efficient search on the job and the business cycle the paper develops a model of directed search on the job in which transitions of workers between unemployment and employment and across employers are driven by heterogeneity in the quality of firm worker matches the equilibrium is such that the agents value and policy functions are independent of the endogenous distribution of workers across employment states hence the model can be solved outside of the steady state and used to measure the effect of cyclical productivity shocks on the labor market productivity shocks are found to generate large fluctuations in workers transitions unemployment and vacancies when matches are experience goods but not when matches are inspection goods

intertemporal labor supply and long term employment contracts the authors compare the implications of a symmetric information contracting model and a dynamic labor supply model for changes in earnings and hours a simple test is whether earnings changes are more variable than hours changes as predicted by the labor supply model or less variable as predicted by the contracting model the authors apply this test to two longitudinal surveys of adult men and find that earnings are somewhat more variable than hours for men who never change employers the estimates suggest that changes in earnings and hours not associated with survey measurement error occur at fixed wage rates copyright 1987 by american economic association

life cycle equilibrium unemployment this paper extends the job creation job destruction approach to the labor market to take into account a deterministic finite horizon as hirings and separations depend on the time over which investment costs can be recouped the life cycle setting implies age differentiated labor market flows while search by the unemployed falls with age the separation rate is rather u shaped over the life cycle worker heterogeneity in the context of undirected search implies an intergenerational externality which is not eliminated by the hosios condition we show that age specific policies are required to attain the first best allocation

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

misclassification errors and the underestimation of the us unemployment rate using recent results in the measurement error literature we show that the official u s unemployment rates substantially underestimate the true levels of unemployment due to misclassification errors in labor force status in current population surveys our closed form identification of the misclassification probabilities relies on the key assumptions that the misreporting behaviors only depend on the true values and that the true labor force status dynamics satisfy a markov type property during the period of 1996 to 2009 the corrected monthly unemployment rates are 1 to 4 6 percentage points 25 to 45 higher than the official rates and are more sensitive to changes in business cycles labor force participation rates however are not affected by this correction we also provide results for various subgroups of the u s population defined by gender race and age

job displacement and the transitions to re employment and early retirement for non employed older workers abstract despite the relatively higher frequency of job displacement among older workers in europe little is known about its effect on the work retirement decision employing individual data from the european community household panel for a number of countries with differences in their institutional environments the effect of job displacement for non employed workers is identified separately for the transitions into re employment and retirement the findings suggest that in countries with relatively more generous unemployment insurance provisions for the older unemployed which offer a pathway to early retirement older displaced workers exhibit lower re employment and higher retirement rates compared to the non displaced these results are robust to dynamic selection due to unobserved heterogeneity and to the endogeneity of displacement

do wages rise with job seniority a reassessment the authors provide new estimates of the return to job seniority using a dataset similar to that employed in joseph altonji and robert shakotko do wages rise with job seniority review of economic studies 1987 and robert topel specific capital mobility and wages journal of political economy 1991 they consider the strengths and weaknesses of these studies treatment of economy wide trends their dating conventions for tenure and wages their handling of wage observations that might span multiple jobs and their estimation approaches re estimation points to an effect often years of tenure on the log wage equal to 11 which is above the preferred estimate of altonji and shakotko but far below that of topel changes in earnings distributions and in the employment relationship motivate the examination of more recent data perhaps surprisingly the return to tenure has probably increased over time

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

anticipated development assistance temporary relief aid and consumption behaviour of low income countries much debate about the effectiveness of foreign aid to developing countries focuses on the assumption that aid flows mainly enhance current consumption rather than being channelled into investment this paper seeks to establish what proportion of foreign assistance is used to finance current consumption the principal hypothesis to be tested is that aid transfers include very heterogeneous components with different marginal propensity to raise consumption estimating the average marginal propensity to consume of all the components of aid as is commonly done may lead to erroneous results the flow of foreign aid from high to low income countries can be classified into two types the first includes income transfers of a relief nature such as emergency and distress relief including drought related food transfers medical and refugee relief and balance of payments crisis support these transfers are generally a temporary response to unanticipated events or shocks to the economy they can be perceived as an attempt by the donor community to help finance what is denoted in the permanent income theory as transitory consumption friedman i957 in addition they can be viewed as an attempt to maintain a subsistence level of consumption by absorbing the shocks to income entirely by changes in savings the low level of savings however and the constraints on foreign borrowing lead to dependency on foreign transfers and prevent domestic savings from being the residual that is almost all of

the cyclicality of the opportunity cost of employment the flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time we construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels eligibility take up consumption by labor force status hours taxes and preference parameters the opportunity cost is procyclical and volatile over the business cycle the estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data irrespective of the level of the opportunity cost

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

business cycle models aggregation and real wage cyclicality a substantial literature has developed to estimate the true cyclicality of real wages that is composition bias free two major issues are addressed in this article aggregation of heterogeneous workers and potential bias in the measurement of the labor input a general analysis of the biases is presented and alternative approaches in the literature are nested in a single framework estimates based on an efficiency units concept that avoids the usual aggregation problems are presented composition bias underestimates the usual parameters of interest unless both the price and the quantity of the labor input are adjusted appropriately

aid and resource mobilisation in sub saharan africa the role of reverse flows abstract this article seeks to ascertain the role of reverse flows in explaining the observed limited impact of aid on resource mobilisation in sub saharan africa it departs from the previous empirical literature on aid and resource mobilisation by abandoning the pervasive but untenable assumption that aid either displaces domestic saving increases consumption or increases investment some aid is in fact used to finance reverse flows debt servicing capital flight and reserve accumulation the evidence suggests that for the period covering 1980 to 2006 nearly 50 per cent of aid to sub saharan african countries was used to finance reverse flows

choosing a control group for displaced workers the vast majority of studies on the earnings of displaced workers use a control group of continuously employed workers to examine the effects of initial displacements this approach implies long lived earnings reductions following displacement even if these effects are not persistent overstating the losses relative to the true average treatment effect this paper s approach isolates the impact of an average displacement without imposing continuous employment on the control group in a comparison of the standard and alternative approaches using psid data the estimated long run earnings losses fall dramatically from 25 percent to 5 percent model simulations reinforce these empirical findings

aid and growth in sub saharan africa the recent experience abstract this paper presents some quantitative evidence on the relationship between foreign aid and economic growth in the low income countries of sub saharan africa two key findings are presented first aid is positively and significantly correlated with investment and economic growth in africa second fix capital formation contributed to the rate of growth this result which emerges from analyzing time series data is somewhat surprising given the disappointing performance of african countries since the early 1970s

data watch the panel study of income dynamics by collecting annual economic and demographic information from a large and representative sample of u s households for over a quarter century the panel study of income dynamics has compiled a remarkably useful set of microdata this article describes the psid and how its unique longitudinal and in some cases intergenerational features have been used for studies of intertemporal models of labor supply wages employment and job tenure consumption poverty dynamics extended family behavior and the intergenerational transmission of economic status

frictional wage dispersion in search models a quantitative assessment we propose a new measure of frictional wage dispersion the mean min wage ratio for a large class of search models we show that this measure is independent of the wage offer distribution but depends on statistics of labor market turnover and on preferences under plausible preference parameterizations observed magnitudes for worker flows imply that in the basic search model and in most of its extensions frictional wage dispersion is very small notable exceptions are some of the most recent models of on the job search our new measure allows us to rationalize the diverse empirical findings in the large literature estimating structural search models

the welfare costs of worker displacement abstract recent work has documented the large persistent earnings losses associated with the displacement of high tenure workers in this paper we assess the welfare costs of this risk assuming that workers do not have access to insurance markets we find that the cost is substantial on the same order of magnitude as the cost associated with unemployment risk we also argue that long duration unemployment insurance is likely to exacerbate this cost and that government financed severance payments are a far more effective way of dealing with the displacement risk

the impact of aid and public investment volatility on economic growth in sub saharan africa summary this study investigates the effects of aid inflows and the volatility of public investment on economic growth in 26 sub saharan african countries over the period from 1992 to 2011 three volatility variables comprising aid government revenue and public investment are incorporated into an aid growth model to test for their effect on economic growth using the generalized method of moments gmm technique and averaged data for five four year sub periods we show that although foreign aid has a positive impact on growth once potential endogeneity has been accounted for aid effectiveness may have been eroded by volatility in public investment

earnings losses of displaced workers revisited recent literature reviews conclude that job displacement results in sustained earnings losses bruce c fallick 1996 lori g kletzer 1998 and that estimates of the size of those reductions vary with the type of data used in the analysis the industry within which displacement occurs and business cycle conditions the largest estimated losses were obtained using administrative data from pennsylvania during the 1970s and 1980s louis s jacobson robert j lalonde and daniel g sullivan 1993a the data covered a period of high unemployment in a heavily indus trialized state characterized by disproportionate job losses in manufacturing thus the ability to generalize those results to more favorable economic times and states with a greater reliance on service sector employment has been questioned to address these issues administrative data are used to similarly examine the impact of job displacement on earnings losses of workers in connecticut from 1993 to 2004 the work of jacobson lalonde and sullivan jls also provided important methodologi cal advancement by adapting analytical techniques developed for program evaluation james j heckman and v joseph hotz 1989 to the context of job displacement the same techniques fixed effects and time trend estimators as those used in the original jls publication are initially employed here then the methods are extended to include matching estimators developed since their publication both nearest neighbor estimators of average treatment on the treated att and differenced average treatment on the treated datt are adapted to the context of this study heckman hidehiko ichimura and petra todd 1997 heckman et al 1998 and rajeev h dehejia and sadek wahba 1999 2002 the results presented here for connecticut differ in some ways from those found in the work of jls using data from pennsylvania in the period immediately following job loss regardless of the technique employed earnings reductions for workers displaced through mass layoff range from 32 percent to 33 percent jls reported immediate losses of more than 40 percent six years later using the same estimators as jls earnings reductions in connecticut range from 13 percent to 15 percent they report sustained losses in pennsylvania of 25 percent the smaller long term impacts in connecticut demonstrate that under more ordinary economic times esti mated losses from administrative data lie within the range observed using other data sources this finding resolves a long standing conflict among the results of high quality studies that have used differing data sources to study earnings reductions following job loss 1 using two different matching estimators earnings losses six years after mass layoff are 12 percent the matching estimators compare those who experienced mass layoff to compari sons with the same ex ante probability of the event these smaller losses are consistent with the

the evolution of wages in the united kingdom evidence from micro data we use data on male employees from the u k family expenditure survey for the years 1968 86 to investigate the behavior of wages over time and across cohorts we find that differentials between manual workers and professional managerial ones are lower at labor market entry for younger cohorts but increasing faster with age in the 1980s than in the past the returns to experience appear to be very low in the united kingdom particularly for manual and clerical workers although the improved education of younger workers may partly explain this finally we show that individual wages in the united kingdom are highly procyclical

job matching and the wage distribution this paper brings together the microeconomic labor and the macroeconomic equilibrium views of matching in labor markets we nest a job matching model a la jovanovic 1984 into a mortensen and pissarides 1994 type equilibrium search environment the resulting framework preserves the implications of job matching theory for worker turnover and wage dynamics and it also allows for aggregation and general equilibrium analysis we obtain two new equilibrium implications of job matching and search frictions for wage inequality first learning about match quality and worker turnover map gaussian output noise into an ergodic wage distribution of empirically accurate shape unimodal skewed with a paretian right tail second high idiosyncratic productivity risk hinders learning and sorting and reduces wage inequality the equilibrium solutions for the wage distribution and for the aggregate worker flows quits to unemployment and to other jobs displacements hires provide the likelihood function of the model in closed form

keynesian controversies on wages in the general theory keynes advanced two hypotheses about movements in wages and urged their empirical investigation john dunlop lorie tarshis and henry richardson responded to this call with articles published in the economic journal in the late 1930s in turn keynes replied to their findings this exchange is described and the subsequent literature on the cyclical movement of real wages and the rigidity of money wages is outlined

tenure experience human capital and wages a tractable equilibrium search model of wage dynamics we develop and estimate an equilibrium job search model of worker careers allowing for human capital accumulation employer heterogeneity and individual level shocks wage growth is decomposed into contributions of human capital and job search within and between jobs human capital accumulation is largest for highly educated workers the contribution from job search to wage growth both within and between job declines over the fi rst ten years of a career the job shopping phase of a working life after which workers settle into high quality jobs using outside o ffers to generate gradual wage increases thus reaping the bene fits from competition between employers

impacts of official development assistance on agricultural growth savings and agricultural imports abstract this paper explores the links between development assistance agricultural output growth and imports in 56 developing economies over the period 1974 1990 the empirical model treats agricultural growth and imports savings and aid as endogenous the analysis also accounts for differences in macroeconomic policies the results show that aid had a positive impact on agricultural growth a robust relationship exits between aid and agricultural imports consistent with the argument that aid helps industrialized countries through market expansion and strengthened trade ties

reform of foreign aid policies the issue of inter country allocation in africa abstract the aim of this paper is to assess the inter country allocation of foreign aid by selected donors to 18 recipients in eastern and southern africa esa the five country cases discussed in this paper show that the aid environment has not been supportive of recipients reform efforts during the 1980s a comparison is made between international development agency ida allocation and other donors cross section and time series regressions demonstrate a variety of considerations influencing bilateral aid lastly in discussing present aid policies and coordination efforts three options are analyzed with respect to future aid policies it is suggested that new initiatives by ida in its allocation criteria and aid coordination efforts can yield some progress

earnings losses and labor mobility over the life cycle an extensive empirical literature has documented that workers with high tenure suffer large and persistent earnings losses when they get displaced we study the reasons behind these losses in a tractable search model with a life cycle dimension endogenous job mobility worker and match heterogeneity the model reconciles key characteristics of the u s labor market large average transition rates a large share of stable jobs and the earnings losses from displacement we decompose the earnings losses and find that only 50 result from skill losses endogenous reactions and selection account for the remainder our findings have important implications for the welfare costs of displacement and labor market policy

life cycle labor search with stochastic match quality in the united states unemployment job finding and separation rates decline as worker age increases to explain these facts we build a search and matching model of the labor market that incorporates a life cycle structure and features random match quality as well as human capital accumulation the calibrated model successfully reproduces the empirical patterns of unemployment and job transition rates over the life cycle and generates plausible wage implications we then explore the efficiency implications of the model and find that the differences between the market and planner allocations are more important for older workers

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

exchange rates trade liberalization and aid the sri lankan experience abstract in 1977 the sri lankan government embarked on an extensive program of liberalization an important element of which was devaluation to ensure a competitive real exchange rate the 1980s were however marked by an increasing divergence between the real and nominal exchange rates the depreciation of the latter not being matched by similar movements of the former this paper presents an econometric model of real exchange rate behavior in sri lanka among other things it is shown that increased aid inflows have made a significant contribution to the failure of the real exchange rate to match the depreciation in the nominal rate

the role of employer employee interactions in labor market cycles evidence from the self employed self employed workers are less likely to be affected by implicit contracts efficiency wages and other forces that mute wage cyclicality and exacerbate employment cyclicality this observation motivates our comparison of the cyclical experience of the self employed with wage and salary workers who clearly have an employer we find negligible or small differences in annual hours cyclicality between the two groups but hourly wages and annual earnings are much more cyclical for the self employed these results are consistent with efficient contracting models where employers smooth workers income without causing inefficiencies in hours of work

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

work histories and lifetime unemployment a long standing question in economics is how important unobserved differences across workers are for explaining unemployment i revisit this topic using variation in lifetime unemployment across workers in u s data a comparison of workers often unemployed with the rest shows that although differences in job finding rates increase over the course of a career differences in job separation rates are large right from the start i develop a directed search model with symmetric unobserved heterogeneity in which agents learn workers types from their labor market histories to rationalize these findings the model cannot match the data if unobserved heterogeneity is neglected

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

turbulence and unemployment in a job matching model according to ljungqvist and sargent 1998 high european unemployment since the 1980s can be explained by a rise in economic turbulence leading to greater numbers of unemployed workers with obsolete skills these workers refuse new jobs due to high unemployment benefits in this paper we reassess the turbulence unemployment relationship using a matching model with endogenous job destruction in our model higher turbulence reduces the incentives of employed workers to leave their jobs if turbulence has only a tiny effect on the skills of workers experiencing endogenous separation then the results of ljungqvist and sargent 1998 2004 are reversed and higher turbulence leads to a reduction in unemployment thus changes in turbulence cannot provide an explanation for european unemployment that reconciles the incentives of both unemployed and employed workers jel e24 j64

wage risk and employment risk over the life cycle we specify a structural life cycle model of consumption labour supply and job mobility in an economy with search frictions that allows us to distinguish between different sources of risk and to estimate their effects the sources of risk are shocks to productivity job destruction the process of job arrival when employed and unemployed and match level heterogeneity our model allows for four main social insurance programmes in contrast to simpler models that attribute all income fluctuations to shocks our framework allows us to disentangle the effects of the shocks from the responses to these shocks estimates of productivity risk once we control for employment risk and for individual labour supply choices are substantially lower than estimates that attribute all wage variation to productivity risk increases in productivity risk impose a considerable welfare loss on individuals and induce substantial precautionary saving increases in employment risk have large effects on output and primarily through this channel affect welfare the welfare value of government programs such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides partial insurance against employment risk and no insurance against persistent shocks

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

persistence of employment fluctuations a model of recurring job loss standard models of employment fluctuations cannot reconcile the unemployment rate s remarkable persistence with the high job finding rates found in worker flows data a matching model emphasizing high hazard rates among newly formed firm worker matches can resolve this shortcoming in the model matches are experience goods consequently newly employed workers face higher hazard rates following a job loss workers may experience several short lived jobs before finding stable employment at an aggregate level an initial burst of job loss precipitates a steady flow of recurring job loss a simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump intuitively the labour market frictions associated with the difficult and time consuming process of matching unemployed workers with appropriate jobs represent an appealing way to enhance conventional dynamic general equilibrium models of economic fluctuations that generally exhibit very little internal propagation of business cycle shocks 1 nevertheless although conventional matching models such as the canonical mortensen and pissarides 1994 model successfully explain many other important features of the labour market they fail to explain the high degree of persistence observed in the u s unemployment rate the primary reason for this failure is that data on labour market flows show that unemployed workers actually find jobs quite quickly therefore following a shock that triggers a burst of job loss the high job finding rate implies that the unemployment rate in these models returns quite rapidly back toward its average level this represents a significant obstacle to the notion that frictions in the labour market account for much of the propagation of business cycle shocks this paper asserts that existing matching models fail to capture an important feature of the labour market that can reconcile the dramatic persistence of the unemployment rate with the evidence of high job finding rates specifically although unemployed workers find jobs quickly the newly found jobs often last only a short time after an initial job loss a worker may experience several short lived jobs before settling into more stable employment this recurring job loss slows the pace at which the unemployment rate returns to its normal level following an adverse shock

contracts job experience and cyclical labor market adjustments longitudinal estimates of the variability of individual wages hours and weeks worked over the course of changing demand states are provided for all workers generally and for workers of varied levels of job experience emphasis is placed on that part of job experience represented as years on current job a commonly used proxy for the magnitude of firm specific skills interpretation of resulting estimates in the context of the labor market contracting literature is attempted generally significant procyclical patterns are found for real weekly wages weekly hours and weeks worked the extent of weekly wage variability is much greater than is generally suggested in the literature furthermore workers with greater tenure exhibit greater cyclical wage and hours variability and less weeks variability finally empirical distinctions are drawn separately for white collar and blue collar as well as union and nonunion workers

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

trade capital and the transition in central europe the potential for export oriented growth and the impact of official capital injections is assessed for five central european countries in the years 1990 2000 by means of a neoclassical simulation model export growth is essential for the transition to a market oriented economy and the recovery of central europe implying the need for trade liberalization by both the east and the west if this condition is being met satisfactory gdp growth rates appear possible even without external financial support

why are wages cyclical in the 1970 s this article investigates cyclicality in real wages between 1969 and 1982 using panel study of income dynamics data there is little evidence that movements in and out of the labor market induced aggregate wage cyclicality during these years however cyclicality in the movement of workers between heterogeneous labor market sectors affected aggregate wage cyclicality while sector location is important sector selectivity is not correlated with wages yet even within sectors cyclicality is present in real wages over this time period and is the result of cyclicality in overall wage levels as well as in the coefficients associated with particular worker characteristics

the importance of lifetime jobs in the u s economy though the u s labor market is justly notorious for high turnover and consequent high unemployment it also provides stable near lifetime employment to an important fraction of the labor force this paper investigates patterns of job duration by age race and sex with the following major conclusions 1 the typical worker today is holding a job which has lasted or will last about eight years over a quarter of all workers are holding jobs which will last twenty years or more sixty percent hold jobs which will last five years or more 2 the jobs held by middle aged workers with more than ten years of tenure are extremely stable over the span of a decade only twenty to thirty percent come to an end 3 among workers aged thirty and above about forty percent are currently working in jobs which eventually will last twenty years or more three quarters are in jobs which will last five years or more 4 the duration of employment among blacks is just as long as among whites even though the jobs held by blacks are worse in almost every other dimension they are no more unstable than those held by whites 5 women s jobs are substantially shorter than men s on the average only about a quarter of all women over the age of thirty are employed in jobs which will last over twenty years whereas over half of men over thirty are holding these near lifetime jobs this abstract was borrowed from another version of this item

the cost of job loss this article identifies an equilibrium theory of wage formation and endogenous quit turnover in a labour market with on the job search where risk averse workers accumulate human capital through learning by doing and lose skills while unemployed optimal contracting implies the wage paid increases with experience and tenure indirect inference using german data determines the deep parameters of the model the estimated model not only reproduces the large and persistent fall in wages and earnings following job loss a new structural decomposition finds foregone human capital accumulation while unemployed is the worker s major cost of job loss

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

does concessionary aid lead to higher investment rates in low income countries goedde alan g u s multinational manufacturing firms the determinants and effects of foreign investment ph d dissertation duke university 1978 grubaugh stephen g the process of direct foreign investment working paper bentley college aug 1986 helpman elhanan a simple theory of international trade with multinational corporations journal of political economy 3 june 1984 451 471 horst thomas firm and industry determinants of the decision to invest abroad an empirical study this review 54 aug 1972 258 266 at home abroad a study of domestic and foreign operations of the a merican food processing industry cambridge ma ballinger 1974 hymer stephen h the international operations of national firms a study of direct foreign investment ph d dissertation m i t published by m i t press 1976 judge george g r carter hill william e griffiths helmut lutkepohl and tsoung chao lee introduction to the theory and practice of econometrics new york john wiley and sons 1982 macdougal g d a the benefits and costs of private investment from abroad a theoretical approach economic record 36 mar 1960 13 35 markusen james r multinationals multiplant economies and the gains from trade journal of international economics 3 4 may 1984 205 226 pindyck robert s and daniel l rubinfeld econometric models and economic forecasts second edition new york mcgraw hill 1981 rugman allen m inside the multinationals the economics of internal markets new york columbia university press 1981 vaupel james w and joan p curhan the making of multinational enterprise cambridge division of research graduate school of business administration harvard university 1969

economic growth export and external debt causality the case of african countries empirical investigation of the export driven economic growth hypothesis has provided mixed results in a bivariate causality framework the problem with such bivariate causality analysis is that there can be an omitted variable which could adversely affect the results this paper looks at the trivariate causality analysis of african countries by introducing external deby servicing as a third variable in the export economic growth analysis the results indicate that there is a feedback or bidirectional causality between external debt servicing economic growth and exports evidence of the 1983 90 subperiod is consistent with the argument that the structural adjustment programmes which were designed to remove economic distortions promote exports and encourage external debt management increased growth in the countries involved

an analysis of workers choice between employment in the public and private sectors this paper estimates the extent to which workers with different personal characteristics are likely to be employed in the public versus the private sector the author develops a reduced form two wa

occupational mobility and wage inequality in this article we argue that wage inequality and occupational mobility are intimately related we are motivated by our empirical findings that human capital is occupation specific and that the fraction of workers switching occupations in the u s was as high as 16 a year in the early 1970 s and had increased to 21 by the mid 1990 s we develop a general equilibrium model with occupation specific human capital and heterogeneous experience levels within occupations we find that the model calibrated to match the level of occupational mobility in the 1970 s accounts quite well for the level of within group wage inequality in that period next we find that the model calibrated to match the increase in occupational mobility accounts for over 90 of the increase in wage inequality between the 1970 s and the 1990 s the theory is also quantitatively consistent with the level and increase in the short term variability of earnings copyright wiley blackwell

aid growth and devolution summary this paper examines whether the degree of fiscal decentralization in aid receiving countries matters in explaining aid effectiveness the decentralization theorem predicts that the devolution of powers should increase aid effectiveness since local decision makers are better informed about local needs thereby decentralization may also have reverse effects e g through coordination problems excessive regulation administrative costs and local capture we use panel data for up to 60 countries and find that aid contributes to economic growth in centralized developing economies whereas it is less effective or even harmful in decentralized countries the cases of indonesia the philippines and uganda support our findings our results imply that donor countries should carefully consider how the two development instruments foreign aid and decentralization interact

active labor market policy evaluations a meta analysis this article presents a meta analysis of recent microeconometric evaluations of active labour market policies we categorise 199 programme impacts from 97 studies conducted between 1995 and 2007 job search assistance programmes yield relatively favourable programme impacts whereas public sector employment programmes are less effective training programmes are associated with positive medium term impacts although in the short term they often appear ineffective we also find that the outcome variable used to measure programme impact matters but neither the publication status of a study nor the use of a randomised design is related to the sign or significance of the programme estimate

occupational specificity of human capital we find that returns to occupational tenure are substantial everything else being constant 5 years of occupational tenure are associated with an increase in wages of 12 20 moreover when occupational experience is taken into account tenure with an industry or employer has relatively little importance in accounting for the wage one receives this finding is consistent with human capital being occupation specific

two questions about european unemployment a general equilibrium search model makes layoff costs affect the aggregate unemployment rate in ways that depend on equilibrium proportions of frictional and structural unemployment that in turn depend on the generosity of government unemployment benefits and skill losses among newly displaced workers the model explains how before the 1970s lower flows into unemployment gave europe lower unemployment rates than the united states and also how after 1980 higher durations have kept unemployment rates in europe persistently higher than in the united states these outcomes arise from the way europe s higher firing costs and more generous unemployment compensation make its unemployment rate respond to bigger skill losses among newly displaced workers those bigger skill losses also explain why u s workers have experienced more earnings volatility since 1980 and why especially among older workers hazard rates of gaining employment in europe now fall sharply with increases in the duration of unemployment

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

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

spatial dynamics and heterogeneity in the cyclicality of real wages neither the issue of how local and aggregate labor markets interact over time nor the issue of how heterogeneity by education race and other factors interacts with these spatial dynamics has prev

tenure business cycle and the wage setting process abstract we analyze the interaction between job tenure and external labor market conditions in wage determination first we introduce a model that combines job matching with business cycle effects as the employment relationship progresses the worker appropriates a portion of the value of the match specific human capital she accumulates gradually becoming shielded from the cyclical variations in external labor market conditions the employment relationship is progressively internalized then we present empirical evidence supporting this prediction the elasticity of wages to the unemployment rate decreases with tenure this finding is robust to different specifications that allow for job heterogeneity and it contributes to the interpretation of recent evidence of changes in the effect of the business cycle on wages

job stability in the united states two key attributes of a job are its wage and its duration much has been made of changes in the wage distribution in the 1980s but little attention has been given to job durations since hall we fill this void by examining the temporal evolution of job retention rates in u s labor markets using data assembled from the sequence of current population survey job tenure supplements there have been relative declines in job stability for some of the groups that experienced the sharpest declines in relative wages however we find that aggregate job retention rates have remained stable

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

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

job displacement risk and the cost of business cycles this paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk that has a cyclical component using a simple general equilibrium model with incomplete markets this paper shows the following result for sufficiently high degree of risk aversion at least one cyclical variations in the long term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the second moments of the distribution of individual income changes are constant over the cycle thus the previous literature which has either disregarded long term earnings losses of displaced workers or dealt with them only indirectly using second moment analysis might have severely under estimated the welfare cost of business cycles in addition to the theoretical analysis this paper also conducts a quantitative study of the cost of business cycles using empirical evidence on the long term earnings losses of u s workers the quantitative analysis suggests that cyclical variations in job displacement risk generate sizable cost of business cycles

economic growth in africa abstract this paper draws on the recent endogenous growth methodology to study the factors behind differences in per capita growth rates across africa the results indicate that various economic factors including initial conditions investment population growth trade orientation inflation financial development and the growth of the government sector contribute significantly to economic growth in addition to economic variables we find the degree of political freedom to be a significant contributor to economic growth finally we find some evidence that economic growth by the members of the cfa franc zone has not fared well in comparison to other african countries

are workers permanently scarred by job displacements this paper investigates whether workers suffer lasting scars following job displacements using david t ellwood s 1982 terminology scars represent persistent effects whereas blemishes are transitory adjustments which dissipate over time more precisely dislocated individuals are defined as scarred if they continue to earn less or to be unemployed more than their nondisplaced counterparts even after the conclusion of a several year adjustment period