The social organization of time

If all social life has been structured around a single model of employment founded on standard working hours, the reduction in working time, and in particular the diversification of working hours, is likely to effect radical transformation from both the economic and social points of view. This diversification will continue, it is argued, because of the new economic imperatives as much as sociocultural developments. It is forecasted that the old standard model is being replaced by much more flexible management of working hours and, hence, free time. What is not so clear is whether this flexibility in working conditions, which will bring with it a revolution at the individual, company and societal levels, will be equally benign for all.     

A note on accounting conservatism in residual income and abnormal earnings growth equity valuation

The impact of conservative accounting on residual income (RI) and abnormal earnings growth (AEG) valuation models is investigated in this note. Limiting the analyses to information dynamics constrained models (the core models in Ohlson, 1995; Ohlson & Juettner-Nauroth, 2005), we find that both models can handle accounting conservatism if the persistence factors of residual income or abnormal earnings growth fulfil certain conditions. In a comparison of permissible time-series specifications, the AEG model can potentially handle more conservatively biased earnings in the first forecast period than the RI model. However, this requires that the growth of the conservative bias in the second forecast period is not too large. In a 0-NPV competitive equilibrium with a constant steady state growth, both models work equally well. Further elaborations indicate that, in the presence of accounting conservatism a reasonable value of the persistence factor of residual income in the RI model should be in the interval between 1.0 and R (where R = 1 + discount rate), whereas the persistence factor of abnormal earnings growth in the AEG model should be close to 1.0. This implies that the persistence factor in the RI model appears to have been understated while the persistence factor in the AEG model appears to have been overstated in previous empirical research.     

Performance persistence in entrepreneurship

This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.     

Fiscal Policy and Occupational Employment Dynamics

We document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the United States. Employment rises most strongly in service, sales, and office (“pink-collar”) occupations. By contrast, employment in blue-collar occupations is hardly affected by fiscal policy. We provide evidence that occupation-specific changes in labor demand are key for understanding these findings. We develop a business-cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation-specific within-industry employment shifts due to differences in the short-run substitutability between labor and capital services across occupations.     

Nordic dual income taxation of entrepreneurs

The paper shows how entrepreneurial taxes interact with the career choice of individuals, the quality of entrepreneurs, and their investment behavior. It is particularly relevant to differentiate the early effects on start-up enterprises with substantial uncertainty from the tax effects on mature firms where the uncertainty is resolved. Conditions are derived for the Nordic dual income tax to be neutral and they are found to be stringent. Profit expectations matter. The Nordic dual encourages (discourages) the establishment of new enterprises by entrepreneurs who anticipate high (low) profitability.     

Financial constraints and entrepreneurial investment

There is a well documented interdependence between the investment and saving decisions of entrepreneurial households. I study this interdependence in a dynamic, general equilibrium model with heterogeneous agents and occupational choice. The simulated economy replicates U.S. data on the distribution of wealth and income, and the shares of wealth and income for each occupation. The dominant incentive behind the high level of savings of business households is the desire to relax a wealth constraint in financing entrepreneurial projects in order to operate their firms at an optimal size. Because successful firms grow over time, entrepreneurs enter business despite lower initial earnings than they would receive in paid employment.     

Gurus in the garage

Before the days of the Internet, it was primarily venture capitalists who coached young entrepreneurs in Silicon Valley. Today, because of the phenomenal number of new companies, venture capitalists are just too busy. The largest firms still take on a few carefully selected, highly promising zero-stage start-ups, but they simply can't spend the time on ones that aren't going to grow huge quickly. To fill the void, a new breed of adviser has stepped in to coach entrepreneurs. Called mentor capitalists, they help entrepreneurs with everything from recruiting top talent to attracting their first million in seed money. The mentor capitalists in Silicon Valley are cashed-out, highly successful business architects who no longer want to start businesses but who love the thrill of the entrepreneurial game. They spend hours and hours with first-time entrepreneurs, guiding them as they create and refine a business model, test their ideas in the marketplace, build business processes, raise money, and find talent. The authors of this article found through dozens of extensive interviews with entrepreneurs and their coaches that mentor capitalists play many roles: sculptor, psychologist, diplomat, kingmaker, talent magnet, process engineer, and rainmaker. In exchange for small equity stakes, the mentor capitalists wear these different hats, doling out expertise just in time, as situations arise, and in doses appropriate to the situation. Mentor capitalists seed Silicon Valley with expertise and knowledge, augmenting or even substituting for classes in entrepreneurship at local universities. But, as the authors note, the role of the mentor capitalist is essential to any start-up, anywhere.     

Globalization, returns to accumulation and the world distribution of output

This paper examines the extent to which the process of globalization can explain the observed widening in the cross-country distribution of output-per-worker. On the theoretical front the model highlights why, when the labor market is subject to a holdup problem, the opening up of trade will cause an increase in the dispersion of income across countries similar to that observed in the data. The increase in dispersion in the model arises due to the emergence of a discrepancy between the private and social returns to capital accumulation that favors capital abundant countries. On the empirical front, we document the relevance of the model by examining whether growth patterns, decomposition exercises and specialization patterns support the model's predictions. Overall we find that over 50% of the recently observed increase in income dispersion across countries can be accounted for by the mechanism exemplified by the model.     

Precautionary saving and partially observed income

I propose an intertemporal precautionary saving model in which the agent's labor income is subject to (possibly correlated) shocks with different degrees of persistence and volatility. However, he only observes his total income, not individual components. I show that partial observability of individual components of income gives rise to additional precautionary saving due to estimation risk, the error associated with estimating individual components of income. This additional precautionary saving is higher, when estimation risk is greater. Compared with a precautionary agent who is otherwise identical, but ignores estimation risk, the rational agent consumes less at the beginning of his life, but consumes more later, because of larger wealth accumulated from savings for estimation risk. The utility cost of ignoring estimation risk is also quantified in closed form.     

Optimal income taxation and social norms in the labor market

This paper concerns optimal income taxation in a two-type model extended to allow for social interaction and social norms in the labor market. One norm refers to “normal behavior” with respect to work hours (the hours of work norm), whereas another means that “one should earn one’s living by working” (the participation norm). The results show how the hours of work norm gives rise to a corrective motive for using income taxation. We also show how the interaction between the hours of work norm and the private incentive to participate in the labor market (which reflects the participation norm) gives rise to an employment motive for using the income tax.     

Dynamics and Heterogeneity of Inter‐ and Intranational Risk Sharing

This study extends the empirical model of incomplete risk sharing developed by Crucini ( 1999 ) by allowing unequal income pooling and explores the implications of using an alternative measure for aggregate risk. Based on samples from Canadian provinces, G‐7, and OECD countries spanning the years 1961–2008, we show that the empirical procedure used by Crucini tends to overstate the average degree of risk sharing and understate the dispersion of risk sharing, when compared to our unequal income pooling model. The empirical results from our unequal pooling model show that (i) the degree and dispersion of risk sharing across Canadian provinces, G‐7 countries, and OECD countries remain stable over time; (ii) the degree of risk sharing across Canadian provinces is higher than that across the G‐7 and OECD countries; and (iii) the degree of risk sharing seems positively related to equity and trade diversification.     

Income Distribution and Aggregate Saving: Theory and China’s Evidence

Using a parsimonious heterogeneous-agent general equilibrium model, this study reveals a positive causal effect of income inequality on the aggregate saving rate. In the model economy, benevolent individuals save to leave offspring bequests. Since bequests are luxury, the rich have a higher marginal propensity to save. Then, else equal, a fall in income inequality will lower the economy-wide saving rate. The model predicts an augmented aggregate saving function: the aggregate saving rate depends positively not only on the aggregate income level, but also on the dispersion of income. We find some empirical support for this hypothesis using China’s province-level longitudinal data.     

The Effect of Financial Incentives on Labour Supply: Evidence for Lone Parents from Microsimulation and Quasi‐Experimental Evaluation*

The aim of this paper is to analyse the work incentive effects of a change in the Australian tax and transfer system on lone parents in July 2000. To evaluate the effect of the total change only, microsimulation can be used; but for a subgroup of lone parents, a few components of this policy change can be analysed through two alternative approaches — microsimulation and quasi‐experimental evaluation. Both approaches examine the effects on the probability of employment and on average working hours. The results from microsimulation show that the combined changes introduced in July 2000 — involving reduced withdrawl rates, changed family payments and lower income tax rates — have increased labour supply for lone parents to a moderate extent. The estimated effect on average working hours when using microsimulation is very close to the effect estimated in a quasi‐experimental approach using matching techniques to control for alternative influences.     

Measuring investors’ assessment of earnings persistence: do investors see through smoothed earnings?

Prior studies document that investors value persistent earnings more than transitory earnings. This argument offers incentives to managers to smooth their reported earnings and make them look more persistent. This study examines whether investors are misled by management’s income-smoothing behavior and whether they can correctly assess the persistence of smoothed earnings. Using a simple theoretical model, this paper shows that investors’ assessment of earnings persistence can be derived from their reactions to reported earnings, which is the ratio of the coefficient on earnings change relative to the coefficient on earnings level in the return–earnings relation. Empirical results show that investors’ assessment of earnings persistence is negatively associated with the level of income smoothing after controlling for time-series persistence of earnings and hence suggest that investors understand that the high persistence of smoothed earnings is not real and they discount the persistence of smoothed earnings when they react to such earnings news.     

Income dispersion and counter-cyclical markups

Recent advances in measuring cyclical changes in the income distribution raise new questions: How might these distributional changes affect the business cycle itself? We show how counter-cyclical income dispersion can generate counter-cyclical markups in the goods market, without any preference shocks or price-setting frictions. In recessions, idiosyncratic labor productivity shocks raise income dispersion, lower the price elasticity of demand, and increase imperfectly competitive firms’ optimal markups. The calibrated model explains not only many cyclical features of markups, but also cyclical and long-run patterns of standard business cycle aggregates.     

金融摩擦、收入风险与财富不平等

本文通过构建带有职业选择的两部门异质模型,探讨了个体面临的金融摩擦和收入风险对财富分配的作用机制。结果发现,经济中存在的金融摩擦会通过职业选择、自我保险和自融资来影响个人的财富积累,从而导致财富的集中和不平等。对模型模拟的结果表明:降低金融摩擦在总体上会降低财富不平等程度,但对不同财富阶层的影响不同,其在大幅减少前1%和前10%阶层财富份额的同时,虽然也会在一定程度上提升后50%阶层的财富份额,但提升幅度并不大,过高或过低的企业家收入风险,都会加大财富不平等程度,因而存在一个使经济中财富不平等程度最低的适度企业家收入风险水平;虽然金融摩擦和收入风险都会影响经济中的财富不平等,但收入风险本身对财富不平等程度的影响较小,其主要是通过金融摩擦放大了经济中财富不平等的程度。     

An equilibrium model of wealth distribution

I present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete-markets economy. I first propose a self-insurance model with an inter-temporally dependent preference [Uzawa, H. 1968. Time preference, the consumption function, and optimal asset holdings. In: Wolfe, J.N. (Ed.), Value, Capital, and Growth: Papers in Honour of Sir John Hicks. Edinburgh University Press, Edinburgh, pp. 485-504]. I then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation. Finally, I provide a complete characterization for the equilibrium cross-sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income. Using this recursive formulation, I show that income persistence and the degree of wealth mean reversion are the main determinants of wealth-income correlation and relative dispersions of wealth to income, such as skewness and kurtosis ratios between wealth and income.     

Structural Change in the Scottish Labour Market, the Tax Take and the New Parliament's Income Tax-varying Powers

This article examines the implications of increased labour market flexibility, in the form of part-time work, for the Scottish public finances in the context of devolution and the establishment of a Scottish Parliament with income tax-varying powers. The income tax contributions of different Scottish household types are calculated using a spreadsheet-based model. The findings show that any trend towards part-time, rather than full-time, employment could seriously erode the country's total income tax take and reduce the effectiveness of the tax-varying powers to provide a source of additional revenue for the Scottish Parliament.     

A Reexamination of the Persistence of Accruals and Cash Flows

We reexamine prior studies' conclusion that accruals are less persistent than cash, focusing on two aspects of persistence that are crucial to determining its properties. The first (time specificity) refers to the fact that persistence describes how current‐period shocks to income translate into next‐period income. Traditional measures of accruals are, however, functions of current‐ and non‐current‐period transactions. We show that the inclusion of non‐current‐period transactions leads to a downward (upward) bias on the persistence of accruals (cash flows). We develop alternative measures of accruals and cash flows that are not misaligned and show that the differential persistence of cash flows over accruals is more than 70% smaller using these measures. The second aspect of persistence is firm‐specificity. Specifically, we evaluate persistence using firm‐specific estimations and find that more than 85% of firms show no evidence that accruals are less persistent than cash flows.     

The dynamics of government

We model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations. We find that redistribution is too persistent relative to that chosen by a planner with commitment. The difference is larger, the lower is the political influence of young agents, the lower is the altruistic concern for future generations, and the lower is risk-aversion. Furthermore, there tends to be too much redistribution in the political equilibrium. Finally, smooth preference aggregation, as under probabilistic voting, produces less persistence and does not admit multiple equilibria, which occur under majority-voting aggregation.