rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

the consequences of doubling the minimum wage the case of indonesia minimum wages in indonesia were tripled in nominal terms and doubled in real terms in the first half of the 1990s the author evaluates the effects of this hike on wage earnings wage employment and investment after describing indonesia s minimum wage policy and surveying the literature on the effects of minimum wages the author applies relatively simple statistical tools to individual and aggregate data he visually inspects the wage distribution for full time laborers and employees to assess the extent of compliance with minimum wages he uses regression analysis involving minimalist specifications and data aggregated by province to estimate the elasticity of wage earnings wage employment and investment with respect to the minimum wage a wide dispersion in the ratio of minimum wages to labor productivity across the 27 indonesian provinces can be used to identify the effects of the minimum wage the results suggest that minimum wages have a moderate effect on outcomes in indonesia s labor market taken at face value these results imply that doubling the minimum wage led to a 10 percent increase in average wages a 2 percent decrease in wage employment and a 5 percent decrease in investment the disemployment effect appears to be considerable in small firms but employment may actually increase in large firms

collective labor supply and household production this paper emphasises the importance of incorporating household production into the collective model of the household and considers how and to what extent the results of chiappori 1992 can be extended to this case this abstract was borrowed from another version of this item

closing the gap the employment and unemployment effects of minimum wage policy in puerto rico abstract this paper examines the dynamic effect of minimum wage policy on employment and unemployment using multivariate time series techniques the particular minimum wage policy being considered occurred in puerto rico in 1974 when it was decided to close the minimum wage gap between the island and the united states incrementally by 1980 multivariate transfer functions are specified with the intent of distinguishing between minimum wage policy effects and structural changes brought about by the post 1974 recessions the results suggest that minimum wage policy gave rise to more significant unemployment than disemployment effects the pattern of labor mobility supports that suggested by the development literature in which labor flows from uncovered to covered sectors however given the structure of welfare programs on the island it is likely that flows from the covered to the non market sector also took place

labour supply specification and the evaluation of tax reforms this paper investigates the practical importance of the functional specification of labour supply equations for the analysis of tax benefit reform we consider two labour supply specifications one derived from stone geary preferences and the other from a generalisation that relaxes some of the more critical restrictions in that model we use these equations to contrast the effects of two reforms to the u k income tax system one involves income effects almost exclusively while the other implies a significant number of large increases in marginal tax rates

minimum wage effects under endogenous compliance evidence from peru latin american labor markets feature large informal sectors in practice however the simple duality formal informal has many different shades firms tend to comply more with certain legislation than with other recent evidence has suggested that minimum wages have significant effects on the informal sector bell 1997 for mexico gindling and terrell 2004 for costa rica lemos 2004 and fajnzylver 2001 for brazil and maloney and nunez 2004 for colombia further some of this evidence suggests effects throughout a large part of the wage distribution this has been interpreted as evidence of lighthouse or numeraire effects we test this hypothesis using panel data from peru to identify effects throughout the wage distribution although there are some effects on informal sector workers overall results provide little support for numeraire or lighthouse effects labor monthly earnings are affected only at the bottom of the distribution 0 25 0 60 of the minimum wage made up mostly of informal workers and for formal workers earning between the old the new minima negative effects on the probability of retaining employed status after a minimum wage shock are either weak or non significant for wage earners below the minimum wage but significant for formal workers trapped between minima and for both formal and informal earning between 1 2 and 2 times the minimum wage independent workers earning below minimum suffer negative effects on both earnings and employment

a pragmatic approach to capital account liberalization in the mid 1990s mainstream economists of nearly all stripes commonly recommended capital account liberalization that is allowing a free flow of funds in and out of a country s economy as an essential step in the process of economic development but then came the east asian financial crisis of 1997 98 in which even seemingly healthy and well managed economies like those of south korea were engulfed by massive capital outflows and tremendous currency volatility and capital account liberalization became quite controversial in the economics profession a decade later now that time has quelled passions and intervening research can shed more light on the debate it appears that both the costs and benefits of capital account liberalization may have been misunderstood in that earlier debate now it appears that the main benefits of capital account liberalization for emerging markets are indirect more related to their role in building other institutions than to the increased financing provided by capital inflows and these indirect benefits are important enough that countries should look for creative approaches to capital account liberalization that would help attain these benefits while reducing the risks countries don t have much choice but to plan for capital account liberalization because capital accounts are de facto becoming more open over time whatever governments may do to try to control them

the impact of minimum wages on employment in a low income country a quasi natural experiment in indonesia the extensive literature on the employment impact of minimum wages has focused heavily on industrialized nations and very little on the developing world despite the importance of minimum wages in many low income countries one such country indo nesia was the setting for an unusual quasi natural experiment not only did minimum wages in indonesia increase sharply between 1990 and 1996 but the resultant increment in average wages varied markedly across different areas in greater jakarta the authors use household level labor market data to determine the extent of compliance with the legislation then estimate the employment impact in the clothing textiles footwear and leather industries based on a census of all large and medium sized establishments the evidence suggests that there was no negative employment impact for large establish ments either foreign or domestic but that workers in smaller domestic establishments may have suffered job losses as a result of minimum wage increases

effects of the minimum wage on the employment status of youths an update the large decline in the relative value of the minimum wage during the 1980s makes that period a valuable one for identifying the impact of variation in the minimum wage on youth employment this study produces the robust finding that when the experience of the 1980s is included a 10 percent increase in the minimum wage is estimated to reduce teen employment by less than 1 percent the lower end of the range of previous estimates because this small employment effect is offset by a labor force withdrawal effect the study finds no discernible effect on measured unemployment the study also finds no apparent effect of the minimum wage on the employment of young adults aged 20 24

the case for gdp indexed bonds gds indexed bonds this paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of gdp we show that gdp indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro cyclical fiscal policies we simulate the effects of gdp indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood of debt gdp paths becoming explosive the insurance premium would likely be small because cross country comovement of gdp growth rates is low and cross country gdp growth risk is thus largely diversifiable for an investor holding a portfolio of gdp indexed bonds potential obstacles to the emergence of a market for these bonds include the verifiability of gdp data the trade off between insurance and moral hazard and the need for liquidity theory and past experience suggest that financial innovation often requires official intervention and its timing and form are difficult to predict we discuss institutional fixes and suggest an approach for attempting to start up a market eduardo borensztein and paolo mauro

labor supply deadweight loss and tax reform act of 1986 a nonparametric evaluation using panel data abstract tax reform act of 1986 tra 1986 has provided an invaluable source of variation in tax rates to study the effects of tax reforms on labor supply in the us most existing studies exploiting variation generated by tra 1986 have used cross sectional variation in tax rates or assumed a linear labor supply function or have not couched their analysis in a nonlinear budget set framework this paper uses the drastic variation in the budget set induced by tra 1986 as a source of identification and combines two novel approaches to estimate behavioral effects of tax reforms i first use nonparametric estimation methods with nonlinear budget sets blomquist soren newey w 2002 nonparametric estimation with nonlinear budget sets econometrica 70 6 2455 2480 to estimate a labor supply function using waves of psid just before and after tra 1986 nonparametric method developed in hausman and newey hausman j whitney newey 1995 nonparametric measurement of exact consumer s surplus and deadweight loss econometrica 63 1145 76 is then applied to estimate the deadweight loss from tra 1986 the nonparametric estimate of the compensated wage elasticity is 0 22 i find that tra 1986 had a small but positive effect on labor supply of men of about 2 at the sample mean tra 1986 was associated with robust reduction in deadweight loss from the pre tra 1986 level and this reduction is positively correlated with income and wages

the effect of income taxation on labor supply in the united states the effect of income taxation on the labor supply of prime age married men and women in the united states is examined using econometric methods similar to those used in the influential work of jerry hausman male labor supply is found to be relatively invariant to the net wage and virtual income in all specifications estimated the estimated impact of taxation on the labor supply of married women depends critically on the method used to estimate the labor supply function estimated net wage and virtual income elasticities are considerably larger when data on nonparticipants are included than when the estimation is conducted conditional on hours being greater than zero

the econometrics of kinked budget constraints in the last several years a branch of applied econometrics has developed which is devoted to the development of techniques for the estimation of demand and other functions when the budget constraint is piecewise linear or kinky that is when the constraint consists of a number of segments joined together at kink points such constraints most frequently arise from government tax and transfer programs for example the federal income tax imposes a piecewise linear schedule by the use of constant marginal tax rates within brackets a problem analyzed by hausman 1981 the payroll tax in the social security system likewise generates a kinked schedule inasmuch as the marginal tax rate on earnings is zero above a certain earnings maximum federal and state transfer programs for the poor result in piecewise linear constraints because transfer benefits are taxed in the sense of a negative income tax as income rises and because that tax rate falls to zero at the kink point where an individual or family loses eligibility for the benefit altogether many government transfer programs impose additional nonlinearities by altering this tax rate by discrete amounts over the range of positive benefits as well but kinked constraints sometimes arise in nongovernment contexts a well known example being the block pricing schedule commonly set by utilities and volume discounting in general kinked budget constraints create two difficulties that have several interesting facets one difficulty is that changes in tax and transfer schedules can have unexpected effects that can be exactly the opposite in sign to those expected from economic theory examples of this phenomenon are given below the second difficulty that with which this paper is mostly concerned relates to the implications of kinked budget

who minimum wage increases bite an analysis using monthly data from the sipp and the cps 1 introduction neoclassical competitive models of firm behavior predict that wage increases reduce the quantity of labor demanded by firms and holding the wage rate constant that the least valued workers are the first fired or the last hired minimum wage legislation exogenously increases the price of labor and data from periods when the minimum wage changes can be used to empirically test its effect on the employment of vulnerable workers however a new body of research using such data suggests that minimum wage increases do not reduce employment and may even increase it card 1992a b katz and krueger 1992 card katz and krueger 1994 card and krueger 1994 1995 from a theoretical perspective this new economics of the minimum wage has been characterized as an assault on the law of demand ehrenberg 1995 if modest increases in the minimum wage have no employment effects then the appropriateness of this method in helping the working poor is strictly a distributional issue 2 however if minimum wage increases reduce employment and if the jobs lost are concentrated among the vulnerable groups the policy claims to assist then policy makers must consider this unintended consequence hence estimating the elasticity of employment with respect to minimum wage increases is more than simply an empirical test of economic theory in this paper we use monthly data from the survey of income and program participation sipp and the current population survey cps to examine the effect of raising the minimum wage on employment in contrast to much of the new minimum wage literature we find that minimum wage increases significantly reduce employment moreover we find that the elasticity of demand for labor with respect to increases in the minimum wage is greatest for the most vulnerable groups in the working age population young adults who have low levels of education young black adults and teenagers and teenagers we also find that minimum wage increases reduce the overall employment of young adults and teenagers though the estimated elasticities are smaller 2 the new economics of the minimum wage the new minimum wage literature is dominated by studies that find that minimum wage increases have an insignificant or in some cases a positive and significant effect on the employment of young adults and teenagers aged 16 24 or on other subgroups within that population card 1992a b katz and krueger 1992 card katz and krueger 1994 card and krueger 1994 1995 most of these studies have now generated replies arguing that raising the minimum wage significantly decreases employment in these populations neumark and wascher 1992 1994 1996 in press deere murphy and welch 1995 taylor and kim 1995 burkhauser couch and wittenburg in press because these new studies of the minimum wage vary widely in their techniques we focus our discussion on those that use cps data and employ an estimation strategy related to the one we use in this paper neumark and wascher 1992 1994 1996 card katz and krueger 1994 card and krueger 1995 deere murphy and welch 1995 burkhauser couch and wittenburg in press 3 specifically we review studies that use a pooled time series cross sectional approach to estimate the employment effects of minimum wage increases on vulnerable groups such as teenagers with cps data deere murphy and welch 1995 also use pooled repeated cross sectional data from the cps to estimate the impact of minimum wage increases but their specification differs in some important ways from the studies discussed above deere murphy and welch 1995 estimate the effect of minimum wage increases over the period from 1985 through 1993 they construct intervals of monthly data from 1985 through 1993 that begin on the first day of april of each year and end on the last day of match during the following year for each interval they create annual averages of variables

solving asset pricing models when the price dividend function is analytic we present a new method for solving asset pricing models which yields an analytic price dividend function of one state variable to illustrate our method we give a detailed analysis of abel s asset pricing model a function is analytic in an open interval if it can be represented as a convergent power series near every point of that interval in addition to allowing us to solve for the exact equilibrium price dividend function the analyticity property also lets us assess the accuracy of any numerical solution procedure used in the asset pricing literature

why do stocks and consumption imply such different gains from international risk sharing abstract estimates of the gains to international risk sharing based upon stock returns tend to find dramatically higher gains than do estimates from consumption based models in this paper i examine the reasons for these differences using a common theoretical framework for both approaches i find that the differences are largely due to the much higher variability of stock returns and its implied intertemporal substitution in marginal utility also contrary to conventional wisdom the differences in gains from the two approaches do not arise from treating stock returns as exogenous rather than endogenous

minimum wages and the gender wage gap estimates are made of the effect of minimum wages on the size and composition of the gender wage gap in canada in 1986 it is found that minimum wages close the wage gap substantially for young workers and less so for adults the reduction in the gap is most attributable to the adverse employment effects of minimum wages the results also indicate that most of the reduction in the gap is realized through a fall in the discriminatory component

using regional variation in wages to measure the effects of the federal minimum wage the imposition of a national minimum wage standard provides a natural experiment in which the treatment effect varies across states depending on the fraction of workers initially earning less than the new minimum the author exploits this fact to evaluate the effect of the april 1990 increase in the federal minimum wage on teenagers wages employment and school enrollment comparisons of grouped and individual state data confirm that the rise in the minimum wage increased teenagers wages there is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment

minimum wages and poverty the principal justification for minimum wage legislation resides in improving the economic condition of low wage workers most previous analyses of the distributional effects of minimum wages have been confined to simulation exercises employing rather restrictive assumptions that guarantee the conclusion that an increase in the minimum wage reduces poverty in contrast we adopt a more flexible reduced form approach that links increases in both federal and state minima to contemporaneous changes in poverty rates for the period 1983 96 we find indication of a poverty reducing effect of minimum wages among older junior high dropouts and among teenagers

the effect of income taxation on the labor supply of married men in sweden abstract this paper presents labor supply functions estimated on a sample of prime age swedish males the model used takes account of the nonlinear character of individuals budget sets caused by the progressive income tax it also allows preferences to vary between individuals calculations with the estimated functions using a partial equilibrium framework indicate a sizeable effect of the income tax on hours of work the average expected deadweight loss of the income tax is found to be approximately 20 percent of tax revenue

optimality of incomplete markets abstract in a static exchange economy where the traders initial endowments are risky the optimality of the financial structure is studied when markets are incomplete only financial structures with the same number of assets are compared a market structure is optimal when in a particular economy it yields an allocation of risks which cannot be pareto dominated through the implementation of any other market structure in a linear gaussian setup the optimal market structures are shown to span an eigenspace of a matrix which combines the risk exposures of the participants in the market approximately weighted by a measure of their risk aversions journal of economic literature classification numbers d60 g10

optimal financial market integration and security design 1 we study 2 period pure exchange capital asset pricing model capm economies with incomplete financial markets and restricted participation we characterize the optimal financial market structure and efficient innovations consisting of both the introduction of new assets and the integration of segmented markets welfare gains from innovations are maximal when the endowments of affected agents are negatively correlated uncoordinated innovations lead to efficient market structures if all assets have identical participation structure or the markets being integrated trade identical assets however coordination failure in the introduction of new assets may result when assets have participation structures that overlap only partially

the effect of taxes on male and female labor supply in sweden this paper estimates labor supply functions for married men and women in sweden using data from 1980 taking account of the complete form of individuals budget constraints both linear and quadratic supply functions are estimated with and without random preferences a novel feature is that for women the wage rate and labor supply functions are estimated simultaneously using a full information maximum likelihood method this method yields substantially larger wage and income elasticities than does the previously used two step methods another result is that the quadratic supply function wage elasticities for men and women are virtually the same if the elasticities are evaluated at the same net wage rate and hours of work for men and women the estimated functions are used to calculate the effect of tax reforms

the expected utility of the doubling strategy it has been noted that a certain continuous time trading strategy termed the doubling strategy generates a positive net return on borrowed funds with probability one and within a finite period of time since the doubling strategy seems to represent a free lunch or arbitrage opportunity a variety of constraints to render it infeasible have been proposed in this paper we show that the doubling strategy generates infinite disutility for a large class of utility functions and we can think of no utility function for a risk averse agent which is a counterexample harrison and kreps 5 pointed out that a certain continuous time trading strategy in frictionless markets since termed the doubling strategy generates a positive net return on borrowed funds with probability one and within a finite period of time moreover the returns can be made arbitrarily large by increasing the initial amount borrowed thus the doubling strategy seems to represent a free lunch or arbitrage opportunity the theory of valuation of derivative assets also assumes continuous time trading in frictionless markets an assumption necessary to argue that the derivative asset can be perfectly hedged by the underlying asset and the risk free asset as in black and scholes 2 or equivalently that the returns on the derivative asset can be replicated by a self financing trading strategy see harrison and kreps 5 or harrision and pliska 6 in addition it must be assumed that the economy is free of arbitrage opportunities so that the continuously revised hedge portfolio earns the risk free rate or again equivalently that the value of the derivative asset is equal to the replicating strategy s initial portfolio consequently harrison kreps and others have viewed the existence of the doubling strategy and its apparent violation of the arbitrage free economy condition as a serious problem in contingent claims theory more generally the doubling strategy seems to suggest an inconsistency in standard sets of assumptions e g diffusion type asset prices frictionless continuous time markets and market efficiency when sufficiently complex trading strategies are permitted since the doubling strategy was introduced by harrison and kreps a number of constraints have been proposed to eliminate the doubling strategy without at the same time ruling out the other continuous time trading strategies essential to derivative asset pricing and continuous time portfolio theory bounds on portfolio positions kreps 9 a positive constraint on wealth dybvig 3 and margin requirements heath and jarrow 7 more generally dybvig and huang 4 show that a lower bound on wealth precludes other complex trading strategies

the significance of the market portfolio the market portfolio is in one sense the least important portfolio to provide to investors in an j agent one period stochastic endowment economy where preferences are quadratic a social welfare minded contract designer would never create a contract that would allow trading the market portfolio even the complete set of contracts all j 1 of them which achieve a first best solution never span the market portfolio these conclusions rely on the assumption that the contract designer has perfect information about agents utilities we also show that as the contract designer s information about agents utilities becomes more imperfect the optimal contracts approach contracts that weight individual endowments in proportion to elements of eigenvectors of the variance matrix of endowments then if there is a strong enough market component to endowments a portfolio approximating the market portfolio may be the most important portfolio

minimum wage policy and employment effects evidence from brazil the international literature on minimum wages greatly lacks empirical evidence for latin america in brazil not only are minimum wage increases large and frequent but they also have been used as both a social policy and an anti inflationary policy this paper estimates the effects of the minimum wage on wages and employment using panel data techniques and brazilian monthly household data from 1982 to 2000 a number of conceptual and identification questions are discussed for example the paper summarizes various strategies on how best to measure the effect of a constant national minimum wage presenting a menu of minimum wage variables that are then used to estimate wage and employment effects the paper also uses an employment decomposition that separately estimates the effect of the minimum wage on hours per worker and on the number of jobs robust results indicate that an increase in the minimum wage strongly compresses the wages distribution with small adverse effects on employment

asset prices and consumption in a model of perpetual youth i construct a general equilibrium overlapping generations model with heterogeneous agents and obtain analytical solutions to asset prices consumption and asset demands individuals have constant absolute risk aversion and a constant probability of dying agents have three stages in their lives in the first stage agents are young and constrained from investing in stocks in the second stage they work and in the third they retire i analyze asset prices numerically and with comparative statics changing any exogenous parameter has large effects on asset prices when there are large demographic changes to the population constrained from investing in stocks

zero hours contracts and labour market policy the evolving nature of atypical work arrangements is studied a particular focus is placed on one such form of work relation zero hour contracts zhcs the paper uses existing secondary data and new survey data collected for the specific purpose of studying alternative work arrangements to describe the nature of zhc work in the uk labour market the interaction with labour market policy is explored in the context of the 2016 introduction of the uk s national living wage zhc work is shown to be an important feature of today s work arrangements and the wage cost shock induced by the new higher minimum wage resulted in an increased use of zhcs in the uk social care sector and in low wage sectors more generally

the heterogeneous effects of the minimum wage on employment across states abstract this paper studies the relationship between the minimum wage and the employment rate in the us using the framework of a panel structure model the approach allows the minimum wage along with some other controls to have heterogeneous effects on employment across states which are classified into a group structure the effects on employment are the same within each group but differ across different groups the number of groups and the group membership of each state are both unknown a priori the approach employs the c lasso technique a recently developed classification method that consistently estimates group structure and leads to oracle efficient estimation of the coefficients empirical application of c lasso to a us restaurant industry panel over the period 1990 2006 leads to the identification of four separate groups at the state level the findings reveal substantial heterogeneity in the impact of the minimum wage on employment across groups with both positive and negative effects and geographical patterns manifesting in the data the results provide some new perspectives on the prolonged debate on the impact of minimum wage on employment

minimum wage effects throughout the wage distribution this paper provides evidence on a wide set of margins along which labor markets can adjust in response to increases in the minimum wage including wages hours employment and ultimately labor income not surprisingly the evidence indicates that low wage workers are most strongly affected while higher wage workers are little affected workers who initially earn near the minimum wage experience wage gains nevertheless their hours and employment decline and the combined effect of these changes on earned income suggests adverse consequences on net for low wage workers

a simulation based welfare loss calculation for labor taxes with piecewise linear budgets graduated income tax rates and transfer programs create piecewise linear budget constraints that consist of budget segments and kink points with any change in these tax rules each individual may switch between a kink point and a budget segment between two budget segments or between two kink points with errors in the estimated labor supply equation the new choice is uncertain and so the welfare effects of a tax change are uncertain we propose a simulation based method to compute expected welfare effects that is easy to implement and that fully accounts for uncertainties about choices around kink points our method also provides information about expected changes in working hours d 2003 elsevier b v all rights reserved

monopsony in the low wage labor market evidence from minimum nurse staffing regulations this paper provides direct evidence on the extent of monopsony power in the low wage labor market by estimating the firm level elasticity of labor supply for nurse aides in the long term care nursing home industry using exogenous variation in hiring induced by the passage of a state minimum nurse staffing law i find that facilities initially out of compliance with the new law did not have to raise their wage offers relative to their competitors in order to hire more nurses while this is consistent with perfect competition in simple monopsony models of the labor market i discuss how the results may be more ambiguous in more complicated models

time series evidence of the effect of the minimum wage on youth employment and unemployment our updated estimates indicate that a 10 percent increase in the federal minimum wage or the coverage rate would reduce teenage 16 19 employment by about 1 percent which is at the lower end of the range of estimates from previous studies because of substantial labor force withdrawal the unemployment effects are practically zero these minimum wage effects differ very little by sex and there is no strong evidence that the effects vary by race the study also finds a significant albeit small unemployment impact for young adults 20 24 and examines the consequences of numerous alternative statistical and mathematical specifications of the estimating model

multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies it is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it in this article we analyze a model with search frictions and heterogeneous production technologies in which imposition of a minimum wage affects wages even though after imposition the lowest wage in the market exceeds the minimum wage the model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other imposition of a minimum wage may improve social welfare

infinite horizon incomplete markets the model of general equilibrium with incomplete markets is a generalization of the arrow debreu model which provides a rich framework for studying problems of macroeconomics this paper shows how the model which has so far been restricted to economies with a finite horizon can be extended to the more natural setting of an open ended future thereby providing an extension of the finite horizon representative agent models of modern macroeconomics to economies with heterogeneous agents and incomplete markets there are two natural concepts of equilibrium over an infinite horizon which prevent agents from entering into ponzi schemes that is from indefinitely postponing the repayment of their debts the first is based on debt constraints which place bounds on debt at each date event the second is based on transversality conditions which limit the asymptotic rate of growth of debt the concept of an equilibrium with debt constraint is a natural concept of equilibrium for macroeconomic analysis however the concept of an equilibrium with transversality condition is more amenable to theoretical analysis since it permits the powerful techniques of arrow debreu theory to be carried over to the setting of incomplete markets in an economy in which agents are impatient expressed by the mackey continuity of their preference orderings and have a degree of impatience at each date event which is bounded below a concept defined in the paper we show that the equilibria of an economy with transversality condition coincide with the equilibria with debt constraints an equilibrium with transversality condition is shown to exist it follows that for each economy there is an explicit bound m such that an equilibrium with explicit debt constraint m exists in which the constraint is never binding this latter property ensuring that the debt constraint whose objective is to prevent ponzi schemes does not in itself introduce a new imperfection into the model over and above the incompleteness of the markets

the econometrics of piecewise linear budget constraints a survey and exposition of the maximum likelihood method in this article maximum likelihood techniques for estimating consumer demand functions when budget constraints are piecewise linear are exposited and surveyed consumer demand functions are formally derived under such constraints and it is shown that the functions are themselves nonlinear as a result the econometric problems in estimating such functions are exposited and the importance of the stochastic specification is stressed in particular the specification of both unobserved heterogeneity of preferences and measurement error econometric issues in estimation and testing are discussed and the results of the studies that have been conducted to date are surveyed

welfare gains from international risksharing abstract this paper uses consumption data to compute yet unexploited welfare gains that can be achieved through risksharing among twenty oecd countries there is both aggregate national consumption risk and nondiversifiable individual specific risk countries engage in an optimal risksharing arrangement to pool risk associated with the aggregate consumption endowment streams welfare gains are associated with reduced consumption variability and with the international pricing of the consumption streams of individual countries the paper considers the standard vnm time additive preferences as well as nonexpected utility and habit formation preferences large unexploited gains are found under all sets of preferences leading to an international risksharing puzzle

financial integration and growth in a risky world abstract we revisit the debate on the benefits of financial integration in a two country neoclassical growth model with aggregate uncertainty the framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing together with their interaction global numerical methods allow for meaningful welfare comparisons gains from integration are quantitatively small even for riskier and capital scarce emerging economies these countries import capital for efficiency reasons before exporting it for self insurance leading to capital flows and growth reversals along the transition this opens the door to richer empirical implications than previously considered in the literature

minimum wage laws are they overrated l minimum has been fixed in nominal terms at about 55 percent of the current average wage rising wages in the rest of the economy gradually erode the real minimum wage and eventually the process is repeated sometimes the increase in the nominal minimum is accompanied by a permanent reduction in those businesses exempted from the law proposals for a lower minimum wage for young workers or to index the minimum wage to the average wage have been debated but not adopted the minimum wage was last increased to 3 35 in 1981 since then average hourly wages have risen by 25 percent eliminating any momentum for a lower minimum wage for youth but reviving proposals for another increase in the nominal minimum economists are fascinated by the minimum wage because we have strong theoretical predictions about the direction of the effect of the minimum wage on employment and fairly widely accepted methods to estimate the size of that impact it probably didn t hurt that the earliest and later estimates lined up well with the predictions but that is not the only reason for our fascination with the topic depending on whether we include those who say they earn less than the minimum wage minimum wage workers account for 6 to 12 percent of those employed gilroy 1981 p 157 and less than 5 percent of wage and salary income the minimum wage gives economists a relatively rare opportunity to study the impact of an exogenous increase in the price of labor and thus a chance to refine our thinking

speculation and risk sharing with new financial assets while the traditional view of nancial innovation emphasizes the risk sharing role of new nancial assets belief disagreements about these assets naturally lead to speculation which represents a powerful economic force in the opposite direction this paper investigates the eect of nancial innovation on portfolio risks in an economy when both the risk sharing and the speculation forces are present financial assets provide hedging services but they are also subject to speculation because traders do not necessarily agree about their payos i de ne the average variance of traders net worths as a measure of portfolio risks for this economy and i decompose it into two components the uninsurable variance de ned as the average variance that would obtain if there were no belief disagreements and the speculative variance de ned as the residual variance that results from speculative trades based on belief disagreements financial innovation always decreases the uninsurable variance because new assets increase the possibilities for risk sharing my main result shows that nancial innovation also always increases the speculative variance this is true even if traders completely agree about the payos of new assets the intuition behind this result is the hedge more bet more eect traders use new assets to hedge their bets on existing assets which in turn enables them to place larger bets and take on greater risks my second set of results concern endogenous nancial innovation when belief disagreements are su ciently large a pro t seeking market maker introduces assets that maximize the average variance among all possible choices completely disregarding the risk sharing motive for nancial innovation my third set of results concern a calibration of the model in the context of the gdp indexed assets proposed by athanasoulis and shiller 2001 when traders have reasonable amounts of belief disagreements these assets would have the unintended consequence of increasing their consumption risks

labor supply and taxation in france this paper provides sequential labor supply estimates for french married men and women under specifications analogous to those used by hausman to account for the effects of taxation upon the budget constraint results suggest that even though labor force participation follows the expected pattern work hours are quite rigid most of the variation in the latter being attributed to measurement errors the second part of the paper concentrates on the simultaneous estimation of male and female labor supply conditional maximum likelihood techniques are shown to permit the separate estimation of work hours for both spouses with an appropriate set of instruments aimed at correcting for the biases arising from simultaneity selectivity and the nonlinearity of the budget constraint although consistent the resulting estimates apparently contradict the usual rationality restrictions on family labor supply behavior and seem to confirm the lack of flexibility in work hours

the cyclical behavior of individual production series 1889 1984 this paper uses simple summary statistics to analyze the volatility persistence and comovement of 38 annual individual production series for the period 1889 1984 it seeks to identify the size source and correlation of fluctuations in the production of specific commodities within various sample periods and to analyze possible changes in these characteristics over time the paper also discusses the implications of the behavior of individual production series for the behavior of the aggregate economy within the prewar interwar and postwar eras

the effects of the minimum wage in brazil on the distribution of family incomes 1996 2001 abstract the brazilian economy has long relied on the minimum wage having first implemented a minimum in 1940 shortly after taking office in 2003 brazil s president raised the minimum wage by 20 and promised to double the value of the minimum wage before his term ends in 2006 the usual rationale for minimum wage increases is to bring about beneficial changes in the income distribution by raising incomes of poor and low income families the goal of this paper is to evaluate the efficacy of the minimum wage in brazil in bringing about these changes in the income distribution we examine data drawn from brazil s major metropolitan areas studying the years after brazil s hyper inflation ended the estimates provide no evidence that minimum wages in brazil lift family incomes at the lower points of the income distribution if anything some of the evidence points to adverse effects on lower income families

product market evidence on the employment effects of the minimum wage we infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry whereas perfect competition implies that employment falls and prices rise after a minimum wage increase the monopsony model potentially implies the opposite we show that estimated price responses are consistent with the competitive model we place fairly tight bounds on the employment response with the most plausible parameter values suggesting that a 10 increase in the minimum wage lowers low skill employment by 2 4 and total restaurant employment by 1 3

world income components measuring and exploiting risk sharing opportunities a method is constructedfor decomposing the variance of changes in incomes in the world into components to indicate the most important risk sharing opportunities among people of the world a constant absolute risk premium carp model an intertemporal general equilibrium model of the world is presented to permit optimal contract design for a contract designer maximizing a social welfare function the optimal contracts maximize the equilibrium world real interest rate securities are defined in terms of eigenvectors of a transformed variance matrix the method is applied using penn world table data on the g 7 countries 1950

the effects of minimum wages on the distribution of family incomes a nonparametric analysis an oft stated goal of the minimum wage is to raise incomes of poor or low income families we present nonparametric estimates of the effects of minimum wages on the distribution of family income relative to needs in the united states although minimum wages increase the incomes of some poor families the evidence indicates that their overall net effect is if anything to increase the proportions of families with incomes below or near the poverty line it would appear that reductions in the proportions of families that are poor or near poor should not be counted among the potential benefits of minimum wages

risk management instruments for debt driven conservation efforts the case of india s project tiger abstract project tiger has been india s premier case of conservation success since mid 1990s select project tiger reserves in india were chosen for intensive funding by the global environment facility the international development agency ida and the government of india under the india eco development project this project marked a modest shift towards debt based funding the gef project has become a benchmark for tiger conservation in india both in terms of management outcomes and scale and scope of funding however in the absence of large scale budgetary support or self generating income flows it becomes difficult for the gef type of project to be replicated in other tiger reserves of the country debt instruments hold promise as enablers of conservation finance the paper proposes issue of tiger bonds to meet the financial requirements of tiger reserves though attractive as a debt instrument a tiger bond could nevertheless entail interest rate and default risks bioprospecting activities form good revenue sources for tiger reserves to pay off their debts however bioprospecting activities do not provide assured returns to tiger reserves pharmaceutical companies that prospect for genetic resources and practice real options approach to r d investment planning adopt multi phased investment systems and sequential searches that gives them the flexibility to abandon r d projects from the point of view of genetic resource providing entities like project tiger reserves the postponement value generated by real options enables a drug company to tap substitutes for the genetic resources that form the subject matter of bioprospecting contracts to obviate possible repayment risks by tiger reserves the paper advocates the institution of put bonds as a risk management tool for project tiger reserves in order to hedge themselves against loan defaults arising from possible loss in bioprospecting income the paper also brings out the mechanics of the issue of tiger bonds in the indian context it is argued that a put bond not only hedges default risks but would also aid value discovery and payment for ecosystem services as far as the project tiger reserves of india are concerned

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

financial innovation and portfolio risks i illustrate the effect of financial innovation on portfolio risks by using an example with risk sharing needs and belief disagreements i consider two types of innovation product innovation formalized as an expansion of new financial assets and process innovation formalized as a reduction in transaction costs when belief disagreements are large both types of innovation increase portfolio risks moreover endogenous financial innovation is directed towards speculative assets that increase portfolio risks

reservation wages and their labor market effects for black and white male youth this paper presents an empirical analysis of self reported reservation wages for unemployed young black and white males the results show that young blacks seek wages which are comparable to those of young whites in absolute terms but which are higher relative to what is available on the demand side of the market these relatively higher reservation wages of young blacks contribute to their unemployment durations and somewhat to their subsequently received wages changes in reservation wages may thus help to explain the trends in wages and employment of young blacks in recent years

social security and individual accounts as elements of overall risk sharing the widespread public and political impetus in the united states and elsewhere to revamp social security to incorporate some form of individual accounts creates a time of opportunity it is a time when people want to see the better exploitation of the available trade off between risk and return and a time to reconsider the foundations of the social security system so that it can much better serve its intended purpose as a manager of risks as i argue in my new book the new financial order risk in the 21st century shiller 2003 the time when we redesign social security ought to be a time when we carefully consider the fundamental intergenerational risk management problem and define choices in individual accounts that reflect the true problem it is also a time when we must make creative use of insights from behavioral economics that have emerged over the years finally it is a time for an expanded exploitation of our new electronic information technology we should not miss this opportunity this means we must work now toward solving a complex constrained optimization problem where the objective is to maximize a social welfare function involving all generations and the constraints reflect the varying degrees of individual optimization ability psychological underpinnings of human behavior and modem information technology

the international experience of minimum wages in an economic downturn what should governments do with the level of the minimum wage mw in times of recession in an economic downturn when most workers face falling real wages is it appropriate to let the mw fall or are the positive effects of the mw on inequality enough to justify its uprating and if so what might be the consequences on a country s employment level this paper reports new estimates of the employment effects of the mw by focusing on the recessionary experiences across countries using international data we exploit cross national variation in the level and timing of the mw uprating and the exact timing of the recessionary experiences in different countries with a panel data set comprising 33 oecd over the period 1971 2009 our panel data allow us to differentiate the effect of mws on employment in periods of economic downturn as well as periods of economic growth we also account for institutional and other policy related differences that might have an impact on employment other than the mw we find that the answer depends on whether one considers adults or young people and to some extent on what measure of the mw is considered the answer is also somewhat sensitive to whether one considers that the mw level is a choice option of the government which is inextricably interrelated to the determination of employment that is the extent to which the mw is endogenous using a political complexion of the government instrumental variable iv we find that the mw only has a negative impact on youth employment this leaves each government with the dilemma of raising the mw and reducing inequality or increasing the mw and accepting that this will reduce employment levels amongst young people and those on the margins of work peter dolton and chiara rosazza bondibene

the dynamics of minimum wage policy in economic development a multiple time series approach minimum wage legislation is now common in both developed and developing countries however as s watanabe points out in these two groups of countries minimum wage legislation has different objectives for developed countries minimum wages provide a socially acceptable standard of living for marginal workers in the labor force these countries often set the minimum at 40 50 of average wages in contrast developing countries use minimum wages to provide an income base for broad sectors of the population to reduce income inequality in these countries the minimum often is 70 90 of average wages it has also been pointed out that due to lack of enforcement minimum wage legislation in less developed countries has not fundamentally affected wages 2 only in the modern sector of the economy is the minimum enforced usually with the help of trade union supervision the less developed countries simply cannot afford the administrative machinery necessary to enforce minimum wage legislation furthermore governments often are unwilling to enforce the minimum wage because they wish to avoid its possible disemployment consequences one exception to the prevailing view that minimum wage legislation does not affect large sectors of the population in developing countries is the seminal work of l reynolds and p gregory 3 they studied the puerto rican experience with minimum wages during the early stages of rapid industrialization puerto rico s particular politicaleconomic relationship with the united states prevents it from being a typical developing country but the puerto rican case is especially important because compared to other countries minimum wage legislation is enforced more effectively has been in effect longer and has

aggregation bias in elasticities of substitution and the minimum wage paradox while the employment effects of minimum wages are usually reported to be small suggesting low substitutability between skill types direct estimates suggest a much larger degree of substitutability this article argues that this paradox is largely due to a bias induced by the aggregation of skill types into broad categories an assignment model is applied where skilled workers have a comparative advantage in complex jobs the implied pattern of substitutability reveals the sources of the bias estimation results for the united states show elasticities of complementarity to be underestimated by up to a factor 2 5 the methods laid out likewise can be applied to other markets where different quality types are close substitutes such as the housing market

the employment effect in retail trade of california s 1988 minimum wage increase in this article we study the labor market effect of california s 1988 minimum wage increase in the retail trade industry two different approaches to evaluating the minimum wage effects suggest that the textbook economic analysis of minimum wages pertains employment growth in california s low wage retail trade sector appears to have been tempered by the minimum wage increase

monopsony in the labor market this paper surveys recent theoretical and empirical research on monopsony in labor markets broadly defined as upward sloping labor supply to an employer we compare older monopsony models based on small numbers of employers with newer models based on labor market frictions such as moving costs and search we also compare older econometric approaches that focus on static wage concentration relationships with newer approaches that focus on dynamics our review of empirical estimates suggests that monopsony power based on small numbers of employers is probably rare but occasionally large while monopsony power based on frictions is probably widespread but small on average

minimum wage laws what does an employment increase imply about output and welfare abstract card and krueger find empirically that minimum wage laws may increase employment the current paper seeks the analytical implications of employment increasing minimum wages for output and welfare the standard supply and demand model cannot be used for this purpose one needs a model in which employment increasing minimum wages are at least possible such as this paper s efficiency wage model here an employment increase is neither necessary nor sufficient for expected welfare gains for either employed or unemployed workers an employment increasing minimum wage raises output but unambiguously lowers labor force participation and hurts those who remain unemployed

the impact of labor market regulation on employment in low income countries a meta analysis controversy over labor market policy often centers on achieving a balance between preventing worker exploitation and avoiding loss of productivity or employment through excessive regulation although the literature documenting the impact of labor market regulation on employment is extensive there is a dearth of evidence on the impact of such policies in low income countries lics since it is easier for workers especially women to slip into the informal sector in lics regulations are likely to have stronger impacts on formal employment in these countries but lower impacts on unemployment we systematically reviewed available research from countries that are or were until recently lics most studies document that more stringent labor regulations are associated with lower formal sector employment and higher informal sector employment we also conducted a metaregression analysis of the impact of minimum wages on formal and informal employment after controlling for publication bias higher minimum wages are associated with lower formal employment and a higher share of informal workers

regional effects of the minimum wage on teenage employment previous research on the minimum wage using national level data concludes that the minimum wage has a small effect on the employment of teenagers this paper provides new evidence that there is substantial regional variation in the effect of the minimum wage and in some regions it has a decidedly larger impact on teenage employment than previously measured estimates from a panel data set of the us states suggest that the minimum wage may cause almost a 7 reduction in teenage employment in some regions this results is robust to different econometric specifications and holds whether a relative or real specification of the estimating equation is used

the random utility hypothesis and inference in demand systems in this paper the authors examine the consequences of adopting the random utility hypothesis as an approach for randomizing a system of demand equations random utility models are appealing since they allow the usual assumption of deterministic utility maximizing behavior by each consumer to coexist with the apparent randomness across individuals that is exhibited by data their results show that the use of random utility models implies that the disturbances of the demand equations may not be homoskedastic but must be functions of prices and or income copyright 1989 by the econometric society

nonparametric panel estimation of labor supply in this article we estimate structural labor supply with piecewise linear budgets and nonseparable endogenous unobserved heterogeneity we propose a two stage method to address the endogeneity iss

minimum wage impacts on wages and hours worked of low income workers in ecuador abstract minimum wage policy aims to raise the real income of low wage workers low wage individuals may be adversely affected by minimum wages however although the empirical evidence on this point is not without controversy we analyzed the effects of the january 2012 increase in monthly minimum wages on the wages and hours worked of low wage workers in ecuador individuals could have chosen to enter occupations covered by minimum wage legislation or those that were not we applied a difference in differences estimation to account for potential self selection bias we also relied on exogenous variations in minimum wages by sector industry and occupation we constructed individual panel data from a household panel and performed estimates that also accounted for potential sample selection bias the results suggest a significant and positive effect on the wages of treated workers increasing them by 0 41 0 48 for each 1 increase in minimum wages relative to the earnings of control workers our results also suggest that effects varied by type of worker i women workers received lower wage increases and their hours worked were significantly and negatively affected both of which may suggest a failure of the minimum wage to reduce the gender wage gap at the bottom of the distribution and ii the hours worked by young workers were significantly and positively affected a result that is in agreement with results found elsewhere in the literature these results persisted after applying robustness checks to account for different control groups full vs part time jobs separate regressions for heterogeneous groups and tests for potential attrition and sample selection bias the range of effects observed across disparate groups of workers suggests areas in which policy change could be useful the income compression effect we found suggests that further studies should address the effects of minimum wage on the drop in income inequality observed in the data

time series minimum wage studies a meta analysis time series minimum wage studies a meta analysis author s david card and alan b krueger reviewed work s source the american economic review vol 85 no 2 papers and proceedings of the hundredth and seventh annual meeting of the american economic association washington dc january 6 8 1995 may 1995 pp 238 243 published by american economic association stable url http www jstor org stable 2117925 accessed 04 11 2011 15 46

criminal behaviour and youth in the labour market the case of the pernicious minimum wage this paper empirically tests the relationship between variations in uniform crime reports ucr index crime rates for teenagers 16 19 years of age with changes in the real minimum wage adjusted for industry coverage in the united states for the period 1960 1987 the analysis reveals that there exists a positive relationship between changes in the real minimum wage and teenage criminal homicide forcible rape and motor vehicle theft crime rates these findings are consistent with the empirical evidence concerning the impacts of the minimum wage on youth labour market opportunities and also with the theoretical ad empirical evidence regarding the incidence of criminal activity made as an occupational choice decision formulated under risk and uncertainty however the results indicate no impact of the minimum wage on the other teenage ucr index crime rates as found by hashimoto 1987 the evidence also suggests that variations in real criminal justice expenditures per capita reduce teenage propety crime ra