unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

deregulation shock in product market and unemployment in a dynamic general equilibrium model with endogenous markups and labor market frictions we investigate the effects of increased product market competition unlike most macroeconomic models of search we endogenize the labor supply along the extensive margin we find numerically that a model with endogenous labor force participation decision produces a decline in the unemployment rate which is almost three times larger than that in a model with fixed labor force for a calibration capturing alternatively the european and the us labor markets a deregulation episode which lowers the markup by 3 percentage points results in a fall in the unemployment rate by 0 17 and 0 05 percentage point respectively while the labor share is almost unaffected in the long run the sensitivity analysis reveals that product market deregulation is more effective in countries where product and labor market regulations are high unemployment benefits are small and labor force is more responsive

is the u s labor market really that exceptional a review of richard freeman america works is a splendid book and richard freeman is to be congratulated on producing a work that sets out what is right and what is wrong with the u s labor market while being a joy to read while i am generally sympathetic to both the analysis and the conclusions there are a number of points of disagreement that i highlight in this review in particular i would add to his policy recommendations by taking a gamble and enacting a law that entitled all employees in the united states to four weeks paid holiday per year in addition to public holidays this may transform summertime in the united states

can political entrepreneurs solve the free rider problem abstract a solution of the problem of voluntary collective action employing an improved concept of political entrepreneurship is proposed this solution is consistent with large numbers of actors and pure public goods joint production of private goods and asymmetry are not assumed the importance of information imperfections in producing suboptimality in the provision of public goods is emphasized political entrepreneurship is made to parallel the knightian concept of the entrepreneur emphasizing the role of risk taking and information collecting

when more flexibility yields more fragility the microfoundations of keynesian aggregate unemployment abstract wages are an element of cost crucially affecting the competitiveness of individual firms but the wage bill is also a crucial element of aggregate demand hence it could be that more flexible and fluid labour markets while allowing for faster inter firm reallocation of labour may also render the whole economic system more fragile more prone to recession and more volatile in this work we investigate some conditions under which such a conjecture applies the paper presents an agent based model that investigates the effects of two archetypes of capitalism in terms of regimes of labour governance defined by the mechanisms of wage determination firing labour protection and productivity gains sharing upon i labour market regularities and ii macroeconomic dynamics long term rates of growth gdp fluctuations unemployment rates inequality etc the model is built upon the keynes meets schumpeter family of models dosi et al 2010 explicitly incorporating different microfounded labour market regimes our results show that seemingly more rigid labour markets and labour relations are conducive to coordination successes leading to higher and smoother growth

homeownership informality and the transmission of monetary policy cross country aggregate data exhibits a strong positive relationship between the size of the informal employment and aggregate homeownership rates we investigate this empirical observation using a cash in advance model with housing markets and argue that the rate of inflation is important in explaining the nexus between informality and homeownership rates specifically we uncover a novel monetary transmission mechanism and show that households with informal employment desire to economize on their short term cash usage and avoid periodic rental payments when i informality is associated with constrained business investment finance and ii inflation expectations are high our empirical and theoretical findings highlight an important interaction between the conduct of monetary policy and the performance of housing markets

economic development urban underemployment and income inequality the evolution of income inequality during the course of economic development is investigated the source of inequality is market luck in obtaining employment in the protected urban formal sector versus employment in the unprotected urban informal sector it is shown that with development inequality tends to follow an inverted u it rises when urbanization is low and consequent pressure on the land keeps rural incomes low making agents willing to incur high risks of underemployment in the urban informal sector it eventually falls after urbanization and consequently rural incomes have increased sufficiently to allow agents to make better than even bets in the urban industrial sector

differences in hours worked in the oecd institutions or fiscal policies we study the determinants of the level and the evolution of per capita hours worked in a panel of oecd countries since the 1970s following pesaran 2006 our empirical strategy allows for the possibility of cross sectionally correlated error terms due to unobserved common factors which are potentially nonstationary we find that much of the variation in per capita hours worked across countries and over time can be explained by differences in the level and structure of taxes and government expenditures differences in the evolution of labor and product market institutions have much less of a role to play our results show that a careful treatment of the time series properties of the data is crucial

measuring inequality change in an economy with income growth abstract this paper reassesses an article by fields which criticizes using standard income inequality indices for the evaluation of high income sector enlargement growth this paper dissents in three ways the intuition that motivated fields paper is found to only partially account for the changes occurring during growth the inequality index that fields developed is shown to incorporate the concept of symmetry and the concept of inequality as the expected experience of income differences is shown to support the use of the standard indices

patterns of work across the oecd market work per person of working age differs widely across the oecd countries and there have been some significant changes in the last forty years how to explain this pattern taxes are part of the story but much remains to be explained if we include all the elements of the social security systems like early retirement benefits sickness and disability benefits and unemployment benefits then we can capture some aspects of the overall pattern but still a lot remains unexplained the story favoured by alesina et al cepr dp 5140 2005 is that the nexus of strong unions generous welfare and social democracy implies both high taxes and pressure in favour of work sharing in response to adverse shocks this story however falls foul of the simple fact that most scandinavian countries now do much more work than the french and germans despite having stronger unions more generous welfare higher taxes and more social democracy ultimately we are forced into the position that there is no simple story some of the broad patterns can be explained but there remain country specific factors which are hard to identify but lead to substantial differences from one country to another

modelling the informal sector formally abstract the theoretical characterization of formal informal sector dualism by labor market dualism is integrated with its empirical characterization by size dualism by supposing that the minimum formal sector wage is only enforced for firms greater than a certain size a firm s size varies directly with the talent of its enterpreneur manager and the choice between formal and informal sector entrepreneurship is determined endogenously it is then shown that the size gap between the smallest formal sector firm and largest informal sector firm varies directly with the formal informal sector wage differential which in turn is shown as expected to increase the further is the minimum wage above the market clearing wage the comparative statics of changes in the size of the firm above which the minimum wage is enforced are also examined

the effect on income distribution of development the growth rate and economic strategy abstract an analysis of cross section and time series data for 83 countries confirms some and contradicts other work on income distribution new findings include a dualistic socio political system is highly unfavorable for equality neither the extent of government intervention in the economy nor the rate of manufactured exports are systematically related to income distribution the analysis confirms that there is no systematic relationship between equality and the rate of economic growth educational participation and a reduction in the share of primary exports in gdp are both favorable for equality there is some support for the kuznets hypothesis that inequality increases as per capita income rises to about 400 and then declines with further income increase but the empirical support is not strong and may be weakening over time these findings lead to more optimistic conclusions then other work that rapid growth in a mixed economy is quite consistent with unchanged or even improved income distribution even at early stages of development

constrained by hours and restricted in wages the quality of matches in the labor market this paper examines the explicit loss born by workers who face constraints in their working hours by analyzing differences in actual and desired hours and wages men tend to be underemployed while women are evenly split between over and underemployment losses in surplus are generally small but 10 of underemployed men and women experience losses of more than 34 or 50 of surplus respectively the loss measure is also an important determinant in predicting labor market transitions meaning increases in surplus losses generate a higher probability of changing from workers present jobs or changing the number of hours jel j22 j41

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

unemployment migration and growth economic development is typically accompanied by migration from rural to urban employment this migration is often associated with significant urban underemployment both factors are important in the development process we consider a neoclassical growth model with rural urban migration and urban underemployment which arises from an adverse selection problem in labor markets we demonstrate that rural urban migration and underemployment can be a source of development traps and can give rise to a large set of periodic equilibria display long periods of uninterrupted growth punctuated by brief but severe recessions

little innovation many jobs an econometric analysis of the italian labour productivity crisis during the past twenty years italy has realized changes in labour legislation leading to a decentralization of wage bargaining and increased flexibility in labour relations both these factors have helped to curb wage growth and to enhance employment growth but have also led to a crisis in italian labour productivity growth our estimates among 3 000 firms show that firms with high shares of flexible workers a high labour turnover and lower costs of labour relative to capital experienced significantly lower rates of labour productivity growth our findings raise doubts about the mainstream call for flexibilisation of european labour markets we argue hat the italian shift towards a low productive and labour intensive growth path is problematic gainst the background of an ageing population

a welfare economic analysis of labor market policies in the harris todaro model this paper presents a welfare economic analysis of the benefits of various labor market policies in the harris todaro labor market model the policies considered are a policy of modern sector job creation which i call modern sector enlargement msenl a policy of rural development which i call traditional sector enrichment tsenr and a policy of wage limitation in the urban economy which i call modern sector wage restraint mswr first i analyze the inequality effects of these policies i then perform two welfare economic analyses the first based on summary measures of labor market conditions total labor earnings unemployment inequality of labor incomes and poverty rates and the second based on dominance analysis in the labor market in both cases assuming that the costs are borne elsewhere the results of the welfare analyses are compared and it is shown that tsenr unambiguously increases welfare in the labor market using both approaches the other policies yield ambiguous results and no policy is unambiguously welfare decreasing

veblen effects political representation and the reduction in working time over the 20th century abstract we explain the substantial decline in work hours over the 20th century by the joint influence of the employees pecuniary emulation of the conspicuous consumption of top income earners and the balance of political power of employers and employees in the presence of conflicts of interest over the issue of working time we present a new labor discipline model incorporating veblen effects in which hours are determined by employers and subject to complete contracts but employee work effort is not we show that while veblen effects increase the hours sought by employees the hours selected by profit maximizing employers may exceed that preferred by employees who may then seek to reduce work hours by means of collective bargaining or governmental intervention we also identify conditions under which employees will prefer longer hours than offered by employers using newly available data on top income shares and on work hours from 10 major industrial economies and covering the entire past century we test two hypotheses that increases in the relative incomes of the very rich are associated with increased hours while increases in the political representation of workers have the opposite effect the estimated effects are large in economic magnitude highly significant and robust to alternative econometric specifications including country and time fixed effects using an alternative data set covering the last third of the past century we show that these results are robust to the inclusion of a measure of taxation and find that decentralized trade union bargaining but not centralized bargaining may raise working hours

poverty and worklessness in britain relative poverty in the uk has risen massively since 1979 mainly because of increasing worklessness rising earnings dispersion and benefits indexed to prices not wages the economic force underlying this is the significant shift in demand against the unskilled this has substantially weakened the low skill labour market which has increased both pay dispersion and worklessness particularly among low skilled men practical policies discussed include improving education and overall well being for children in the lower part of the ability range raising wage floors new deal policies tax credits and benefits for the workless

a dynamic specific factors model of international trade in a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from working periods to retirement changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and on the composition of output as they do in a static framework changes in these variables affect both total savings and the amount of savings that is diverted toward investment in capital results derived from the traditional specific factors model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital in this case the land using sector dominates factor markets more than asset markets once the roles for land and capital as assets are recognized the possibility of natural resource booms that reduce steady state welfare arises at the same time an increase in population can raise steady state welfare

greater wage inequality reduces average hours of work i argue that rising inequality in offered wages lowers average working hours if labour supply is concave in wages a decrease in the working hours of low paid workers is greater than an increase in working hours of high paid workers furthermore due to low market opportunities some low paid workers may leave the labour force using cps morg data for prime age men i find evidence in support of this explanation i establish empirically the concavity of the labour supply and find evidence that after controlling for the average wage wage inequality has a negative effect on labour supply

labor market institutions and wage inequality the authors investigate how labor market institutions such as unemployment insurance unions firing regulations and minimum wages have affected the evolution of wage inequality among male workers results of estimations using data on institutions in eleven oecd countries indicate that changes in labor market institutions can account for much of the change in wage inequality between 1973 and 1998 factors found to have been negatively associated with male wage inequality are union density the strictness of employment protection law unemployment benefit duration unemployment benefit generosity and the size of the minimum wage over the 26 year period institutional changes were associated with a 23 reduction in male wage inequality in france where minimum wages increased and employment protection became stricter but with an increase of up to 11 in the united states and united kingdom where unions became less powerful and in the united states minimum wages fell

emulation inequality and work hours was thorsten veblen right we investigate the manner in which a desire to emulate the rich influences individuals allocation of time between labour and leisure greater inequality inducing longer work hours as a result data on work hours in ten countries over the period 1963 98 show that greater inequality is indeed associated longer work hours these veblen effects are large and the estimates are robust using country fixed effects and other specifications because consumption inequality is a public bad a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by more complicated progressive consumption taxes at the close of the nineteenth century thorsten veblen proposed what he termed pecuniary emulation as the foundation of a theory of consumption spending he maintained is driven by relative status considerations that is by the desire to be a particular type of person as much as bythedesire to enjoytheconsumer goodsper se the joneses with whom one had to keep up were not the neighbours but the rich theirleveloflivingbecamethenever attainableobjectiveinaconsumptionarmsrace among the less well to do in the theory of the leisure class he wrote the motive is emulation the stimulus of an invidious comparison especially in any community in which class distinctions are quite vague all canons and reputability and decency and all standards of consumption are traced back by insensible gradations to the usages and thoughts of the highest social and pecuniary class the wealthy leisure class 1934 p 81 while valued by some economists as capturing common sense aspects of consumption as a form of status seeking veblen s view of social preferences was soon eclipsed by the simpler and more tractable neoclassical theory of the consumer relegated to the underworld of economics veblen s ideas have nonetheless resonated over the ensuing years in the writing of duesenberry 1949 leibenstein 1950 and galbraith 1958 at the middle of the past century and schor 1998