Profit Sharing,Credit Market Imperfections and Equilibrium Unemployment*

We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options, increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options, this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections—measured by the bargaining power of trade unions—are sufficiently strong and the benefit–replacement ratio is sufficiently high. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.     

Unemployment and Workers' Control

The relationship between democratic workers' control and unemployment is explored. When unemployment arises from labor market distortions, market imperfections, or from information imperfections, labor-managed firms are superior to capitalist firms. The firm's governance and decision making structures then play an instrumental role in the level of unemployment. However, when involuntary unemployment arises from effective demand failures, then workers' control may not be able to maintain or to restore full employment. In such cases, collective and coordinated efforts are needed to reduce the level of involuntary unemployment.     

A sectoral approach to Okun’s Law

The study adds to the existing literature on the relationship between output and unemployment by using a sectoral specification of Okun’s Law to capture the differential sensitivity of the unemployment rate to output developments in the services and manufacturing sectors. Using quarterly data for the period between 2000 and 2012, we show that Malta’s unemployment rate has been more sensitive to output developments in the services sector than to those in the manufacturing sector. We use different equation specifications and the youth unemployment rate to show that the impact resulting from developments in the manufacturing sector occurs mainly via lay-offs while developments in the services sector affect the unemployment rate via the hiring of new entrants into the labour market.     

Asymmetry in Okun's law

Abstract.  In this paper we support the proposition that the output‐unemployment relationship as represented by Okun's law is asymmetric. Okun's coefficients are defined based on a dynamic model that allows for asymmetry in the relationship between cyclical output and unemployment. Using data from the United States for the post‐war period, our results show that the short‐run effects of positive cyclical output on cyclical unemployment are quantitatively different from those of negative ones, and the data are consistent with the proposition that cyclical unemployment is more sensitive to negative than to positive cyclical output. Several theoretical explanations of asymmetry rationalize the findings. JEL Classification: C13, C22, E32     

Revisiting the Okun relationship

Our article revisits the Okun relationship between observed unemployment rates and output gaps. We include in the relationship the effect of labour market institutions as well as age and gender effects. Our empirical analysis is based on 20 OECD countries over the period 1985–2013. We find that the share of temporary workers (which includes a high and rising share of young workers) played a crucial role in explaining changes in the Okun coefficient (the impact of the output gap on the unemployment rate) over time. The Okun coefficient is not only different for young, prime-age and older workers but also it decreases with age. From a policy perspective, it follows that an increase in economic growth will not only have the desired outcome of reducing the overall unemployment rate but it will also have the distributional effect of lowering youth unemployment.     

Credit market imperfections and persistent unemployment

This paper develops the thesis that credit market frictions may be an important contributor to high unemployment in Europe. When a change in the technological regime necessitates the creation of new firms, this can happen relatively rapidly in the U.S. where credit markets function efficiently. In contrast, in Europe, job creation is constrained by credit market imperfections, so unemployment rises and remains high for an extended period. The data show that there has not been slower growth in the most credit dependent industries in Europe relative to the U.S., but the share of employment in these industries is lower than in the U.S. This suggests that although credit market imperfections are unlikely to have been the major cause of the increase in European unemployment, they may have played some role in limiting European employment growth.     

Estimating the relationship between labour market tightness,unemployment insurance benefits and union election activity

Using detailed data from the US National Labor Relations Board, we find labour market tightness, defined as the ratio of job vacancies to the number of unemployed, has a positive relationship with the likelihood of voting in favour of union representation. Specifically, a 1 SD increase in labour market tightness increases Vote Share in favour and the likelihood of union certification by roughly 1.5% and 3%, respectively. We also find that length of unemployment insurance benefits has a positive relationship with Vote Share in favour. Taken together, these results suggest that workers are more comfortable engaging in pro-union election behaviours when exogenous conditions, like labour market tightness and unemployment insurance benefit duration, shift in a way that more favourably insulates them from unemployment and income risk.     

Financial Market Imperfections, Labour Market Imperfections and Business Cycles

A Greenwald–Stiglitz (1993a) style rational expectations business cycle model is introduced in which uncorrelated productivity shocks or monetary shocks generate autocorrelated employment fluctuations due to financial constraints. The propagation mechanism is carefully modelled: because of capital market imperfections (only standard debt contracts are traded), firms' labour demand changes in response to changes in their balance-sheet position; because of labour market imperfections (efficiency wages), employment and unemployment fluctuate in response to shifts in labour demand. The virtue of the model is its simplicity. Despite the fact that unemployment is endogenous, the dynamic behaviour of the model under rational expectations can be characterised analytically.
JEL classification : E 32     

Financial constraints and unemployment equilibrium

The aim of this paper is to show that a robust determination of unemployment equilibria can be based on the integration of credit rationing into a general equilibrium model. We first review some of the Keynesian macroeconomic models. We show that the problems bequeathed by Keynes’ legacy are only partially solved by the strand of the new Keynesian economics based on market imperfections and endogenous rigidities. In order to overcome these problems we refer to credit rationing. In particular, we build a simple general equilibrium model in which prices are–in principle–perfectly flexible and credit rationing implies unemployment equilibria.     

Subsidy competition and imperfect labor markets

This study presents a two‐country model of subsidy competition for manufacturing firms under labor market imperfections. Because subsidies affect the distribution of firms, subsidies influence unemployment rates and welfare in both countries. We show that when labor market frictions are high, subsidy competition is beneficial, although subsidies under subsidy competition are inefficiently high. In the coordinated equilibrium, the supranational authority provides a subsidy to firms that equal the expected total search costs, which increases the number of firms relative to laissez‐faire and improves welfare relative to laissez‐faire and subsidy competition. Finally, we find that a rise in a country's labor market frictions raises the equilibrium subsidy rate, affects unemployment rates, and lowers welfare.     

Product market deregulation and the US employment miracle

We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual bargaining. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980s and 1990s could be directly attributed to product market deregulation. Under our baseline calibration, our results suggest that a decrease of less than two-tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount.     

EMPLOYMENT PROTECTION AND THE NON‐LINEAR RELATIONSHIP BETWEEN THE WAGE‐PRODUCTIVITY GAP AND UNEMPLOYMENT

This paper studies the relationship between the wage‐productivity gap and the unemployment rate in OECD countries between 1985 and 2007. In particular, we investigate whether differences in the employment protection across countries affect the link between these two variables. We show that the elasticity of unemployment with respect to the wage‐productivity gap is non‐linear and that it switches from a positive to a negative value with stricter employment legislation. From a theoretical point of view, we argue that this result is related to a set of labor market reforms introduced in many OECD countries, which affected the relative strictness of institutions.     

Political instability and labour market institutions

This paper investigates the relationship between political instability and labour market institutions. We develop a theoretical model in which political instability creates incentives for a government to introduce labour market regulation in the economy. The distortionary effect of regulation on unemployment effectively puts a constraint on the design of fiscal and public policies. We empirically investigate these predictions using panel data for 21 OECD countries for the period 1985–2006. Our results are consistent with the view that political instability is associated with more regulated labour markets, lower labour taxation, and lower unemployment benefit replacement rates.     

Unemployment and product market competition in a Cournot model with efficiency wages

This paper analyzes the impact of product market competition on unemployment, wage and welfare in a model where unemployment is caused by the efficiency wage consideration and oligopolistic firms compete in quantity. It is shown that while more intense competition in the product market increases output and reduces price, it does not necessarily lead to a lower unemployment rate or a higher wage for workers. Depending on the technologies, the relationship between the intensity of competition and the level of employment (respectively, wage, welfare) is not always monotonic, and, in some instances, has an inverted U‐shape.     

Does the unemployment invariance hypothesis hold for Romania?

This article questions whether the unemployment invariance hypothesis of Layard et al. (2005), which states that movements in labour force do not significantly affect unemployment rates, holds true for Romania. Using quarterly labour force data for the 1996–2012 period, we explore the time-series properties of the two variables. We find that unemployment rates and participation rates have unit roots, and that they are not cointegrated, meaning that no significant long-term relationship exists between them. The analysis carried out on the first differences of unemployment rates and participation rates shows discouraged and added worker effects for Romania’s female labour force. This conclusion diverges from findings that point out to a stable, long-term relationship between unemployment and participation in several developed countries (Japan, Sweden, USA) and shows that Romanian labour market is highly adaptive, where changes in labour force participation do not lead to increases in unemployment. This finding can help model the influence of adverse developments such as ageing and emigration, and show their true impact beyond demographic doom scenarios. It also points out the role played by labour demand in shaping the evolution of the Romanian labour market.     

Downward nominal wage rigidity in Canada: Evidence against a “greasing effect”

The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession. A rise in the inflation target would attenuate the long‐run level of unemployment and hasten economic recovery after an adverse shock. Following Daly and Hobijn (2014), we re‐examine these issues in a model that accounts for precautionary motives in wage‐setting behaviour. We confirm that DNWR generates a long‐run negative relationship between inflation and unemployment, in line with previous contributions to the literature. However, we also find that the increase in the number of people bound by DNWR following a negative demand shock rises with the inflation target, offsetting the beneficial effects a higher inflation target has on closing the unemployment gap. As an implication, contrary to previous contributions that neglected precautionary behaviour, the speed at which unemployment returns back to pre‐crisis levels during recessions is relatively unaffected by variations in the inflation target.     

Keynes,investment, unemployment and expectations

In Keynes’ General Theory, investment determines effective demand, which determines unemployment and the labour market plays a negligible role. In New Keynesian models, labour market institutions determine the natural rate of unemployment and the speed at which unemployment adjusts to it. Investment is mostly ignored as a key variable behind the problem of high unemployment, despite a strong empirical association between investment and unemployment. We discuss the evolution of the ‘Keynesian’ model, and how in the process of domesticating the General Theory, the central relationship between unemployment and investment and the role of the state of confidence was bred out of the model. We then present some evidence of the centrality of investment and expectations to the long‐term evolution of unemployment in OECD countries. We also argue that recent results in finance, which find that individuals do not behave rationally and, moreover, that there may be no basis for rational calculation, provides support for Keynes’s notion that animal spirits play a central role in investment.     

PUBLIC DEBT AND PUBLIC INVESTMENT IN AN ENDOGENOUS GROWTH MODEL WITH REAL WAGE RIGIDITIES

We present an endogenous growth model with public capital, public debt and real wage rigidities due to labor market imperfections. Assuming that the primary surplus relative to gross domestic produce (GDP) is a positive function of the debt to GDP ratio, we study growth and employment effects of deficit‐financed public investment using simulations as well as how fiscal policy affects stability of the economy. Further, we contrast the growth rate and the unemployment rate in the deficit scenario with that of the balanced budget scenario. Finally, we compare our results with those obtained in case of flexible wages and full employment.     

总需求和总供给冲击对我国失业和产出动态关系的影响分析

在我国的失业产出关系中,短期内,总供给冲击是产出波动的主要来源,总需求冲击则是失业波动的主要来源,总需求冲击和总供给冲击共同破坏了产出失业之间反向变化关系,但是总需求冲击的破坏作用更多一些。在长期,总需求冲击对产出没有影响,总供给冲击对产出有显著的正的影响,总需求冲击在长期对失业没有影响,但总供给冲击在长期会对失业产生不利影响,即正的供给冲击的累积影响所带来的产出增加在长期使我国的失业率上升。     

Wage and unemployment: Evidence from online job vacancy data

This paper examines the relationship between labour market conditions and wage dynamics by exploiting a unique dataset of more than one million online job vacancies. We find a weak trade-off between aggregate wage inflation and unemployment. This link becomes more evident when the wage inflation is disaggregated at the sectoral and occupational level. The examination, using vacancy-level data, shows a negative correlation between offered wage and unemployment. The degree of wage elasticity, however, is different across regions and skill segments. Our findings suggest the importance of micro-level data's unique dimensions in examining the wage – unemployment relationship.