labour supply estimation and public policy abstract economists devote considerable energies towards refining their econometric techniques to overcome difficulties connected with conducting empirical research despite advances in technique it is not clear whether further refinement in this direction is worthwhile for policy purposes it may be that no further amount of statistical adjustment of inadequate data will increase understanding and that better data is simply necessary to add to our knowledge but rarely is sufficient credit paid to new forms of data in short econometric technique is emphasized to the neglect of data innovation as if new data were merely lying about waiting for an ingenious suggestion for use this paper surveys advances of the last twenty five years in estimating labour supply for policy purposes with a view towards appreciating the relative contribution of both improvements in econometric technique as well as developments of new data after briefly detailing the key parameters which economists have sought to estimate we describe the early first generation research circa 1970 which is plagued by problems of unobservable variables measurement errors truncation and selectivity bias and non linear budget constraints second generation research constitute attempts to resolve one or more of these difficulties and the respective contribution of econometric technique and new data is acknowledged and assessed including the contribution of data generated by large scale social experiments in which participants are randomly assigned to different guaranteed income plans and their labour supply behaviour measured

new keynesianism and aggregate economic activity this paper addresses various attempts by so called new keynesians writing mainly in the 1980s and 1990s to strengthen the analytical basis in particular the microeconomic foundations of these assertions what exactly have then the new keynesians accomplished and how should their contributions be valued in the relation to other recent contributions to macroeconomics this abstract was borrowed from another version of this item

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

a study of the impact of sectoral shifts on aggregate unemployment in canada the recent trend in macro economic literature has been to explain cycles in aggregate output and employment in terms of unexpected nominal shocks only in these models the natural rate of unemployment is constant this paper diverges from this approach and following a recent paper by david lilien 1982 considers the impact of real as well as nominal variables the main findings are 1 a significant part of the fluctuations in the canadian unemployment over the 1957 83 period was caused by real shocks to the economy and 2 most of the transmission of the business cycle from the united states to canada is effected through real variables as well une etude de limpact de deplacements sectoriels sur le niveau de ch6mage agrege au canada dans la litterature macroeconomique recente on a eu tendance a expliquer les cycles dans le niveau de la production et de l emploi a peu pres strictement en termes de chocs nominaux non anticipes dans ces modeles le taux de ch6mage naturel est constant ce memoire prend des distances par rapport a cette approche et suit pluto t la direction suggeree par un memoire recent de david lilien qui considere l impact des variables reelles tout autant que celui des variables nominales les resultats principaux sont 1 une portion significative des fluctuations dans le niveau du chomage canadien entre 1957 et 1983 a et causee par des chocs reels subis par l economie 2 le gros de h1 transmission du cycle economique des etats unis vers le canada se fait par le truchement des variables reelles

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

cyclical factor utilization abstract we introduce procyclical labor and capital utilization as well as costs of rapidly increasing employment into a business cycle model plausible variations in factor utilization enable us to explain observed variability of real gnp with considerably smaller economy wide disturbances the costs of adjustment create very interesting and realistic lead and lag relationships employment does not peak until a full quarter after output workweeks effort capital utilization and productivity all sharply lead the business cycle

sex discrimination and competition in product and labour markets theoritical explanations for wage discrimination collapse in the long run because competition should drive discriminations firms out of the market in product markets with imperfect competition em

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

real wages in the business cycle and the theory of income distribution an unresolved conflict between theory and facts in mainstream macroeconomics the focus of this article is the recurring tension between mainstream macroeconomics and observed facts in connection with the difficult task of providing explanations of the business cycle consistent both with the traditional theory of income distribution and with the empirical evidence concerning the co movements of real wages and employment over the cycle the attempts to reconcile facts and theory have led to the continuous introduction of specific and arguably ad hoc hypotheses in contrast with the search for greater theoretical rigour claimed by the various streams of macroeconomic modelling subsequent to the neo classical synthesis in addition the specific assumptions introduced in the models or their implications are in turn often contradicted or at best not confirmed by subsequent empirical research it is suggested in the conclusions that the difficulty of keeping together in a simple and consistent framework theory and facts reflects the flawed theoretical foundations of mainstream theory

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

forecasting canadian time series with the new keynesian model this paper assesses the out of sample forecasting accuracy of the new key nesian model for canada we estimate a variant of the model on a series of rolling sub samples computing out of sample forecasts one to eight quarters ahead at each step we compare these forecasts with those arising from vector autoregression var models us ing econometric tests of forecasting accuracy we show that the forecasting accuracy of the new keynesian model compares favourably with that of the benchmarks particularly as the forecasting horizon increases these results suggest that the model could become a useful forecasting tool for canadian time series jel classification e32 e37

labor and investment frictions in a real business cycle model abstract this paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar us economy using ireland s 2004a a method for taking models to the data journal of economic dynamics and control 28 1205 1226 methodology we establish that both types of friction are quantitatively important technology shocks still explain a substantial fraction of the fluctuations in aggregate output as the baseline real business cycle model predicts formal hypothesis tests suggest that changes in the recurrence of shocks frictions and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980

new evidence on the structure of production real and austrian business cycle theory and the financial instability hypothesis abstract this article develops the relationships among real business cycle rbc theory austrian business cycle abc theory and minsky s financial instability hypothesis fih in rbc models recessions are caused on the supply side by random technology shocks which are independent of monetary policy however in abc models credit expansion results in negative productivity shocks as the marginal return on investment is lowered and the production structure is extended by commitment to more capital intensive activities thus abc theory helps resolve several problems with rbc theory the fih describes a process of endogenous overleveraging which unsustainably overvalues assets and exposes the financial sector to greater risk this paper argues that the overleveraging described by the fih is compatible with the unsustainable expansion of production described in abc theory and further argues that credit expansion would both provide additional funds to finance overleveraging as well as encourage the process by making it cheaper with lower interest rates

segmented labour markets and the estimation of wage functions this paper uses a stratified random sample of private sector employees to estimate wage equations for both the male labour market as a whole and six segments of the labour market segement which are defined with respect to the industry and size characteristics of the employing establishmen highly conventional results are obtained when wage equations are estimated for the male labour market as a whole or within two segements comprising almost half the survey population however one can reject conclusively the hypothesis that the same estimating equation is appropriate for modelling wage determination in all segments and if a human capital hk model is within segements tested against more appropriate alternative hypotheses for wage determination using the davidson and mackinnon 1981 methodology for the testing of non nested hypotheses the conclusion is that one should reject the hk specification and not reject the alternative it is therefore argued that the disaggregation of labour market dat

the real interest rate and aggregate supply abstract this paper analyzes the effects of the anticipated real interest rate on aggregate supply variables in a model where time to produce and variable capital utilization play a crucial role the potential importance of the present mechanism for business cycle theory lies in its ability to generate positive co movements of employment capital utilization labor productivity output and investment these variables are predicted to be affected negatively by the real interest rate reduced forms for output and employment are derived and tested with canadian data taking estimates of the real interest rate prevailing in the united states as the relevant exogenous price

the role of intratemporal adjustment costs in a multisector economy abstract in this paper we construct a multisector business cycle model which is capable of reproducing the procyclical behavior of cross sector measures of capital employment and output we start by documenting the difficulty that a standard variant of a conventional real business cycle model has in accounting for these facts we then show how the introduction of intratemporal adjustment costs for investment can significantly enhance the performance of such a model these costs make it difficult to alter the composition of production of new capital goods the presence of these costs eliminates many counterfactual observations of the model that would otherwise be present the dynamic response of variables in the model is different from what one would observe in the standard one sector model we also examine the implications of imposing intratemporal adjustment costs for labor the model can also account for the cross sector behavior of employment observed in the data

labour market segmentation a local labour market analysis using alternative approaches earlier studies have generally attempted to establish the presence or otherwise of labour market segmentation using a single technique using data drawn form the british social and economic life initiative sceli for six local labour markets this paper tests for segmentation using four different methods of analysis a simple career non career model cluster analysis and switching regressions the results in general suggest that explanatory power is not improved by analysing the labour market in different segments but this simple career model points to higher rewards for given characteristics in the career sector and the results of the switching regression model are consistent with duality in one of the six markets

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

the intertemporal substitution model of labour market fluctuations an empirical analysis the paper uses two approaches to study whether aggregate fluctuations in employment and unemployment may be explained within a market clearing framework as intertemporal substitution in labour supply first log linear equations for labour supply and unemployment are estimated using a forecasting model to measure wage and price expectations second a utility function is used to derive and estimate an equation for labour supply as a function of the current real wage and consumption the influence of expected future real wages and interest rates is captured by the consumption variable the empirical results do not support the intertemporal substitution model

in search of a stylised fact do real wages exhibit a consistent pattern of cyclical variability the paper surveys the studies on the cyclical behaviour of real wages published from the twenties onwards the traditional simple neoclassical model of the labour market suggests that real wages tend to move countercyclically however from a theoretical viewpoint there are few reasons to expect this behaviour once the simple model is extended to account for imperfect competition uncertainty lagged responses or contracting between firms and workers empirical studies give different answers to the problem the contributions reviewed in the paper are arranged roughly in a chronological order the interwar period the postwar pre econometric studies the econometric work using aggregate data the evidence produced on the basis of longitudinal data the analyses of the shock responsiveness of real wages and finally the most recent papers attempting a reconciliation of the somewhat conflicting evidence derived from aggregate and panel data

unemployment and interindustry labour mobility in canada in the 1980s the determinants of interindustry mobility of labour and its relationship to the unemployment rate is examined using micro data on canadian workers from 1980 81 1982 83 and 1985 86 it contrasts the implications of the dynamic reallocation model lilien 1982 in which rising aggregate unemployment is due to in creased dispersion in the net hiring rates of firms implying positive covariance of interindustry mobility and unemployment rates with the older keynesian perspective that high unemployment chills labour market mobility implying a neative relationship qualified support is obtained for the chilling model as well as standard results on the role of job tenure hours worked etc the general moral is the cyclical sensitivity of labour market behaviour i e individuals appear to react to the aggregate unemployment rate

labour force participation timing and persistence this paper examines the relative importance of timing and persistence elements in explaining cyclical fluctuations in labour supply data from the natural experiment provided by world war ii and cross sectional data on american local labour markets as well as aggregate time series data are used in the empirical work we find little evidence that timing effects play an important role in labour market dynamics the evidence suggests that views emphasizing persistence are more accurate and that previous employment tends to raise the probability of subsequent employment much of the development of applied economic theory within the past 25 years has emphasized the importance of viewing economic decisions in a life cycle context consumption decisions are today frequently viewed as being determined by wealth or permanent income the human capital revolution has brought life cycle considerations to the forefront of modern labour economics while the life cycle dynamics of labour force participation decisions have important implications for macroeconomic theory and policy they have received relatively little empirical attention with the notable exceptions of lucas and rapping 1969 and hall 1980 none of the large body of work on cyclical fluctuations in employment has explicitly relied on a dynamic model of labour supply this paper uses several types of data to examine two elements of participation dynamics the first is the aspect of timing which is implicit in the work of lucas and rapping and in mincer s 1966 early discussion of hidden unemployment the timing argument which is presented most explicitly in ghez and becker 1975 holds that leisure is easily substitutable across periods hence relatively small transitory movements in the perceived real wage or real rate of return can have large effects on the path of labour supply as individuals time their participation to coincide with periods of high transitory wages on the other hand permanent changes because they do not affect the timing decision are expected to have a much smaller effect on participation it is this view of labour supply which underlies new classical macroeconomic models the dependence is made explicit in lucas 1975 who claims that what we do know indicates that leisure in one period is an excellent substitute for leisure in other nearby periods the ability of classical macroeconomic models to explain fluctuations in employment depends on the presence of strong intertemporal substitution effects unless

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

fishing in different pools job search strategies and job finding success in canada in the early 1980s this article examines the job search methods of jobless workers and emphasizes sample selectivity in choice of job search strategies especially use of public employment agencies longitudinal data from the labour force survey of canada for 1981 1983 and 1986 indicate that job search methods change with the business cycle and that many people find jobs without any reported search the determinants of job search success also vary substantially over the business cycle implying a substantial social return to public employment agencies at the 1983 trough of the recession but no noticeable benefits when aggregate unemployment is relatively low

job mobility in market equilibrium this paper develops a simple stochastic job matching model and uses it to derive a set of testable restrictions on the conditional probability with which a worker will be observed to change jobs over time the restrictions describe the manner in which this probability varies with observable characteristics current wage labour market experience tenure on current job and past mobility econometric methods are also discussed and some illustrative calculations provided

wage determination in agricultural labour markets under monopsonist labour tying arrangements there is need for a study of wage formation in agricultural labour markets which can simultaneously explain the existence of involuntary unemployment on the one hand and responsiveness to market forces on the other this paper offers an analysis and empirical study of wage determination in a typical rural agricultural setting and finds that based on the notion of efficiency wages a two tier situation explains why rural wage rates are known to vary widely among workers and across regions

changes in the cyclical pattern of real wages evidence from nine countries 1955 80 monetary policy in the united kingdom the monetarist vice has gripped the economy even longer and similar deflationary policies have been in effect in other western economies interestingly enough these policies were instituted in the context of a prolonged period of economic decline annual average rates of growth of gross domestic product for nine oecd countries fell from 6 8 to 5 o to 2 6 over the periods i955 66 i966 73 and i973 79 2 similarly unemployment has risen dramatically in the last io years the causes of slow growth and high unemployment are undoubtedly various however it is clear that restrictive macroeconomic policy has played an important role that is the recent situation is at least in part attributable to a deliberate effort to induce an economic slump the task of systematically examining the origins and motivations of this policy still awaits us however this paper presents an account of a general development in the pattern of real wages over the business cycle which is a plausible determinant of current policy the evidence indicates that short run cyclical movements in output no longer exert a determinate influence on real wage growth a development which may have been the impetus for long term deflation this account is based on an econometric study of nine countries over the period i955 80 the study has three noteworthy econometric features the first is that data from the nine countries are combined in a pooled model with homogeneous coefficients the use of a cross national sample ensures against the attribution of general theoretical status to particular empirical findings from a single country 3 second the units of observation are business cycle turning

the relative effects of employed and unemployed job search a lthough many early models of job search assumed that job seekers were unemployed economists have come to recognize the importance of on the job search mattila 1974 for example found that roughly 60 of quitters experienced no unemployment between jobs implying that the majority of voluntary job changers engaged in on the job search the choice of search mode i e employed vs unemployed search has been modelled in the theoretical search literature barron and mccafferty 1977 burdett 1978 however there have been no attempts to estimate empirically the determinants of this choice 2 some researchers have however examined the resulting wages associated with these two types of search and found a greater wage return to employed than to unemployed search mattila 1969 black 1980 however because voluntarily unemployed search involves forgoing income burdett 1978 while employed search does not abstracting from voluntary reductions in hours incomemaximizing job seekers would never quit to search unless the expected net return to unemployed search exceeded that for employed search thus the previously mentioned empirical findings at first glance might appear to contradict the assumption of income maximization by job seekers because some workers do quit into unemployment 3 in this paper it is argued that previous attempts to compare the returns of employed and unemployed job search suffer from a selectivity problem specifically searchers who accept offers without experiencing any unemployment are likely to have unobservable variables such as informal job contacts and ability which will raise the relative return to employed search compared to that of voluntarily unemployed job seekers 4 providing an explanation for higher wages for on the job searchers than for unemployed searchers this paper estimates the relative wage effects of employed and unemployed search and the determinants of the choice of search mode i e employed vs unemployed search unlike earlier work mattila 1969 black 1980 the previously mentioned selectivity problems are accounted for this is the first attempt to estimate the determinants of choice of search mode 5 without adjusting for selectivity bias as regards employed vs unemployed search it is found that employed search is associated with greater expected wage offers than unemployed search controlling for measurable personal characteristics however accounting for selectivity the expected wage offer given unemployed search is greater than that given employed search finally the greater is the difference between the expected offer given unemployed and that given employed search the more likely one is to choose unemployed search these findings suggest that quitting to search unemployed may be a wealth maximizing decision received for publication november 5 1980 revision accepted for publication august 17 1981 university of illinois at urbana champaign and arizona state university respectively professor low is partially supported by a faculty grant from the graduate college at arizona state university the authors thank francine blau wallace hendricks and two anonymous referees for comments and suggestions i for a summary of this literature see lippman and mccall 1976 2 barron and mccafferty 1977 do estimate an aggregate time series model of the log of the proportion of quits entering unemployment as a function of the vacancy rate proxied by the help wanted advertising index however such a model ignores search that does not lead to quits and does not include variables beyond the vacancy rate that influence an individual s choice of search mode i it is also possible that the forgone earnings due to unemployed search could in principle be less than the possible savings in direct search costs due to unemployed search relative to employed search see burdett 1978 in this case a lower wage return to unemployed search could imply that quitting was based on income considerations further individuals may have quit for nonwage reasons 4 black 1980 found that other things equal those who planned to seek new employment but did not quit had significantly lower wage growth than those who did not plan to search and did not quit this finding strongly suggests the likelihood of a selectivity bias black 1980 p 227 black s 1976 1980 data the michigan panel study of income dynamics psid for his work on employed search did not allow him to distinguish employed and unemployed search

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

segmented labour markets theory and evidence this paper examines the possibility of accepting the labour market segmentation approach as a valid alternative to the classical and neo classical analysis of labour markets it consists of three main parts the urst part contains a historical analysis of both the distant and recent origins of the labour market segmentation hypothesis part two outlines the central ideas of both segmentationalists and radical theorists who attempted to explain the fragmented nature of labour markets and the importance of institutional and social inuuences upon pay employment and mobility of individual workers between different labour market sectors the third part examines the case for labour market segmentation using four alternative techniques and discusses the issue of mobility among different labour market segments it is thereby concluded that the lack of agreement among the segmented labour market theorists on both theoretical and methodological issues has prevented them from developing a consistent and convincing argument based on veriuable empirical evidence to validate their thesis

did technology shocks cause the 1990 91 recession real business cycle theory has been used to determine the statistical properties of aggregate fluctuations induced by technology shocks the finding is that technology shocks have been an important contributor to fluctuations in the u s economy for example finn e kydland and prescott 1991 estimate that if the only impulses were technology shocks the u s economy would have been 70 percent as volatile as it has been over the postwar period in this paper we employ the theory to answer the question did technology shocks cause the 1990 1991 recession answering this question requires the determination of the effects of technology shocks on the path of the economy the procedure that we use to make this determination is as follows first we construct a model economy and calibrate it so that its steady state matches actual 1987 values data for other years are used to determine the realizations of the shocks and the nature of the stochastic processes generating these shocks given these stochastic processes the equilibrium decision rules for our calibrated economy are computed we then construct the path for the economy implied by the model for the period 1984 1 1992 3 we set 1984 1 model values of the state variables equal to actual 1984 1 values and use the decision rules and the realized shocks to construct this path finally we examine whether the model economy experiences a recession in 1991 as did the u s economy business cycles are variations in output per adult that are in large part accounted for by variation in the per adult time allocated to market production figure 1 plots the time path of the per adult labor input during the 1983 1 1989 1 period there was a remarkable 12 percent increase in the labor input per adult beginning in 1990 2 there has been a decline of nearly 6 percent in this per adult labor input an unusual feature of the recovery subsequent to the 1990 1991 recession is that this labor input variable has continued to decline well into the recovery this unusual behavior leads to a related question did technology shocks cause the slow recovery we found it necessary to modify the standard real business cycle model in four ways in order to answer the posed question first given the enormous changes in the relative prices of durables as depicted in figure 2 we could not treat technology change as being neutral with respect to different types of final goods following john b long and charles plosser 1983 and jeremy greenwood et al 1992 we consider multiple production sectors with technology change differing across sectors second we assume that there is a technology employed within the household sector that produces a consumption flow from the stock of consumer durables third we consider land to be a factor of production in addition to labor and capital our fourth modification is to introduce population growth

explaining business cycles a multiple shock approach abstract aiyagari 1992 and prescott 1986 1991 claim that a large fraction of the variance of united states quarterly detrended real gnp is attributable to an unobservable shock to total factor productivity this paper argues that the importance of a productivity shock in explaining the variance of output is fundamentally indeterminate any model that is in accord with the several time series that make up united states macroeconomic data must feature multiple shocks that are correlated at all leads and lags sorting out the separate effects of these various shocks on a single variable such as real gnp is impossible we illustrate this argument using a multiple shock version of the king plosser rebelo 1988 benchmark real business cycle model

job mobility wage determination and market segmentation in the presence of sample selection bias this paper tests the hypothesis that mobility between jobs is an important determinant of individual wages and that econometric estimates of wage determination should correct for sample selectivity bias in job mobility we also test the hypothesis that different patterns of job mobility produce different appropriate corrections for sample selectivity bias in different segments of the labour market we conclude that labour market segments do differ and in particular that one can identify a marginal or low wage sector with mobility patterns and pay packages which differ from the pattern one can discern in the labour market as a whole mobilite entre emplois determination des salaires et segmentation du marche quand il y a biais de selection dans l ehantillonnage ce memoire verifie l hypothese que la mobilite entre emplois est un element determinant des salaires des individus et la proposition que les calibrations econometriques du processus de determination des salaires doivent etre corrigees pour tenir compte d un biais de selection dans l echantillonnage de mouvements entre emplois les auteurs verifient aussi l hypothese que differents patterns de mobilite entre emplois commandent des corrections appropriees differentes dans differents segments du marche du travail les auteurs en arrivent a la conclusion que les divers segments du marche du travail sont differents et qu en particulier on peut reperer un secteur marginal ou de bas salaires ofu les patterns de mobilite entre emplois et les remunerations different remarquablement de ce qui se passe dans le marche du travail dans son ensemble

the anticipated real interest rate capital utilization and the cyclical pattern of real wages abstract this paper develops a channel through which increases in anticipated real interest rates can be expansionary for current aggregate labor demand and current output supply the key feature of the model is the introduction of a user cost of capital utilization which confronts the firm with the intertemporal problem of the optimal choices of capital utilization and depreciation the resulting variation in capital utilization and capital services in response to fluctuations in the real rate of interest shifts the marginal product of labor and thus the demand for labor at the same time and in the same direction that lucas rapping real interest rate effects operate on labor supply the complete model places no a priori restrictions on the cyclical pattern of real wages thus avoiding the countercyclical real wage prediction made by keynes and various classical writers that is rejected by the data estimates of a labor demand schedule for the annual u s data reveal a significantly positive real interest rate effect

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

job search by employed and unemployed youth analysis of data from the new youth cohort of the national longitudinal survey yields evidence that young unemployed job seekers chose higher levels of search effort as measured by number of methods used and time spent per method and lower reservation wages relative to offered wages than did comparable employed job seekers in 1981 these differences in search choices at least partly explain differences in search outcomes between the two groups unemployed searchers apparently were more likely than employed searchers to gain new employment and the wages they obtained were slightly lower the author argues that the greater search effort by unemployed job seekers is due to the higher costs of search they bear because of foregone earnings

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

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

technology shocks and aggregate fluctuations in an estimated hybrid rbc model this paper contributes to the on going empirical debate regarding the role of the rbc model and in particular of technology shocks in explaining aggregate fluctuations to this end we estimate the model s posterior density using markov chain monte carlo mcmc methods within this framework we extend ireland s 2001 2004 hybrid estimation approach to allow for a vector autoregressive moving average varma process to describe the movements and co movements of the model s errors not explained by the basic rbc model the results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model s fit relative to the var and ar alternatives moreover despite setting the rbc model a more difficult task under the varma specification our analysis based on forecast error and spectral decompositions suggests that the rbc model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post war u s economy

a test of dual labor market theory despite substantial differences in their views of the appropriate policy response to the existence of poverty neither the proponents of dual market theory nor its critics have proposed potentially conclusive tests of the dual market hypothesis this paper presents a test of the two central propositions of dual market theory 1 the existence of two distinct labor markets with different wage setting mechanisms and 2 the existence of barriers to mobility between the labor markets we find considerable support for both hypothesis estimation of a switching model of wage determination with unknown regimes yields two distinct wage equations the one which most workers are associated with closely resembles the standard human capital regression with significant returns to education and experience the other equation is flat with no returns to human capital these two equations resemble the predictions of dual market theory for the primary and secondary markets respectively further we present evidence that at least some non white workers are involuntarily confined to the secondary market this crowding of minority workers into the low wage labor market accounts for a substantial portion of white non white wage differences we interpret these results as providing empirical support for the dual market hypothesis and for recent theoretical work on efficiency wagemodels in addition combining the efficiency wage argument with the observation that much of the white non white wage difference is explained by the exclusion of non whites from the primary sector suggests an explanation for the persistance of wage differences this abstract was borrowed from another version of this item

the new keynesian synthesis the new keynesians made more rapid progress in understanding the microeconomics of unemployment than in understanding the microeconomics of nominal price rigidity but the past five years have seen important breakthroughs in this second area this paper will describe these breakthroughs discuss our current understanding of nominal rigidity and assess the work that remains to be done

matching turnover and unemployment this paper develops the view that workers move into and out of the labor market because of changes in the perceived value of their market opportunities a search model is combined with a matching model to yield movement of workers from job to job and into and out of employment

lost in transition the costs and consequences of sectoral labour adjustment this paper uses an equilibrium search and matching model to study canada s sectoral labour adjustment in 2002 2006 during an increase in global commodity prices and exchange rate appreciation i estimate economically significant adjustment costs for the aggregate economy in this episode and demonstrate that difficulty in transferring skills between jobs for individual workers can be an important contributor to these aggregate costs the analysis also demonstrates that the level of unemployment benefits impacts the economy s sectoral composition its aggregate productivity and the speed of its adjustment to shocks ce texte utilise un modele d equilibre de la recherche et de l arrimage pour etudier les ajustements sectoriels du travail au canada dans la periode 2002 2006 une periode d appreciation des prix globaux des produits de base et du taux de change j estime que les couts d ajustement sont economiquement significatifs pour l economie agregee au cours de cet episode et que la difficultea transferer les competences entre emplois pour les travailleurs individuels peut etre une source importante de ces couts agreges les analyses montrent aussi que le niveau des prestations d assurance emploi a un impact sur la composition sectorielle de l economie sur la productivite et sur la vitesse des ajustements aux chocs

what do residuals from first order conditions reveal about dge models the first order condition foc associated with labour in many dynamic general equilibrium models involves only current period variables residuals constructed from this foc are inconsistent with aggregate us data in that they are very large and highly persistent the persistence suggests that models which introduce dynamic terms in the labour foc may be more consistent with the data three such models one with learning by doing one with habit formation and one with labour adjustment costs confirm that they can reduce the persistence in the residuals making the models more consistent with the joint dynamics of consumption output and hours

intertemporal substitution and constraints on labor supply evidence from panel data intertemporal substitution and constraints on labor supply evidence from panel data i introduction through much of the 1970s and 1980s macroeconomic stabilization analysis has been dominated by equilibrium models in which fluctuations in employment result from intertemporal substitution workers voluntarily vary their labor supply over time in response to movements in wages and interest rates a number of recent empirical tests of intertemporal substitution models for example altonji 1982 mankiw et al 1985 ham 1986 strongly reject the intertemporal substitution approach these results have led some economists to reject equilibrium macro models in favor of keynesian models in which workers face quantity constraints on labor supply in keynesian models employment fluctuations result from changes in the severity of constraints that is changes in involuntary unemployment rather than intertemporal substitution on the other hand many economists remain unconvinced by recent rejections of intertemporal substitution models because the results are consistent with many possible explanations for tractability empirical studies always impose restrictive assumptions such as separability of utility over time and between goods or such as the existence of a representative consumer data also suffer from numerous problems such as aggregation bias measurement error and the use of average rather than marginal wage rates consequently even the authors of the studies seem hesitant to draw firm conclusions they often simply conclude that workers behavior is explained either by quantity constraints or by a more complicated intertemporal substitution model than the one they have tested 1 this paper attempts to determine which of these explanations is correct are changes in employment a sophisticated form of intertemporal substitution or are they involuntary the crucial data come from questions in the panel study of income dynamics about whether workers experience unemployment or are unable to work as many hours as they want following ham 1982 1986 this information is used to classify workers as quantity constrained in their labor supply or unconstrained i then test a simple intertemporal substitution model for each group of workers if the tests suffer from overly restrictive utility functions or data problems then the model should be rejected for both samples on the other hand if some workers truly face quantity constraints then the model should perform better for the sample of unconstrained workers 2 the tests yield two main results first the model indeed performs worse for the constrained workers for this group the data reject the model s overidentifying restrictions and the parameter estimates contradict the model in contrast the results for the unconstrained workers are weakly consistent with the model as keynesian theories suggest quantity constraints alter workers behavior second the estimates of the intertemporal labor supply elasticity for prime age men are close to zero even for unconstrained workers even if workers are free to vary their hours they apparently choose to respond little to movements in wages the paper addresses two other issues first do constraints on borrowing influence labor supply in the intertemporal substitution model workers borrow and lend to smooth consumption while varying hours of work as this suggests the model performs best for workers who not only face no labor supply constraints but who also own substantial assets and thus are unlikely to face liquidity constraints finally the paper proposes a new approach to identifying intertemporal labor supply equations previous micro studies do not adequately address the problem that wages are correlated with unobservable characteristics that affect tastes for work i propose two identifying restrictions 1 changes in tastes are uncorrelated with levels of time in variant variables and 2 changes in tastes have no aggregate component

the employment real wage relationship an international study the neoclassical and keynesian theories of employment both predict an inverse relationship between employment and real wages in the short run the observed correlation between employment and real wages however has usually failed to conform to this prediction dunlop 1938 and tarshis 1939 reported a positive correlation between real and money wages which given procyclical movement of money wages was interpreted as evidence against the theoretical prediction the statistical significance of these results was however challenged by ruggles 1940 and tobin 1948 more recent studies by kuh 1966 and bodkin 1969 failed to detect a significant relationship between real wages and employment these findings stimulated a series of contributions by solow and stiglitz 1968 barro and grossman 1971 1976 and others developing alternative models not apparently refuted by the evidence barro and grossman recast macro theory under the assumption that markets did not clear modigliani 1977 argued that the observed relationship between employment and real wages could be accounted for in an oligopolistic model of firm behavior thus both the competitive and equilibrium assumptions of the classical model were diagnosed as the sources of its apparent empirical refutation

intermediate inputs and sectoral comovement in the business cycle abstract the post war us business cycle is characterized by positive comovement of employment and output across sectors it has been argued that multi sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations we suggest that the input output structure of an economy in particular the pervasive use of intermediate inputs can induce positive comovement in sectoral employment and output following changes in relative productivities we calibrate a model of the us economy for the durable and nondurable goods producing sectors and show that sectoral employment and output move together if intermediate inputs are used in production the model is also consistent with the observation that the relative price of nondurable goods is procyclical

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

labour supply in a two period model the effect of a nonlinear progressive income tax earlier studies of labour supply in a life cycle context have typically either neglected taxes completely or represented the income tax by a linear function the present paper studies how the qualitative conclusions of a traditional life cycle model of labour supply are changed when a nonlinear tax is introduced into the model it is shown that the comparative statics results and the characterization of the consumption and labour supply paths depend critically on whether capital and labour income are taxed jointly or separately and on the progressivity nonlinearity of the income tax few of the results valid for a linear income tax carry over to the nonlinear case

real wages and the business cycle the objectives of this review are threefold 1 to characterize the empirical literature on the cyclical behavior of real wages 2 to identify the sources of the differences in results across studies and 3 to enumerate key factors that determine the cyclicality of real wages given a host of measurement and methodological issues drawing firm conclusions is difficult but several generalizations can be made the estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage composition effects play an important but complicated role as well

using theory for measurement an analysis of the cyclical behavior of home production abstract a significant amount of economic activity takes place within the home unfortunately it is difficult to assess the cyclical properties of home production because the available data are too sporadic using a real business cycle rbc model we construct quarterly data on three variables that are unobservable at a quarterly frequency hours worked in the home sector hours spent in leisure and the consumption of home produced goods three results emerge leisure is countercyclical while nonmarket hours are acyclical hours spent in home production have declined significantly since the 1970s fluctuations in market output are a good measure of fluctuations in individual utility as long as home and market consumption are either extreme complements or extreme substitutes in the production of utility

family labour supply and labour market segmentation this paper examines the differences in individuals labour supply decisions in different segments of the labour market it tests one of the main hypotheses of the dual labour market theory that the labour market can be divided into at least two segments and also whether the family labour supply decisions of individuals differ in the two segments the possibility of individuals wage rates depending on the number of hours worked is recognized and a model is developed in which both the wage rates and hours of work of individuals are jointly determined with the personal income tax system as an intervening variable since hours of labour supply depend on the post tax wage rate whereas if the marginal product of labour is a positive function of hours worked this affects the pre tax wage rates other alternative wage functions are specified and a simultaneous equations labour supply model using three stage least squares 3sls procedure is estimated the results indicate that there was sample selectivity bias

retrospectives real and money wage rates abstract in the general theory john maynard keynes held money and real wage rates move in opposite directions in expansion prices increase faster because of increasing costs and a rise in the proportion of product going to profits neoclassical economists held similarly money illusion of workers supported their common view the author s 1938 article rather showed a procyclical pattern significant to macroeconomic models of the economy contemporary literature with new elements of compensation and new measures of wages supports a slightly procyclical relationship increased output and employment in expansion do not require lower real wages

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

on the present state of the capital controversy the post war capital controversy seems to have had two distinguishable stages thanks to the unambiguous phenomena of reswitching and reverse capital deepening the first stage was conclusive in discarding from pure theory the traditional versions of neoclassical theory that relied on the notion of capital as a single quantity subsequently however when the implications of those phenomena took centre stage in the controversy together with the reformulations of the theory which intended to do away with the quantity of capital several misunderstandings prevented i shall contend decisive progress in the analysis and we entered an inconclusive phase of the discussion