some macroeconomic implications of alternative compensation systems a basic theme of this paper is the idea that some structural reform of employee compensation arrangements is necessary to make reasonable price stability compatible with reasonably full employment in this view even the best designed macroeconomic policies are much too aggregative to get at the heart of the stagflation problem the ultimate solution involves going inside the workings of a modern capitalist economy and correcting the underlying structural flaw directly on the level of the individual firm stagflation represents an especially intractable policy dilemma for macroeconomics without a decisive tendency of the economic system to remain near full employment there is a strong prima facie case for fighting recessions by exogenously stimulating aggregate demand but the usual keynesian expansionary policies tend to impart an inflationary inertia that is difficult to choke off and of course the basic strategy for fighting inflation is to cool down the economy by restrictive monetary and fiscal policy thereby increasing unemployment and closing the viscous circle because the practical macroeconomic policies for dealing with unemployment and inflation are so diametrically opposed stagflation is a pervasive structural problem when for whatever reason there is basically an unfavourable short run tradeoff between unemployment and inflation economic policy tends to vacillate between expansion of demand to fight unemployment and restriction of demand to fight inflation polarising the electorate and distracting society from dealing effectively with its underlying real economic problems even the difficulty of attaining external balance in foreign accounts is largely a spillover into the international payments arena of an inability to achieve an acceptable internal balance between full employment and price stability this paper takes what might be called a comparative systems approach to the problem of stagflation at the heart of modern industrial capitalism is an incredibly complicated system of overlapping monopolistic competitors 2 a starting point for the paper is the realisation that the coordination difficulty which can cause some systems to suffer involuntary unemployment is not inherent in laissez faire private enterprise per se it is closely tied to one particular property of a conventional wage payment system namely compensation of each firm s employees is stuck to an outside numeraire whether money or a cost of

strike threats and the bargaining power of insiders a two year period model consisting of a capitalist and an insider worker who cannot be replaced is introduced during the first period the parties accumulate strategic stocks inventory and strike fund respectively which can be used during a potential strike in the beginning of the second period each party then calculates the ex ante outcome of a strike and the costs of disagreement with perfect information no strikes will occur the conditions for the credibility of strike threats and the equilibrium wage proposals of the parties are derived the bargaining power of the worker is shown to be positively related to the storage cost fixed costs and the profitability of the firm copyright 1991 by the editors of the scandinavian journal of economics

wage and technology dispersion this paper explains why firms with identical opportunities may use different technologies and offer different wages our key assumption is that workers must engage in costly search in order to gather information about jobs stigler 1961 in equilibrium some firms adopt high fixed cost high productivity technologies offer high wages and fill job openings quickly other firms adopt less capital intensive technologies and offer low wages hiring mostly uninformed workers in equilibrium the amount of wage dispersion leaves workers indifferent about whether to gather information and the fraction of informed workers leaves firms indifferent about their wage and technology choice we show that worker search which would appear to be a rent seeking activity in partial equilibrium may be efficiency enhancing in general equilibrium

taxation in a two sided search model abstract this paper analyzes the effects of wage and profit taxation in a simple search and bargaining model wage tax effects depend upon the level of unemployment benefits if unemployment benefits are less than search costs or if benefits are taxed as income then a wage tax decreases unemployment it also decreases the wage thereby overshifting the tax burden profit tax effects depend upon job entry in the short run with a fixed number of jobs filled jobs plus vacancies a profit tax decreases unemployment it also raises the wage again overshifting the tax in the long run the converse holds

general training in labor markets common value auctions with unobservable investment abstract this paper studies the puzzle of employer financing for the general training of workers a parsimonious theory is developed based on asymmetric information between employers about the quantity of training the labor market is modeled as a common value auction with an informed and an uninformed bidder the novel feature of the game is that one of the bidders can make an unobservable investment that increases the value of the item before the auction by randomizing the amount of training provided an employer can create an endogenous adverse selection problem enabling it to compress the wage structure and capture some returns from its training investment the model generates continuous equilibrium wage and training distributions and identical employees can receive different wage offers and training levels a parametric example is used to illustrate how the shape of the wage distribution depends on the elasticity of production with respect to human capital

gender differences in training capital and wages this paper constructs an equilibrium job matching model where workers differ in their attachment to the labor force the model predicts that workers with weaker attachment to the labor market will receive lower starting wages and lower post training wages and will be placed in jobs that offer less training and use less capital the implications of the model for gender differences in pay and job assignment are tested with the eopp data set ourfindings suggest that while training intensity during the first three months of employment is similar in positions filled by males and females females are employed in positions that have a shorter duration of on the job training and that use less capital these differences in on the job training and capital in positions filled by men and women as well as a lower market value for women s prior labor market experience account for a substantial part of the gap in wages between males and females

a dynamic model of entry deterrence it has been recognized in a number of recent studies on oligopoly and potential competition that a firm may deter entry by engaging in different types of irreversible investments this paper reports on an investigation of this issue in a dynamic setting the established firm is assumed to build up a stock of knowledge and goodwill by investing in r d and sales promotion and these stocks are assumed to erode over time the established firm then has to decide whether or not to deter entry and eventually when to permit a potential competitor to enter the market

the contractors game we develop a symmetric information auction model of multiproject contracting with costly bidding and increasing marginal performance costs when there are many potential contractors or only one job there is a zero expected profit symmetric equilibrium in mixed strategies the winning bid at this equilibrium tends to rise perversely with the number of contractors when there are only two potential bidders and either two or three jobs multiple bids of a contractor at equilibrium are negatively correlated with each other the resulting equilibrium outcome tends to divide the market between the contractors in a manner that suggests anticompetitive behavior despite the absence of any collusion

do economics departments search optimally in faculty recruiting i introduction when an economics department decides to recruit new faculty it must decide in which fields to conduct the search casual observation suggests that the scope of recruiting searches varies widely with some departments searching primarily in a narrow subfield and others searching in several general or even all fields it is generally recognized that the very top departments tend to engage in very wide best athlete searches among departments that engage in narrower searches on the other hand it is not uncommon to hear complaints ex post that the search should have been broader is it therefore the case that these departments are making a suboptimal choice to search narrowly it would seem however that economic departments more so than other departments should be making economically rational decisions when choosing search scope 1 in this article we develop a simple model of how economics departments can optimally choose search scope in faculty recruiting we show that the optimal search scope is increasing in the quality rank of the department we use postings in job openings for economists joe to estimate the relationship between department rank and search scope and find that higher ranked departments engage in broader searches than lower ranked departments the relationship is robust to the exclusion of the top ranked departments from the sample because there is some debate about how well various department rankings reflect true department quality we instrument a reputation based ranking with a publication based ranking to correct for measurement error we find that a 10 place difference in department ranking is associated with 3 5 4 8 more journal of economic literature jel subfields in a position announcement ii the model we consider a simple model of a department s choice of the number of fields to search and show that the optimal number of fields searched is increasing in department quality other work on employer search has noted the benefits to some employers of broadening the applicant pool much like our finding that departments with higher quality standards will search more broadly barron et al 1985 show that employers will search over more candidates and or more intensively if the education requirements for the position are high barron et al 1997 argue that there is greater variation in productivity at higher levels of human capital therefore it is optimal for employers searching for workers with more formal education to spend more on search lang 1991 shows that employers for whom a job vacancy is the most costly will offer a higher wage therefore increasing the number of prospective applicants because the need to decide ex ante the fields to advertise in joe largely precludes the use of sequential search methods our model is essentially a fixed sample size search problem a key feature of our model is that each department has a quality cut off that reflects the department s ranking higher ranked departments will have higher quality cut offs applications below this cut off are thrown out without cost and applications above the cut off are reviewed more extensively with some positive cost 2 therefore if a high ranked department with a high quality cutoff searches narrowly it may not receive any applications above its cut off in addition because the higher ranked department can ignore most applications without cost the cost involved in expanding the search to other fields is lower than those incurred by lower ranked departments with lower cut offs these two effects will be important in explaining why a higher ranked department is better off expanding its search to more fields to formalize the model there are i 1 m fields in which a department can conduct its search each field searched by the department produces one applicant whose quality q sub i is a random draw from a uniform distribution on support 0 1

good jobs versus bad jobs this article develops a model of noncompetitive labor markets in which high wage good and low wage bad jobs coexist minimum wages and unemployment benefits shift the composition of employment toward high wage jobs because the composition of jobs in the laissez faire equilibrium is inefficiently biased toward low wage jobs these labor market regulations increase average labor productivity and may improve welfare

directed search and the bertrand paradox i study a directed search model of oligopolistic competition extended to incorporate general capacity constraints congestion effects and pricing based on ex post demand in the presence of any one of these ingredients the bertrand paradox fails to hold hence despite the emphasis that has been placed by the literature on sellers capacity constraints as a resolution to the paradox the existence of such constraints is only a subcase of a general class of environments where the paradox fails specifically bertrand s paradox will not arise whenever the buyers expected utility from visiting a seller is decreasing in that seller s realized demand

efficiency wage models of unemployment a second view kevin lang and shulamit kahn efficiency wage models in which firms find it profitable to pay wages above workers reservation wages provide a promising explanation for unemployment and interindustry wage differentials one criticism of such models is they imply firms should sell jobs by requiring up front bonds from new workers however only some efficiency wage models imply this moreover firms might not require bonds for many reasons we show that moral hazard and adverse selection models together explain many labor market phenomena the efficiency wage model conforms well to empirical finding but certain anomalies suggest the need to consider rent sharing models carmichael s paper in this volume is an important contribution to the debate over the importance of efficiency wages he clearly outlines some of the deficiencies in the theory and thus points out areas needing further research nevertheless his conclusions are far too negative he greatly exaggerates the theoretical weakness of the efficiency wage model and gives insufficient recognition to the empirical implications generated by this model and to tests of these implications i shirking models there is direct empirical evidence that shirking is a serious problem for firms firms spend significant sums monitoring workers levine 1987 reviews the evidence that worker shirking is widespread and costly the evidence in burroway 1979 and mars 1982 also demonstrates the importance of shirking and stealing carmichael s primary argument against shirking models is that if the payment of efficiency wages to deter shirking led to an excess supply of workers workers would buy their jobs by posting bonds since we do not observe workers posting bonds he concludes that firms do not pay efficiency wages either given the importance of shirking the absence of market clearing bonds needs explaining one explanation is that the market has found some reasonable substitute for bonds such as deferred wage payments it is theoretically feasible to substitute deferred wage payments for up front bonds as noted by akerlof and katz 1989 however the empirical evidence of industries with deferred payments i e where low beginning wages are balanced by high subsequent wages is mixed dickens and katz 1987b krueger and summers 1988 and abraham and farber 1987 indicate that industries which pay high wages to high tenure workers tend to pay high wages to low tenure workers on the other hand high wage industries also tend to have steeper earnings profiles which may be evidence of deferred earnings in these industries as shapiro and stiglitz 1984 note a second possible explanation for the absence of market clearing bonding is that bonding gives firms an incentive to fire workers immediately upon collecting their bonds however this explanation assumes that a firm will immediately fire every worker who posts a bond if there are any reputation costs at all some firms sometimes will not fire bond posting workers and we should observe some bonding yet with finite length contracts there must be some reputation costs because otherwise firms would never pay workers in the last period thus firm incentives to cheat and fire workers cannot explain the complete absence of bonding clearly the absence of market clearing bonding is not fully understood and further theoretical work is needed dickens katz lang and summers 1989 review a wide variety of possible reasons that bond posting is limited the important point is that there are many potential reasons for limited bonding other than the absence of efficiency wages on the other hand the lack of bonding despite the importance of shirking does not demonstrate that firms pay efficiency wages there may be reputation or other costs to the worker caught shirking even in the absence of bonding as dickens katz lang and summers 1989 demonstrate in the absence of bonding whether paying efficiency wages dominates relying solely on increased monitoring depends on the parameters of the model and is therefore an empirical issue

efficiency wages and subjective performance pay i introduction how to design incentive schemes to motivate workers is an important topic in economics the shirking models of efficiency wages such as shapiro and stiglitz 1984 establish that firms need to pay a wage premium efficiency wages to motivate workers with unemployment serving as a punishment device however one shortcoming of these models is that performance pay plays no role one justification for their omission of performance pay is that individual performance may not be verifiable nevertheless if workers performance is observable and employment relationships are repeated firms can use implicit bonuses or relational contracts based on workers subjectively assessed performance to motivate workers since subjective performance pay cannot be legally enforced it has to be self enforcing given that both efficiency wages and subjective performance pay motivate workers what is the optimal wage contract from the firm s perspective will different labor markets occupations use different forms of wage contracts what are the impacts of different forms of wage contracts on unemployment and social welfare to answer these questions this paper provides a theory of contract selection in a market setting in a seminal paper macleod and malcomson 1998 mm hereafter provided a model of contract selection between efficiency wages and subjective performance pay the driving force in their model is the market condition in a market with more workers than jobs a firm can always immediately and costlessly fill its vacancy after reneging on the promised bonus therefore no subjective performance pay is credible and firms have to use solely efficiency wages to motivate workers on the other hand in a market with more jobs than workers efficiency wages are useless in providing incentives because a worker can find another job immediately after being fired as a result firms use solely subjective performance pay to motivate workers in mm there are no exogenous turnover costs complementary to mm this paper provides a model of contract selection driven by exogenous turnover costs in labor markets we focus on the situation in which unemployment always exists in labor markets thus ruling out market condition as a determinant of contract selection it turns out that turnover costs affect the amount of efficiency wages and performance pay in optimal contracts while in mm efficiency wages and subjective performance pay cannot be used together to motivate workers in our model firms are able to use combinations of both methods of payments by affecting optimal contracts turnover costs also have impacts on the equilibrium employment level and social welfare finally our model generates rich empirical implications about the relationships among turnover costs forms of employment contracts and levels of employment our basic model studies how turnover costs borne by firms affect contract selection from the firm s point of view subjective performance pay is cheaper since efficiency wages entail a wage premium thus the optimal wage contract uses the maximum amount of bonus to motivate workers however subjective performance pay may not be credible due to the firm s moral hazard problem in labor markets with positive unemployment a firm can immediately hire a new worker after reneging on the implicit bonus the presence of turnover costs can alleviate this moral hazard problem this is because a worker can punish a reneging firm by quitting and the firm has to incur turnover costs in hiring new workers therefore in the optimal contract the amount of bonus is increasing in turnover costs since subjective performance pay is cheaper as the turnover costs increase more subjective performance pay leads to a lower total wage payment after deriving the optimal contracts we turn to study market equilibrium which is determined by firms free entry condition

measuring world business cycles using kalman filtering and dynamic factor analysis the authors decompose aggregate output consumption and investment for the g7 countries into factors that are 1 common across all countries and aggregates 2 common across aggregates within a country and 3 specific to each individual aggregate in quarterly data for the period 1970 through 1993 fluctuations in all aggregates contain world and country specific common components that are both statistically significant and quantitatively important the authors find that the world and country specific common components play different roles in different business cycle episodes for each of the seven countries and that either may be dominant during a particular episode copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

labour market segmentation in cameroonian manufacturing the economic crisis in cameroon has provided a test for distinct causes of labour market segmentation many firms that previously followed rigid legislation have ceased to do so while a traditional informal sector has continued outside almost all regulation we categorise workers as informal formal or regulated by firm characteristics and test for labour market segmentation between these sectors direct legislation is the most significant cause of segmentation we find limited evidence that the costs of becoming formal create rationing in formal sector jobs while addressing both sets of rigidities would have maximum impact on unemployment in cameroon reforming direct labour legislation is likely to have the most beneficial short term impact

persistent wage dispersion and involuntary unemployment it is costly for firms offers to workers to be turned down both because firms must make additional offers and making offers is costly and because capital is underused or unused provided that workers apply to at least two firms for jobs there will be wage dispersion in equilibrium and some workers will randomly fail to receive any wage offers firms in the same industry with access to the same technology may nevertheless choose different levels of capital intensity firms using capital intensive technologies will pay higher wages

financial integration and international business cycle co movement international business cycle transmission through integrated financial markets occurs through wealth and balance sheet effects balance sheet effects lead to business cycle convergence but wealth effects lead to divergence this paper shows empirically that debt market integration has a positive effect on co movement implying that balance sheet effects are the main conduit for international transmission through integrated debt markets equity market integration has a negative effect implying that wealth effects are the main channel for international transmission through integrated equity markets distinguishing between wealth and balance sheet effects resolves some key discrepancies between empirical and theoretical findings in international macroeconomics

a test of competitive labor market theory the wage structure among care assistants in the south of england this paper examines the structure of wages in a very specific labor market care assistants in residential homes for the elderly on england s sunshine coast this sector corresponds closely to economists notion of what should be a competitive labor market both because it has a large number of small firms undertaking a very homogeneous activity in a concentrated geographical area and because the workers are neither unionized nor covered by any minimum wage legislation so that there are effectively no external constraints on the wage setting process the authors find that the wage structure deviates in important respects from what would be expected in a competitive labor market in particular wage dispersion is small within firms but large between firms and the wage dispersion that is present does not seem to be closely related to workers productivity related characteristics a test rejects the hypothesis that unobserved labor quality can explain these findings

efficiency wages and employment rents the employer size wage effect in the job market for lawyers the efficiency wage hypothesis offers an explanation for employment rents according to this hypothesis firms pay wages above the opportunity cost of labor to elicit productivity or quality enhancing behaviors from employees firms pursue this strategy when alternative incentive schemes are unavailable or too costly thus firms will not pay premium wages when employees post sufficiently large performance bonds this article examines employment rents in a setting where employees post sizable performance bonds large law firms contrary to the efficiency wage hypothesis we find that associates in these large firms post substantial performance bonds while also receiving substantial ex ante rents

income taxation in a frictional labor market a new model of wage dispersion is used to examine welfare aspects of income taxation the model retains the dynamics of wage posting models while exogenizing search effort therefore allowing more insight into policy issues the results highlight effects that standard analyses do not take into account the optimal income tax should depend on an incidence effect between workers and firms this incidence effect arises from firms trying to lower wages as much as possible an employment tax proves in certain cases to be the best method to encourage labor force participation

premiums to employment in larger establishments evidence from peru abstract examination of the employer size wage effect for males in urban peru suggests the following higher wages in larger establishments do not merely compensate for higher worker quality or inferior working conditions size differences in the use of rising wage tenure profiles cannot provide a market clearing explanation for the employer size wage effect unless workers are extremely impatient thus larger employers appear to pay premiums unionization explains none of the premiums and minimum wage compliance explains at best a small fraction shirking based efficiency wage explanations for premiums are implausible because peruvian job security legislation greatly inhibits dismissals in larger establishments explanations meriting further research involve the use of high wages to reduce turnover and to improve productivity enhancing morale

between search and walras we present a model in which unemployed workers simultaneously sample n potential employers by varying n we nest search and walrasian type models of the labor market we show that low values of n yield typical search equilibria the wages are dispersed below the marginal productivity of labor interestingly as n exceeds a relatively small threshold the walrasian type equilibrium emerges with the competitive wage quoted by all firms for intermediate values of n the equilibrium is a hybrid of the walrasian and search equilibria the model generates wage rigidity and yields novel predictions regarding the comovement of wages firm turnover and unemployment

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

firm specific human capital as an employer discipline device the inability of employers to monitor perfectly the level of effort of their employees is a potentially serious impediment to labor market efficacy indeed a number of recent studies have concluded that this may lead to involuntary unemployment shapiro and stiglitz 1984 sparks 1986 an inefficient sectoral allocation of workers oi 1990 strand 1986 and discrimination against productively identical workers bulow and summers 1986 this paper shows that the lock in effect of firm specific human capital can help alleviate problems of worker moral hazard and thereby promote labor market performance i introduction as the surveys of akerlof yellen 1986 ch 1 carmichael 1990 lang and kahn 1990 and weiss 1990 amply illustrate the last decade witnessed the emergence of a large body of literature which falls under the general rubric of efficiency wage models of the labor market the hallmark of this approach is that some essential aspect of worker performance depends upon the wage paid by the firm much recent work bulow summers 1986 oi 1990 shapiro and stiglitz 1984 sparks 1986 and strand 1986 has considered the case in which due to monitoring difficulties worker effort depends positively upon the wage the popularity of the approach undoubtedly stems from its ability to apparently explain many stylized features of labor market behavior in an attractively simple and straightforward manner in the papers cited above shapiro and stiglitz 1984 and sparks 1987 show that labor market equilibrium can be characterized by involuntary unemployment bulow and summers 1986 demonstrate that inter alia efficiency wage models are consistent with equilibrium discrimination against productively identical agents and finally oi 1990 and strand 1986 show that efficiency wage payments can generate an inefficient sectoral allocation of workers yet recent research now suggests that the results obtained from this class of model are highly sensitive to the specific assumptions made at the outset about the completeness of contractual arrangements indeed as carmichael 1985 astutely observed if contracts can include bond payments even if financed by borrowing from imperfect capital markets the standard imperfect monitoring variant of the efficiency wage hypothesis fails to predict the emergence of equilibrium involuntary unemployment i e all workers receive their reservation utility however proponents of efficiency wage models have responded to this criticism by arguing that workers would be unwilling to post large bonds with firms due to a problem of employer moral hazard specifically workers recognize that firms may hire them in order to steal their bond payment ex post once this limitation on admissible bond payments is recognized it might then be tempting to conclude that the main results of the efficiency wage literature will re emerge in this paper i consider this issue in an environment which also allows for investment in firm specific human capital the basic structure is similar to hashimoto 1981 following macleod and malcomson 1987 1989 i assume that 1 worker performance measures are sufficiently nebulous to preclude verification by third parties and 2 as in carmichael 1983 the courts are unable to ascertain whether in the event of separation a worker quit or was fired this informational structure generates a potentially serious joint worker employer moral hazard problem workers may shirk and employers may simply hire labor in order to collect any bond payments or exit fees stipulated in the contract as emphasized by both carmichael 1989 1990 and macleod and malcomson 1987 1989 the solution to this contracting problem requires that both parties receive a non negative return from the continuation of the match relative to what can be obtained from its dissolution

business cycles for g7 and european countries this article proposes classical business cycle turning points for the g7 and a number of european countries based on industrial production this enables the authors to examine the international nature of cyclical movements free from arbitrary assumptions about the trend in particular they show that cyclical assymetry is common with slopes during declines being generally larger in magnitude than during expansions a binary measure of association for expansion and contradiction regimes indicates a core group of european countries related to each other and apparently linked to the united states and japan through germany copyright 1997 by university of chicago press

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

labour supply search and taxes abstract classical labour supply theory is one of the most sophisticated parts of labour economics yet there is no compelling theoretical reason to believe in an outcome on a classical labour supply curve and it is unclear whether it is a good empirical description of the way in which labour markets actually work this paper uses the techniques of search theory to analyse the impact of changes in the tax system on incentives to work when individuals do not have flexibility of hours within jobs it is shown how the traditional comparative statics are of some use but are rarely the whole story and some comparative statics results are surprising

paying the professor sources of salary variation in academic labor markets using a set of 58 academic fields as distinct labor markets we examined the extent of wage variation within markets the degree to which wages vary is an indicator of market efficiency and of whether a market wage exists holding constant differences in human capital we found that the degree of wage variation in an academic labor market is negatively related to mobility within that market and positively related to the oversupply of labor we also found that as wage variation increases male female wage differentials also increase

coordination matching and wages we analyse the coordination problem in the labour market by endogenizing the matching function and the wage share each firm posts a wage to maximize the expected profit anticipating how the wage affects the expected number of applicants in equilibrium workers apply to firms with mixed strategies which generate coordination failure and persistent unemployment we show how the wage share unemployment and the welfare loss from the coordination failure depend on the market tightness and the market size the welfare loss from the coordination failure is as high as 7 5 per cent of potential output jel classification c78 j64 les auteurs analysent le probleme de la coordination dans le marche du travail en endogeneisant la fonction arrimage et la part des revenus qui va aux salaires chaque entreprise definit le niveau de salaire qui maximise ses profits anticipes en tenant compte de l effet de ce niveau de salaire sur le nombre des applications qu elle peut anticiper de meme les travailleurs font application aupres d une entreprise a un salaire donne en tenant compte d une certaine relation d equivalence entre niveau de salaire et probabilite d obtenir l emploi voila qui engendre incoordination et chomage persistant on montre que la part des revenus qui revient aux salaires le niveau de chomage et les pertes de bien etre attribuables au manque de coordination dependent de la taille du marche et du degre de rarete de la main d oeuvre les pertes de bien etre attribuables au manque de coordination correspondent a quelques 7 5 pour cent de la production potentielle

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

group learning wage dispersion and non stationary offers can differences in equilibrium beliefs among otherwise identical individuals account for a substantial degree of wage inequality this paper shows that this is possible if two conditions are met first people learn about the distribution of wage offers from the experience of their peers and second people believe that wage offers are stationary even though offers that arrive later tend to have higher wages than offers that arrive earlier peer groups can then end up with different stable beliefs that lead to intergroup wage differences the non stationarity of offers is rationalized in a model where firms can either advertise their job openings or not and where advertised ones have more influence on more inexperienced job searchers a statistic is proposed whose application to existing studies suggests that the non stationarity considered here is present in data

efficiency wages and wage dispersion the efficiency wage hypothesis has normally been used to generate an equilibrium level of unemployment the authors use it instead to generate an equilibrium wage distribution this paper starts by generalizing the previous work of r m solow in this area they then use their results on effort wage elasticities to derive a model of wage dispersion the wage rate is shown to be an increasing function of the damage potential of workers that is workers with the highest damage potential receive the highest wage the analysis of the equilibrium of the wage distribution provides interesting qualitative insights into the nature of actual wage differentials copyright 1991 by the london school of economics and political science

dynamic entry deterrence in the uk pathology services market this paper describes work on a dynamic model of entry deterrence applied to the uk national health service nhs market for pathology services the model based on a game theoretical framework is concerned with decision support applications presented in this paper is a case study analysis of a geographical region in which a provider of pathology services is concerned at the prospect of being exposed to competition from a new entrant the incumbent provider may undertake strategic investments to create a stock of knowledge and goodwill with the intention of dissuading others from entering the market the effect of a new entrant is modelled as perturbation of a pre existing stable nash cournot equilibrium in an oligopolistic market and is influenced by market forces subject to government regulation the original contribution of this study is to identify the nature of these potential strategic investments and their interaction with cash flows recent historical data and managerial analysis are used to characterise market growth an estimate of the incumbent provider s market share which is at risk can be found by examining the local geographical distribution of providers and purchasers of pathology services on the basis of this analysis we propose a method for obtaining the strategic investment profile which minimises the total investment required to deter entry

taxes subsidies and equilibrium unemployment this paper considers the effects of wage taxes employment subsidies and unemployment benefits in a simple model of equilibrium search unemployment is determined by the equality of job matchings and job separations job vacancies are determined by a zero profit condition and wages by a nash bargain between the meeting firm and worker i show that marginal wage taxes influence the firm s and worker s equilibrium sharing rule whereas employment subsidies and unemployment benefits influence only the surplus shared hence tax financed subsidies reduce wages and raise employment and vacancies whereas tax financed unemployment benefits raise wages and reduce employment and vacancies in this paper we consider the effects of wage taxes employment subsidies and unemployment benefits on equilibrium search unemployment in a model where wages are determined competitively by the meeting firm and worker discussions about the desirability of taxes and subsidies and their effect on employment and wages abound in the labour economics literature yet the only tax or subsidy that has been systematically discussed in a competitive search framework is a lump sum unemployment benefit the reason for this might be that the structure of the model is such that it is ideally suited to the study of unemployment benefits whereas traditional supply and demand analysis could arguably cope with other kinds of taxes this might be true in some cases but if it is at all appropriate to think of equilibrium unemployment as coming out of an essentially competitive framework when the process which brings together jobs and workers is characterized by frictions traditional supply and demand analysis may not be rich enough to give us all the answers we need 1 the model of this paper is a simple equilibrium model with endogenous unemployment supply of jobs i e demand for labour and real wages unemployment exists because unemployed workers and unfilled jobs cannot find each other instantaneously in the interval of time required to match all workers and jobs some existing job worker pairs break up providing a new flow into unemployment thus unemployment can never be eliminated in equilibrium flows into and flows out of unemployment are equal wages are set endogenously by generalized nash bargains between the individual firm and worker the equilibrium wage rate is shown to depend on all the parameters of the model and to be determined simultaneously with equilibrium unemployment the driving force in the model which provides the link between wages and unemployment is the rate of job vacancies the total number of jobs is determined by zero profit conditions because of constant returns to scale the number of jobs taken up each period depends positively on the number of job vacancies because a typical unemployed worker will have a better chance of locating a job when there are more vacancies if the real wage rate falls the expected profits from a job rise firms open up more vacancies to take advantage of this and so more jobs are taken up but as vacancies rise and

optimal mismatch and promotions i introduction a substantial proportion of workers are employed in jobs for which they appear to be either overqualified or underqualified for instance using data from the panel study of income dynamics sicherman 1991 finds that 40 percent of his sample are overeducated and another 16 percent are undereducated rumberger 1987 reports similar values using data from the quality of employment surveys other studies which find substantial education mismatch include duncan and hoffman 1981 verdugo and verdugo 1989 and hersch 1991 and evidence that a single firm hires both under and overqualified workers is presented here this paper provides an explanation for why firms hire both overqualified and underqualified workers firms hire overqualified workers because these workers require less training for their initial positions such workers also form a pool from which promotions are made which lowers hiring costs for higher level positions within the firm workers accept positions for which they are overqualified to enhance their probability of promotion and because of search and mobility costs but if they fail to be promoted to a position that better matches their qualifications they are more likely to quit firms hire underqualified workers despite their longer training requirement since such workers are less likely to quit and provide continuity of the labor force over time thus contrary to job matching arguments that would explain these hires as a result of imperfect information hiring of seemingly mismatched workers is optimal and these matches are made with perfect information the model developed in this paper yields three testable hypotheses 1 training time for entry level jobs is inversely related to overqualification at the time of hire 2 workers who are overqualified on their current job are those who have failed to be promoted to a job which better matches their qualifications and such workers are more likely to quit and 3 workers overqualified at time of hire are more likely to be promoted to test these hypotheses i use new data collected for this purpose previous empirical research such as that cited above was restricted by data availability to examining only the match between education and the worker s current job thus the quality of the match with the worker s initial job and the match between worker qualifications other than education has gone unexplored however various worker characteristics in addition to education are often substituted for each other in determining a worker s qualification for a job thus i examine additional qualifications including the match between the worker s experience level of previous job and use of skills information on the match between the worker s qualifications and those required for the initial job with the employer is particularly important since entry level qualifications determine training time for the initial job as well as the likelihood of promotion further individual specific training time for the initial job is necessary but typically not available since data sets providing information on training such as the panel study of income dynamics and quality of employment surveys request information on training time for the average worker and not for the individual worker the data set reveals several interesting statistics qualification mismatch at hire is fairly common for this firm 29 percent of the sample report themselves overqualified for their first job with the firm while 13 percent report themselves as underqualified lateral intra firm mobility is common and occurs far more frequently than promotions workers in the sample average 1 3 promotions but four different jobs with the employer this suggests that the job matching process occurs not only by turnover but through intrafirm mobility consistent with the assumptions and implications of the model the empirical results indicate that workers who are overqualified at hire receive less training and more promotions and that workers overqualified for their current job are more likely to quit

the fair wage effort hypothesis implications for the distribution of income and dual labor markets abstract this paper examines the impact of introducing considerations of fairness into the analysis of labor exchange an efficiency wage model in which workers efforts depend on their perceptions of the fairness of the treatment they receive is developed to explain real wages and unemployment the model is then extended to provide a novel explanation of dual labor markets

the pricing of job characteristics when markets do not clear theory and policy implications this article examines nonsequential search when jobs vary with respect to nonpecuniary characteristics in the presence of frictions in the labor market the equilibrium job distribution need not show evidence of compensating wage differentials the model also generates several pervasive features of labor markets unemployment and vacancies apparent discrimination and market segmentation when workers are homogeneous restrictions on the range of job offers decrease welfare and cannot reduce unemployment however when workers have heterogeneous preferences such restrictions may lower unemployment and can even lead to a pareto improvement in welfare we consider the impact of policies banning discrimination and regulating working conditions

fdi trade and spillover efficiency evidence from china s manufacturing sector using firm data from the 1995 third industrial census of china this paper finds that the presence of foreign ownership has a positive and significant effect on domestic firms productivity moreover trading with more advanced countries helps china gain access to new technology and information which improves its productivity and enables it to compete in international markets it is found that china s imports from oecd and the four asian tigers and exports to oecd have positive effects on domestic firms productivity by dividing industries into high technology gap and low technology gap groups it is found that the spillover effects of fdi are larger for the low technology gap group than for the high technology gap group however the estimation results of the trade induced technology spillover effect support the technology gap learning theory and the significance of importing appropriate technology

discrimination and open unemployment in a segmented labour market jobs in the primary sector require firm specific training with wages determined as a result of bargaining firms pay for the training and since they are imperfectly informed about worker productivity they test workers before hiring them the secondary sector is competitive taking a job in the secondary sector signals low productivity and therefore workers in the secondary sector are unable to get jobs in the primary sector open unemployment coexists with unfilled vacancies for low wage jobs

strengthening state capabilities the role of financial incentives in the call to public service we study a recent recruitment drive for public sector positions in mexico different salaries were announced randomly across recruitment sites and job offers were subsequently randomized screening relied on exams designed to measure applicants intellectual ability personality and motivation this allows the first experimental estimates of i the role of financial incentives in attracting a larger and more qualified pool of applicants ii the elasticity of the labor supply facing the employer and iii the role of job attributes distance attractiveness of the municipal environment in helping fill vacancies as well as the role of wages in helping fill positions in less attractive municipalities a theoretical model guides each stage of the empirical inquiry we find that higher wages attract more able applicants as measured by their iq personality and proclivity towards public sector work i e we find no evidence of adverse selection effects on motivation higher wage offers also increased acceptance rates implying a labor supply elasticity of around 2 and some degree of monopsony power distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities

frictional unemployment on labor flow networks abstract we develop an alternative theory to the aggregate matching function in which workers search for jobs through a network of firms the labor flow network the lack of an edge between two companies indicates the impossibility of labor flows between them due to high frictions in equilibrium firms hiring behavior correlates through the network generating highly disaggregated local unemployment hence aggregation depends on the topology of the network in non trivial ways this theory provides new micro foundations for the beveridge curve wage dispersion and the employer size premium we apply our model to employer employee matched records and find that network topologies with pareto distributed connections cause disproportionately large changes on aggregate unemployment under high labor supply elasticity

the perverse effects of wage and price controls in search markets abstract this paper examines the effects of price ceilings and minimum wages on the performance of markets in which agents must invest in costly search to become informed about prices or wages in this context it is found that the market equilibrium may respond to changes in policy instruments in strikingly counterintuitive ways in particular the imposition of price ceilings and minimum wages may respectively result in consumer price increases and wage decreases thus an important implication of our analysis is that when unions fight to increase wages by raising the minimum wage they may paradoxically actually be reducing the average wage of its members

directed search and optimal production abstract i consider a model of directed search where strategic sellers advertise general trading mechanisms a mechanism determines the number of buyers that will get served and the side payments as a function of ex post realized demand buyers observe these advertisements and visit one seller without being able to coordinate their visiting strategies despite the oligopolistic nature of the model all symmetric equilibria are constrained efficient in small markets multiple equilibria exist that are not payoff equivalent this indeterminacy vanishes as the market grows large i provide closed form solutions for equilibrium prices profits and the matching function under any parameter values

pricing and matching with frictions suppose that n buyers each want one unit and m sellers each have one or more units of a good sellers post prices and then buyers choose sellers in symmetric equilibrium similar sellers all post one price and buyers randomize hence more or fewer buyers may arrive than a seller can accommodate we call this frictions we solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow the matching function displays decreasing returns but converges to constant returns we argue that the standard matching function in the literature is misspecified and discuss implications for the beveridge curve

product market and the size wage differential using directed search to model the product market and the labor market i show that large plants can pay higher wages to homogeneous workers and earn higher expected profit per worker than small plants although plants are identical except size a large plant charges a higher price for its product and compensates buyers with a higher service probability to capture this sizerelated benefit large plants try to become larger by recruiting at high wages this size wage differential survives labor market competition because a high wage is harder to get than a low wage moreover the size wage differential increases with the product demand when demand is initially low and falls when demand is already high

the reemergence of segmented labor market theory according to dual labor market theory the labor market can be usefully described as consisting of two sectors a high wage primary sector with good working conditions stable employment and substantial returns to human capital variables such as education and experience and a low wage secondary sector with the opposite characteristics moreover primary jobs are rationed that is not all workers who are qualified for primary sector jobs and desire one can obtain one finally the sector of the labor market in which an individual is employed directly influences his or her tastes behavior patterns and cognitive abilities thus the dual labor market model or more generally segmented labor market models is simultaneously a description of the income distribution a claim about the absence of market clearing and a radical departure from the standard neoclassical assumption of fully rational actors and exogenously determined preferences while this last element is potentially the most interesting even its proponents fail to give it the attention it deserves and related work has not been incorporated into the segmented labor market model in this paper we therefore concentrate on the first two elements of the model segmented labor market theory was sufficiently popular in the late 1960 s and early 1970 s to be taken seriously by prominent mainstream labor economists however two influential and largely negative reviews glenn cain 1976 michael wachter 1974 portrayed the segmented labor market hypothesis as largely atheoretical and based at best on questionable statistical analysis it seems fair to say that even sympathetic mainstream critics felt that key insights from the segmented labor model could be incorporated into neoclassical analysis and that the remaining elements of the model did not form a sufficiently coherent theory to pose a challenge to the neoclassical model whatever the merits of this perception it is clear that advocates of the segmented labor market approach did not develop a formal theory which conformed to the standards of mainstream economists with some notable exceptions michael piore 1975 david gordon 1972 the work was atheoretical moreover the empirical methods used tended to fall outside the norm for example interviews observational studies and historical and institutional analysis advocates of the segmented labor market perspective mostly radical political economists chose instead to develop their own research program outside the mainstream the reemergence of segmented labor market theory is linked with the reversal of these two tendencies the theory has been pursued by economists using modern tools of imperfect information theory and state of the art econometrics as a result the approach has again attracted the attention of the mainstream even a few years ago it would have been a clairvoyant observer who predicted that lawrence summers would be working on a theoretical model of labor market duality with jeremy bulow 1986 that robert solow would count among his recent work a dual market model with ian mcdonald 1985 and that james heckman would publish an article in which he undertook an empirical test of a dual market model failed to reject the model and then devoted much of the rest of the article to attacking his and other tests of the dual labor market view see his article with v joseph hotz 1986 since the theoretical developments are largely associated with efficiency wage and departments of economics university of california berkeley ca 94720 and nber and boston university 270 bay state road boston ma 02215 and nber respectively this study was supported in part by nsf grant no ses 8606139 lang acknowledges support from a sloan faculty research fellowship dickens acknowledges support from the institute of industrial relations at berkeley

efficiency wages and the quality of job matching abstract we introduce the quality of job matching in the effort function in order to calculate the efficiency wage we consider two cases in the first one the quality of the match is perfectly observable by the firm and we show that the equilibrium unemployment level is due to both high wages and mismatch in the second case we assume that job matching is a random variable and we show that there are some regions in which the efficiency wage raise generates an effort greater than the initial wage increase and others where the reverse prevails

inter industrial wage differentials evidence from latin american countries the recent literature on inter industrial wage differentials for the united states suggests that the labour market equilibrium features non competitive elements however the lessons from the united states need not carry over to other countries especially developing economies this article analyses the wage differentials in selected latin american countries despite the sharp contrasts between the latin american and the us economies our results show more similarities than differences with those reported in past studies wage differentials are substantial and persist over time the differentials are also correlated across occupations and to a lesser extent across establishment sizes

corporate tournaments human capital acquisition and the firm size wage relation this paper provides a possible explanation for the empirically observed size wage effect and inter industry wage differences it develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments where workers with the highest level of general human capital win promotions given that the prizes in such tournaments are determined by outside market conditions the investment and the equilibrium wages depend on firm and industry characteristics the model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits

a theory of wage dispersion and job market segmentation job market segmentation refers to the idea that there tends to be a correlation among high wages high productivity high capital intensity high value added few quits relative to layoffs and low labor turnover this paper develops a model of wage dispersion and job market segmentation based on the very sparse assumption that the only departure from a strictly orthodox neoclassical world consists of wages being sticky in the short run implications of the model are explored and discussed

fixed or flexible wage setting in search equilibrium why do some vacancies offer a posted wage whereas others offer a negotiable wage the paper endogenizes the choice of wage policy in a standard sequential search model with heterogeneous workers in particular we identify circumstances such that there exists an equilibrium in which all firms negotiate wages we find that this equilibrium exists if and only if the labour market is sufficiently tight and worker heterogeneity is sufficiently large

workers as creditors performance bonds and efficiency wages from the standpoint of economic theory the difficulty in regulating workers performance distinguishes labor markets from commodity markets commodities do not respond to incentives workers in contrast can quit steal be hung over refuse to cooperate with other workers or generally work at low effort levels since direct monitoring is often costly and unreliable it may not be the profit maximizing solution to this problem economists have discussed various schemes to make productive behavior incentive compatible for workers the most frequently discussed schemes fall into two broad categories efficiency wages and deferred compensation or bonding schemes these schemes have been suggested as explanations for a wide variety of labormarket features that appear anomalous from the conventional supply and demand perspective efficiency wage models can generate equilibria in which there is involuntary unemployment and in which identical workers are paid different wages in jobs that are otherwise equally attractive george a akerlof and janet l yellen 1985 have argued that they can provide an important component of a model of business cycles deferred compensation schemes have been proposed as explanations for upward sloping age earnings profiles mandatory retirement pensions and hierarchical tournament promotion structures 2 because bonding is costless to firms efficiency wage and bonding strategies are often viewed as mutually incompatible profit maximizing firms should offer efficiency wages only in situations where bonding is impossible one widely held view argues that in labor markets where agency issues arise these problems are effectively solved by various bonding arrangements and moreover that this observation helps to explain otherwise peculiar features of some labor markets as mentioned above it follows that efficiency wages do not generally exist proponents of efficiency wage theory argue that there is considerable evidence of widespread agency problems e g large expenditures by many firms on monitoring and that there are barriers to the use of bonds notably moral hazard on the part of firms or legal constraints efficiency wages cannot therefore be ruled out a priori as an equilibrium solution to these agency problems 3 in this paper we study these issues surrounding efficient worker compensation in a framework that allows heterogeneity among firms and integrates the financial and

strategic wholesale pricing in a supply chain with a potential entrant this paper develops an adverse selection model for a two stage supply chain with one supplier one retailer and a potential outside entrant supplier who makes a partially substitutable product the work is different from most research on entry deterrence that only considers a single stage model our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant we focus on a model where the entrant supplier will sell her product through the same incumbent retailer we derive the optimal decisions for each player and study the comparative statics of the equilibrium to investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier we also consider three alternative models with different channel structures when both suppliers sell their products directly when the entrant has another independent retailer and when the entrant sells her product directly through the comparison we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

identifying the common component of international economic fluctuations a new approach in this paper we develop an aggregation procedure using time varying weights for constructing the common component of international economic fluctuations the methodology for deriving time varying weights is based on some stylised features of the data documented in the paper the model allows for a unified treatment of cyclical and seasonal fluctuations and also accommodates the dynamic propagation of shocks across countries we find evidence for a world business cycle as well as evidence for a distinct european common component we also find some evidence that macroeconomic fluctuations have become more closely linked across industrial economies in the period after 1973 the world economy has become more closely integrated in recent years due to increasing trade and financial flows across countries this has spurred interest in the question of how the ongoing phenomenon of globalisation has affected the transmission and propagation of business cycle fluctuations across national borders an important question in this context is whether a substantial fraction of economic fluctuations are country specific or if there exists a world business cycle which might be defined as fluctuations that are common across all countries more generally the comovement of macroeconomic aggregates across different countries has become a topic of increasing interest in both academic and policy circles these issues have implications in a number of dimensions an empirical analysis of the relative importance of country specific versus common international fluctuations is of relevance for determining the structure of certain classes of international business cycle models from a policy perspective strong comovement of output across countries at business cycle frequencies implies that external trade would be unlikely to play a significant role in dampening fluctuations domestic policies aimed at affecting the real exchange rate and thereby attempting to boost net exports in the short run would then tend to have limited impact the degree of synchronisation of business cycles across countries also has important implications for short run international policy coordination and for assessing the feasibility of monetary unions therefore identifying and analysing the common component of international economic fluctuations is relevant from a number of different perspectives

government intervention efficiency wages and the employer size wage effect in zimbabwe abstract this paper uses matched employer employee data from a survey of 201 manufacturing firms and 1609 of their workers conducted in zimbabwe in the summer of 1993 the results indicate that there is a substantial premium associated with employment in larger firms and that this premium cannot be explained by differences in worker quality and job characteristics nor is it eliminated by controlling for unionization minimum wages or other forms of government intervention the size premium is much larger for white collar than for blue collar workers these differentials are also found to be substantially larger than those estimated for other developed and developing countries the analysis uses the data about firm characteristics to explore a number of efficiency wage based explanations of the size differential and finds results which are consistent with but not conclusive proof of hiring turnover and morale based notions of efficiency wages

a cross country financial accelerator evidence from north america and europe a growing literature has examined the importance of credit market imperfections for macroeconomic fluctuations the so called financial accelerator a related literature has provided evidence of international and regional co movements in macroeconomic fluctuations we tie together these strands of the literature in that we investigate the importance of both cross country and country specific credit cycles in explaining output fluctuations using data for four major economies and two world regions from 1973 to 2001 we find that both regional and country specific components of indicators of credit availability are powerful in explaining output movements this research provides the first empirical evidence of a cross country financial accelerator