model on quarterly french data over the period 1982 1994 stratified by sex we find upward trends in both incidence and durations the former is relatively important for females the latter for males male incidence and durations are countercyclical with only a minor role for cohort effects on durations in contrast female cohorts entering at the top of the cycle have relatively short unemployment spells and the female incidence is if anything procyclical there is strong seasonal variation in particular in the incidence finally we find relatively small non monotonic individual duration dependence in the first six quarters of unemployment unobserved heterogeneity explains the observed negative duration dependence at these durations we provide some evidence that negative individual duration dependence and not heterogeneity is important at higher durations

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

nonemployment stigma as rational herding a field experiment abstract long spells of unemployment are known to reduce the likelihood of re employment but it is difficult to discern the reasons for this observation using an experimental method that controls for search intensity and possible discouragement of job applicants i document that job market opportunities for the nonemployed diminish rapidly over time in this experiment duration dependence is solely due to firm perceptions why do firms view long spells of nonemployment as negative signals rational herding is one important factor managers believe that unemployed applicants were previously interviewed and if the applicants were productive they would have been hired

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

skill accumulation in the market and at home abstract an evolving outside option is introduced into a stochastic directed search model with skill loss during non employment using multi spell data from the sipp i show that average reemployment wages are only mildly sensitive to unemployment duration while the job finding probability is highly sensitive to duration with evidence of true duration dependence in both variables though untargeted the model produces a quantitatively accurate decline in the job finding probability and starting wage improving over a model with a fixed outside option the addition of aggregate shocks leads to an nonlinear response of the unemployment and participation rates during and after recessions with more severe recessions resulting in stronger hysteresis

the real effects of nominal price rigidity abstract nominal price rigidity may arise from risk spreading contracts and be consistent with fully efficient trade we demonstrate this point by studying the contracts that a risk averse firm signs with its risk neutral supplier and its risk neutral customer before the general price level is publicly revealed there is an equilibrium in which the two contracts specify inflexible prices and efficient quantities

conflicts of interest and market illiquidity in bankruptcy auctions theory and tests i develop and estimate a model of cash auction bankruptcy using data on 205 swedish firms the results challenge arguments that cash auctions as compared to reorganizations are immune to conflicts of interest between claimholders but lead to inefficient liquidations i show that a sale of the assets back to incumbent management is a common bankruptcy outcome sale backs are more likely when they favor the bank at the expense of other creditors on the other hand inefficient liquidations are frequently avoided through sale backs when markets are illiquid that is when industry indebtedness is high and the firm has few nonspecific assets the problem of designing an efficient bankruptcy law has received considerable attention in the last decade much of the debate has centered around the optimality of two different stylized bankruptcy procedures cash auctions such as the u s chapter 7 code and structured bargaining represented by the u s chapter 11 reorganization code recently several european countries including france germany and great britain have changed their bankruptcy regulation by introducing reorganization procedures similar to chapter 11 at the same time the chapter 11 code has been criticized by academics including baird 1986 emphasizing that the bargaining procedure frequently results in long and wasteful negotiations these critics argue that chapter 11 should instead be replaced with a mandatory auction procedure other researchers such as aghion hart and moore 1992 and shleifer and vishny 1992 have pointed out that a cash auction is likely to suffer from considerable inefficiencies arising from transaction costs and market illiquidity the nature and costs of the chapter 11 procedure are

duration dependency and unobserved heterogeneity in unemployment time series abstract aggregate escape probabilities from unemployment decrease with the duration of unemployment by analyzing fluctuations in escape probabilities from different duration classes over time we are able to make a distinction between the effect of duration dependency and heterogeneity on the aggregate escape probability for dutch unemployment it appears that the heterogeneity effect is the dominating effect there is no indication of duration dependency

inflation output and labour productivity when prices are changed infrequently when prices are changed infrequently the effect of inflation on output depends on the form of profit and demand functions this paper provides a general taxonomy at small inflation rates output falls rises stays the same if the demand function is concave convex linear in terms of the log of real price this holds when the frequency of price changes is fixed in case of a catalogue firm as well as when it is chosen optimally in case of a menu cost firm with fixed and variable price adjustments costs with some specifications inflation increases output but reduces labor productivity copyright 1990 by the london school of economics and political science

unemployment dynamics and duration dependence a major issue in the analysis of unemployment durations concerns distinguishing genuine duration dependence of the exit rate out of unemployment from unobserved heterogeneity we present a method for the nonparametric estimation of both phenomena designed to be applicable to time series data on aggregate outflows from different duration classes the model explicitly takes into account that individual exit rates are affected by the business cycle and by seasonal effects the method is applied to u s data we find diverging duration effects among black and white individuals however except for white males duration dependence is dominated by unobserved heterogeneity

the effects of unemployment and underemployment on employment opportunities results from a correspondence audit of the labor market for college graduates the authors use data from a resume audit to estimate the impact of unemployment and underemployment on the employment prospects of recent college graduates they find no statistical evidence linking unemployment spells of different durations to employment opportunities by contrast college graduates who are underemployed have callback rates that are 30 lower than those of applicants who are adequately employed the null effects associated with unemployment and the adverse effects associated with underemployment are robust across cities with relatively tight and loose labor market conditions internship experience obtained while completing one s degree substantially reduces the negative effects of underemployment the data support the proposition that employers view underemployment as a strong signal of lower expected productivity

the costs of bankruptcy chapter 7 liquidation versus chapter 11 reorganization our paper explores a comprehensive sample of small and large corporate bankruptcies in arizona and new york from 1995 to 2001 bankruptcy costs are very heterogeneous and sensitive to the measurement method used we find that chapter 7 liquidations appear to be no faster or cheaper in terms of direct expense than chapter 11 reorganizations however chapter 11 seems to preserve assets better thereby allowing creditors to recover relatively more our paper also provides a large number of further empirical regularities our paper analyzes the largest sample of corporate bankruptcies to date we research approximately 300 cases from the arizona and new york federal bankruptcy courts from 1995 to 2001 these cases consist of 1 both publicly traded and privately held corporations and 2 both chapter 7 liquidations and chapter 11 reorganizations this sample is practically the entire population of unique corporate bankruptcies in these courts our paper s primary objective is to measure how the two available bankruptcy procedures differ especially but not only in terms of cost we explore four variables namely the change in the estate s value during bankruptcy a measure of indirect costs the time spent in bankruptcy another and more common measure of indirect costs the expenses submitted to and approved by the bankruptcy court a measure of direct costs and the recovery rates for creditors and apr violations our most important findings are that chapter 7 liquidations are not cheaper than chapter 11 reorganizations particularly after we control for endogenous self selection of firms into bankruptcy procedure bankruptcy professionals attorneys accountants trustees regularly end up with most of the post bankruptcy firm s value in chapter 7 arturo bris is at imd yale school of management and ecgi ivo welch is at brown uni

do reorganization costs matter for efficiency evidence from a bankruptcy reform in colombia this paper studies the effect of reorganization costs on the efficiency of bankruptcy laws we develop a simple model that predicts that in a regime with high costs the law fails to achieve the efficient outcome of liquidating unviable businesses and reorganizing viable ones we test the model using the colombian bankruptcy reform of 1999 using data from 1 924 firms filing for bankruptcy between 1996 and 2003 we find that the pre reform reorganization proceeding was so inefficient that it failed to separate economically viable firms from inefficient ones in contrast by substantially lowering reorganization costs the reform improved the selection of viable firms into reorganization in this sense the new law increased the efficiency of the bankruptcy system in colombia

the beveridge curve a survey important progress has been made in economists understanding of the beveridge curve from its measurement to its expression in canonical labor market models yet enduring puzzles remain chief among these are the empirical role of vacancies in the recruitment process the amplitude comovement and persistence of cyclical unemployment vacancy dynamics and the sources of lateral shifts in the beveridge curve the synthesis of these themes identifies several priorities for ongoing research including the role of entry costs into vacancy creation in shaping beveridge dynamics the cyclicality of search intensity both off and on the job and its relation to participation and job to job transitions the theory and measurement of mismatch and the sources of hysteresis in unemployment flows