labor market search and real business cycles nash bargaining vs fair wage abstract this paper modifies the standard labor market search model with nash bargaining for a wage determination scheme which relies on efficiency wage theories more precisely the equilibrium wage rests on the gift exchange motivation it is shown that the combination of search frictions and fair wage hypothesis allows a business cycle model to replicate the dunlop tarshis observation without requiring a second source of impulses

further evidence on the asymmetric behavior of economic time series over the business cycle evidence has recently been presented by salih neftci to support the hypothesis that recessions in economic activity tend to be steeper and more short lived than recoveries in economic activity that evidence however was confined to the behavior of the unemployment rate in the united states in this paper it is shown that when neftci s methods are applied to analyze the behavior of real gross national product investment and productivity in the united states or when they are used to analyze industrial production abroad the asymmetry hypothesis seems to be less compelling

on selecting a measure of labour activity evidence from registered nurses 1981 and 1989 the purpose of this paper is to demonstrate the effects of the selection of measures of labour activity on the conclusions that are derived from the analysis of individual labour supply the results of the analysis using three commonly specified single measures annual hours worked hours worked per week and weeks worked per year as the dependent variable in tobit equations are compared with those obtained using a probit 2sls in which the individual labour supply is measured by hours worked per week and weeks worked per year the rhs variables are those that are used in earlier individual labour supply studies and are the same in all of the models analysed among the findings are 1 wage rate effects that are quite strong in single equation models and disappear when a multi equation approach is used 2 the effects of children on labour supply is more complex than in indicated in single equation results and 3 duration dependence is much stronger than indicated results using a single measure of indiv

self enforcing employment contracts and business cycle fluctuations abstract this paper incorporates risk sharing employment contracts into an economy in which matching frictions characterize the labour market and in which agents cannot commit in equilibrium the terms of ongoing contracts are affected by those being negotiated in the job market because contracts must be self enforcing in this context risk sharing implies that hours worked and wages are negatively related while enforcement considerations imply the converse overall the sign of this relationship is ambiguous therefore the existence of such contracts may explain why movements in hours worked appear weakly related to those in real wages in u s aggregate data

evidence and theory on the cyclical asymmetry in unemployment rate fluctuations a number of recent empirical studies have identified the presence of a cyclical asymmetry in unemployment rate fluctuations in particular during a recession the unemployment rate increases sharply while during an expansion the unemployment rate declines only gradually the purpose of this paper is to demonstrate that this cyclical asymmetry can be explained in an empirically plausible manner by the optimal search activities of individuals in the economy

a monetary business cycle model with unemployment abstract to reproduce key features of the post war u s data most monetary business cycle models must assume there are high price markups and that agents have high labour supply elasticities despite the existence of contradictory microeconomic evidence this paper eliminates the need for these assumptions by introducing imperfectly observed effort into a limited participation model the estimated model is better able to capture the sluggish price response to a monetary policy shock than the standard model and is consistent with evidence regarding the qualitative responses of the u s economy to technology shocks fiscal policy shocks and monetary policy shocks

risk sharing in the business cycle why do all developed economies experience fluctuations in their economic activity the real business cycle rbc literature has provided an answer to this question by demonstrating that a well functioning decentralized model economy subject to exogeneous productivity shocks will behave in a way similar in many respects to the business fluctuations experienced by actual economies kyland and prescott 1982 this is particularly true if one imposes restrictions on the choice set of the representative consumer worker hansen 1985 taking account of demand shocks in the form of variations in government spending further improves the performance of the model christian0 and eichenbaum 1990 should we be content with this answer first we must observe that the set of facts current rbc models are able to replicate is very limited and thus that claims of theoretical success should be proportionately modest danthine and donaldson 1990 second at this level of explanation it is quite likely that the same modest set of facts currently used to define the business cycle will be consistent with models of the economy which are significantly different from the pure walrasian formulations which have predominated to date it is this latter issue tihich we propose to address in this paper our starting point is the observation that all industrial economies have developed institutional and social arrangements designed to improve the distribution of income and risks over what would prevail in walrasian equilibrium trade unions minimum wage laws and unemployment compensation mechanisms are examples of such arrangements and they could be all interpreted as having the objective either of moving the economy away from

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

shirking unemployment and aggregate fluctuations empirically real wages exhibit relatively little cyclical variation and a weak cyclical pattern early real business cycle rbc models predict to the contrary large procyclical real wage movements incorporating efficiency wages into a rbc environment would seem promising since one prediction from the efficiency wage literature is real wage rigidity this paper evaluates a common microfoundation for efficiency wages the shirking model with respect to its predictions for real wages within a rbc style model simulations of the model reveal that it can generate dampened but still strongly procyclical real wage behavior

growth and unemployment in a shirking efficiency wage model the relationship between growth and unemployment in a general equilibrium shirking efficiency wage model is explored in contrast to past work on this subject detected shirkers are not dismissed but instead incur a monetary punishment as a result of this modification the model can account for a stable rate of unemployment when there is positive population growth and or technological growth in the economy moreover i show that institutions and policies that limit the ability of firms to punish detected shirkers or restrict their use of discretionary bonuses can increase unemployment and reduce the economy s long run growth rate jel classification e0 j41 croissance et chomage dans un modele de salaires efficients ou certains se derobent a leurs obligations ce memoire explore la relation entre croissance et chomage dans un modele d equilibre general de salaires efficients ou certains se derobent a leurs obligations contrairement a ce qui postule dans certains travaux anterieurs sur le sujet les tricheurs detectes ne sont pas renvoyes mais subissent une penalite monetaire gr ce a cette modification le present modele est capable d expliquer un taux de chomage naturel stable meme quand il y a croissance de la population et ou progres de la technologie dans l economie de plus les resultats suggerent que les institutions et politiques qui limitent la possibilite pour les entreprises de punir les tricheurs ou reduisent la possibilite d offrir des bonis discretionnaires peuvent accroitre le niveau de chomage d equilibre et reduire le taux de croissance a long terme de l economie

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

the most beautiful variations on fair wages and the phillips curve this paper explores the connection between inflation and unemployment in two different models with fair wages in both the short and the long runs under customary assumptions regarding the sign of the parameters of the effort function more inflation lowers the unemployment rate albeit to a declining extent this is because firms respond to inflation which spurs effort by decreasing the reference wage by increasing employment thus maintaining the effort level constant as implied by the solow condition a stronger short run effect of inflation on unemployment is produced under varying as opposed to fixed capital given that in the former case the boom produced by a monetary expansion is reinforced by an increase in investment therefore i provide a new theoretical foundation for recent empirical contributions that find negative long and short run effects of inflation on unemployment

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

inducing risk neutral preferences with binary lotteries a reconsideration abstract we evaluate the binary lottery procedure for inducing risk neutral behavior we strip the experimental implementation down to bare bones taking care to avoid any potentially confounding assumptions about behavior having to be made in particular our evaluation does not rely on the assumed validity of any strategic equilibrium behavior or even the customary independence axiom we show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality this striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment

employment fluctuations with downward wage rigidity the role of moral hazard we study the cyclical dynamics of job creation and destruction when workers effort is not perfectly observable the no shirking constraint may amplify fluctuations in hiring by making firms surplus share procyclical and may cause a burst of inefficient firing when a downturn begins but quantitatively it mainly raises the cost of motivating marginal workers in booms since firms cannot commit to keep them in recessions and thereby strongly damps the countercyclical fluctuations in the separation rate this implies a robust beveridge curve but casts doubt on ramey and watson s 1997 contractual fragility mechanism and worsens shimer s 2005a volatility puzzle

sharing within families implications for the measurement of poverty among individuals in canada one major objection to neoclassical economic theory raised by feminist economists is that traditional theory neglects what goes on within families this paper examines the policy relevance of this feminist critique by asking whether our understanding of the poverty experiences of individual canadians is significantly affected by the assumptions we make about how financial resources are shared within families using microdata from the 1982 1986 and 1992 family expenditure surveys the authors simulate the consequences of alternative sharing rules from equal sharing to minimal sharing their conclusion is that it matters a great deal what we assume about how financial resources are shared within families

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

the effects of social security in a life cycle family labor supply simulation model abstract we simulate a number of social security provisions in an overlapping generations model of family labor supply the program causes both men and women to shift labor toward the beginning of the life cycle increases the family s ratio of retirement consumption to consumption when young and lowers both wage rates but does not substantially alter the male female wage ratio the wealth effects of the program appear to dominate the incentive effects our exhaustive sensitivity analysis reveals that our results are robust to changes in several key labor supply parameters the intertemporal male and female own wage elasticities and the cross wage elasticity

unemployment and the business cycle abstract this paper presents a dynamic general equilibrium model where labor effort is imperfectly observable and there is unemployment in equilibrium in contrast to shirking models in the efficiency wage literature detected shirkers are not dismissed instead they face a monetary punishment because they forgo an increase in their compensation estimated versions of the model can generate the high variation in employment and low variation of real wages observed over the business cycle and are consistent with existing qualitative evidence about the responses of the economy to fiscal policy shocks

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

shirking in a monetary business cycle model this paper investigates whether a limited participation model with imperfectly observed effort can reproduce the economy s responses to a monetary policy shock without appealing to high labour supply elasticities or high markups the results demonstrate that the presence of imperfectly observed effort in combination with the limited participation assumption allows the model to account for the presence of involuntary unemployment nominal wage rigidity and the observed responses to monetary policy shocks jel clas sification e3 j41

unemployment insurance in a sticky price model with worker moral hazard abstract this paper studies the role of unemployment insurance in a sticky price model that features an efficiency wage view of the labor market based on unobservable effort the risk sharing mechanism central to the model permits but does not force agents to be fully insured structural parameters are estimated using a maximum likelihood procedure on us data formal hypothesis tests reveal that the data favor a model in which agents only partially insure each other against employment risk the results also show that limited risk sharing helps the model capture many salient properties of the business cycle that a restricted version with full insurance fails to explain

individual behavior of first price auctions the importance of information feedback in computerized experimental markets abstract this article reports the results of an individual choice experiment designed to test the nash equilibrium predictions of the first price sealed bid auction a subject faced in 100 auctions always the same resale value and competed with computer simulated bids the design used between subjects variation and involved information feedback as the treatment variable earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral nash equilibrium our data provide evidence that overbidding can be fostered by the standard information feedback in auction experiments which after each auction reveals the winning bid only by means of learning direction theory we explain the individual bidding dynamics in our experiment finally we apply impulse balance theory and make long run predictions of individual bidding behavior

experimental development of sealed bid auction theory calibrating controls for risk aversion we offer a brief survey of bidding theory in high price auctions of experimental studies of behavior in such auctions and of the interplay between the design and results of the experiments and efforts to further develop the theory two new series of experiments are reported the first applies a convex transformation of payoffs in an attempt to induce a lowering of subject bids as if the bidders had become less risk averse the second applies a method for inducing any prespecified utility function for risky choices on an individual we use it to induce as if risk neutral behavior both series use baseline control to calibrate the hypothesized effect of the procedures on riskaverse behavior

male female wage differentials and policy responses without implicating them for any of the contents of the paper i am grateful to the following for helpful discussions or comments andrea beller university of illinois david bloom harvard and columnbia glen cain university of wisconsin ron ehrenberg cornell victor fuchs stanford bob gregory australian national university jonathan leonard university of california berkeley roberta robb brock university and paul weiler harvard financial support of the humanities and social sciences committee of the research board of the universitu of toronto is eratefullu acknowlede ed

his and hers gender differences in work and income 1959 1979 this paper describes changes in hours of work and income between 1959 and 1979 of women and men ages 25 64 it includes attempts to measure and value nonmarket production and leisure as well as market work to take account of possible income sharing within households and to allow for economies of scale in household production the most important empirical result is that relative to men women s access to goods and services and leisure was lower in 1979 than in 1959 changes in hourly earnings hours of work and household structure contributed to this result the sex differential in hourly earnings is explored in detail

efficiency wage models of unemployment keynesian economists hold it to be self evident that business cycles are characterized by involuntary unemployment but construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear involuntarily unemployed people by definition want to work at less than the going wage rate why don t firms cut wages thereby increasing profits

star shaped probability weighting functions and overbidding in first price auctions there is a debate about whether risk aversion is the main source of overbidding in a first price independent private values auction as an alternative we adopt a non expected utility framework and identify an interpretable property on the probability weighting function which always induces overbidding

implicit contracts incentive compatibility and involuntary unemployment this paper considers the enforceability of employment contracts when employees performance cannot be verified in court so that piece rate contracts are not legally enforceable part i shows that there exists a variety of self enforcing implicit contracts modelled as perfect equilibria in a repeated game and characterizes all the wage and performance outcomes that can be implemented implementation requires a strictly positive surplus from employment the form of the contract depending on how this surplus is divided between firm and employee piece rate contracts and contracts with an informally agreed bonus can be made self enforcing but the use of severance pay and bonding does not extend the set of implementable allocations the resulting contracts resemble actual labor contracts more than do the contracts in standard principal agent models part ii analyses market equilibrium with these contracts also modelled as perfect equilibria in a repeated game and shows that many such equilibria exist unfilled vacancies and unemployed workers can co exist despite the existence of contracts that are potentially mutually beneficial for those jobs that are filled any division of the potential surplus is possible so that the market can have at the same time involuntary unemployment and vacancies that are unfilled despite filled jobs earning positive profits as a criterion for selecting equilibria a notion of renegotiation proofness is applied then either all workers are employed or all jobs filled but any division of the potential surplus is still possible the paper explores what further restrictions on beliefs give rise to a walrasian outcome in which all the potential surplus goes to the short side of the market and to an efficiency wage type outcome in which the potential surplus goes to the long side

profit sharing risk sharing and firm size implications of efficiency wages by taking account of output fluctuations this paper constructs a synthesis of profit sharing and efficiency wage models to highlight the role of the risk attitudes of the firm and its employees we show contrary to the traditional efficiency wage theory that in a profit sharing economy unemployment is no longer a necessary device to induce work effort and consequently the labor market equilibrium may be characterized by full employment such a result is more likely to be true when the economy is characterized by small sized firms in addition we also provide a preliminary sketch of the situations in which the firm chooses a profit sharing program or a fixed wage one and discuss how a firm determines its pay parameters and employment in response to output fluctuations