Dress to impress: Brands as status symbols

We analyzed the market for indivisible, pure status goods. Firms produce and sell different brands of pure status goods to a population that is willing to signal individual abilities to potential matches in another population. Individual status is determined by the most expensive status good one has. There is a stratified equilibrium with a finite number of brands. Under constant tax rates, a monopoly sells different brands to social classes of equal measure, while in contestable markets, social classes have decreasing measures. Under optimal taxation, contestable markets have progressive tax rates, while a monopoly faces an adequate flat tax rate to all brands. In contrast with extant literature, subsidies may be socially optimal, depending on the parameters, in both market structures.     

Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity

We introduce search unemployment into Melitz's trade model. Firms' monopoly power on product markets leads to strategic wage bargaining. Solving for the symmetric equilibrium we show that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves average productivity. We show that this condition is likely to be met by a reduction in variable trade costs or by entry of new trading countries. Calibrating the model shows that the long-run impact of trade openness on the rate of unemployment is negative and quantitatively significant.     

Inflation Adjustment and Labour Market Structures: Evidence from a Multi‐country Study*

The impact of labour market structures on the response of inflation to macroeconomic shocks is analysed empirically. Results based on a 20‐country panel show that if labour market coordination is high, the effect on inflation of movements in unemployment, import prices, tax rates and productivity is dampened, both on impact and dynamically. In contrast, monopoly power in labour supply, measured by the percentage unionisation of the workforce, appears to amplify the response of inflation to its reduced‐form determinants. These findings are attributed to the behaviour of wages following movements in demand‐ and supply‐side conditions.     

Vertically Differentiated Monopoly with a Positional Good

We analyse positional effects in a monopoly market with vertical differentiation, comparing monopoly and social planning. The provision of quality under monopoly depends upon the relative size of positional effects and the hedonic evaluation of quality. An elitarian equilibrium where quality increases in the level of positional concern emerges under monopoly, only if the market is sufficiently rich. Under social planning, quality increases in the level of positional externality, independently of market affluency. As long as partial market coverage obtains under both regimes, the monopoly deadweight loss decreases as the positional externality becomes more relevant.     

Welfare Effects of Price Integration in Local Public Transport

Abstract ** :  In metropolitan areas collective transport is often supplied by many firms and in many modes. The paper focusses on the merging of decisions about prices in two market regimes: monopoly and benevolent regulation through Ramsey pricing. The results confirm that centralization entails efficiency gains under monopoly whenever a unique supplier substitutes many firms serving each link of a network. Under benevolent regulation, instead, centralization entails efficiency gains only under certain conditions. Moreover, efficiency improvements under Ramsey pricing involve the introduction of cross subsidies among previous regulatory jurisdictions. Hence some users gain while others lose. Both the theoretical and empirical literature suggest that periphery residents are the main beneficiaries of centralization .     

The role of the wage-productivity gap in economic activity

This paper argues that wages lagging behind productivity is a long-run structural phenomenon due to the interplay of wage dynamics and productivity growth. We call this interplay frictional growth, a term that can only be nullified in the utopian case of zero growth and/or no dynamics. In that vein, we challenge the prevailing view of the neutrality of the labour income share and investigate its impact on the evolution of employment. We thus estimate wage setting and labour demand equation systems – for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960–2008 period – and find that the labour share is negatively associated with employment even when the conventional assumption of a unitary long-run elasticity of wages with respect to productivity holds. Acknowledging the presence of the wage-productivity gap in both the short and long run, this work stands as the building block for assessing the effect of the falling labour share on economic activity. As recent work has shown that the widening wage gap is also an important factor prompting inequality, it can be argued that by supporting employment the falling labour share ‘sweetens’ the impact of rising income inequality, and, as such, deserves the attention of policy makers.     

The London Business School econometric model of the UK

This paper describes the London Business School econometric model — the first fully computerized model of the UK — which has been used for regular public forecasting since 1966. The model, estimated on quarterly data, is organized around the income expenditure accounts with a fully integrated flow of funds sector which ensures consistency between portfolio decisions and income, savings and investment decisions. Aggregate demand is built up from its individual components so that demand influences are important for the short- and medium-term behaviour of the model. But there are important supply-side effects which work through the real exchange rate and real wages. Monetary conditions have a powerfull effect on the model through the exchange rate, personal sector wealth and interest rates. Wages and employment are determined in a labour market in which employment decisions depend on the level of demand and real wages while real wages depend on the level of unemployment, real benefits and direct and indirect taxes as well as underlying trends in productivity. Asset prices move in any period to clear both the spot and the future market in assets so that current asset prices in the equity, gilt-edged and foreign exchange markets reflect all current information about the expected state of the economy. In contrast, goods prices adjust sluggishly. The combination of continuously clearing asset markets and sluggish wages and prices gives the model many of the theoretical characteristics associated with the open-economy models of Dornbusch and Buiter and Miller.     

Market Size and Economic Integration when Labor Markets are Unionized

The paper explores the effects of economic integration on trade, wages, and welfare when market sizes differ. A duopoly model with two‐way intraindustry trade in similar products and with unionized labor markets is employed. It is confirmed that, for a wide range of different relative market sizes, integration leads to higher wages, employment, and welfare. However, where market sizes differ widely, the reduction of trade barriers leads to a reduction of wages, employment, and—in some circumstances—welfare in the country with the large market.     

Core Labor Standards and Competitiveness: Implications for Global Trade Policy

One of the principal arguments for inclusion of core labor standards in the WTO is that weak labor standards provide an illegitimate boost to competitiveness and may result in a "race to the bottom" in labor standards worldwide. This paper shows that, if the violation of labor standards results from discrimination against particular workers in export industries, employment, output, and competitiveness will be reduced since employment is determined by the short side of the market. If the problems arise from abuse of market power by employers, competitiveness will be similarly reduced. Only if freedom of association and collective bargaining were intended to allow workers in some sectors to restrict output and drive up wages would the absence of these standards raise competitiveness. However, if product markets are competitive, it is likely that association rights would increase output and competitiveness by raising productivity. The competitiveness argument seems either to reflect analytical confusion or to represent a cover for protectionist interests.     

Effort and wages: Evidence from the payroll tax

I show that under a canonical efficiency-wage model, a per capita employment tax levied on the employer raises the wage. In contrast, under market clearing, wages fall regardless of whether effort is contractible. I examine the effect of increases in the earnings base for the payroll tax in the United States on wages of high-wage workers for whom the change represents an increase in a per capita tax. In most specifications, the results suggest that wages rose, consistent with the efficiency-wage model, but they are generally too imprecise to rule out large effects of wages on non-contractible productivity that are insufficient to prevent market clearing. Provided labour demand is inelastic, the results are inconsistent with a model of contractible effort.     

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     

中国银行业高利润的来源:市场势力还是高效率

中国银行业的高利润究竟来源于行政垄断保护下的市场势力溢价,还是应对未来金融开放环境下的激烈竞争进行改革带来经营效率的提高,抑或是整体经济稳定增长的结果?通过对银行业系统市场势力和经营效率测度发现,银行业整体存在着较高的系统性市场势力溢价,且规模弹性小于1;银行业整体效率低下,全要素生产率平均增长为负值;银行业的高利润主要来源于行政垄断造成的行业系统性市场势力,而非因改革带来的效率提高,GDP的增长一定程度上促成了银行业的高利润。     

The trade-off between real wages and employment in an open economy (Belgium)

The purpose of this paper is twofold. First, we discuss the nature and quantitative order of magnitude of the trade-off between real wages and employment in the small open economy Belgium. Second, we draw policy conclusions from our positive analysis, and compare income policies with alternative approaches to employment stimulation (including shorter working hours and currency depreciation).To study the trade-off between real wages and employment, we treat external balance as a binding constraint on demand management. An exogenous increase in real wages, affecting adversely the competitiveness of domestic producers on the export and import markets, impairs external balance. The impact of the wage increase on output and employment is evaluated through the reduction in domestic demand required to restore external balance.At the empirical level, we endeavour to evaluate separately the influence on exports and imports of domestic costs at unchanged capacity levels, and of capacity levels themselves. And we endeavour to evaluate the influence of real wages on capacity levels through scrapping and investment. All evaluations rely on the foreign trade equations of econometric models of the Belgian economy.The conclusions from our empirical investigation are first that estimates of the trade-off between real wages and employment in Belgium are subject to considerable imprecision; second that the short-run elasticity of employment with respect to real wages keeping capacity constant is probably quite small (like -0.2), and definitely less than unity in absolute value; third that the corresponding medium-run elasticity taking into account capacity adjustments is probably sizeable (like -2), and definitely larger than unity in absolute value; and fourth that exchange rate adjustments might not make too much difference, in either the short run or the medium run.Turning to a discussion of policy, we shall argue that these conclusions give support to a policy of constant real labour incomes, of comprehensive efforts to redistribute work through shorter working hours or related schemes, and of selective efforts to slow down capacity scrapping.     

LABOR MARKET EQUILIBRIUM WITH REHIRING

Consistent with the empirical evidence, this article analyzes a labor market in which separations are not permanent and reactivated firms prefer to rehire former employees instead of seek new ones. Workers engage in job search due to the uncertain prospects of rehiring. If firms can commit to wages contingent on rehiring, they backload wages to provide incentives for workers to reduce their unobservable search effort. Under risk aversion and incomplete markets, if productivity at reactivation is sufficiently high, the tension between wage backloading and consumption smoothing leads to excessive search in equilibrium.     

Oligopoly equilibria in electricity contract markets

This paper examines the implications of forward contracting on oligopoly environments by extending the model of Allaz and Vila to an environment with multiple firms and increasing marginal cost. Estimates of key parameters of this model are taken from existing electricity markets to predict the market impact of one round of public contracting, such as those seen in auctions for retail provision and resource procurement. The results imply that, when forward contracts are present, the importance of supplier concentration is greatly magnified relative to other determinants unilateral market power such as demand elasticity.      

What are the determinants of hiring? The importance of product market demand and search frictions

In this article, we study the importance of product market demand and search frictions for hiring. We use a search-matching model with imperfect competition in the product market to derive an equation for total hiring in a local labour market, and estimate it on Swedish panel data. If product markets are imperfectly competitive, product demand shocks should have a direct effect on employment for given levels of prices and wages. Our main finding is that product demand has such a direct effect on hiring. This highlights the importance of taking imperfect competition in the product market into account in studies of employment dynamics and hiring. We also find that, for given levels of prices, wages, and product demand, the number of unemployed workers in a local labour market has a positive effect on hiring, suggesting that search frictions matter. Quantitatively, product demand shocks seem to be more important for understanding the variation in hiring than shocks to the number of unemployed workers.     

Quantitative Trade Restrictions in Unionized Economies

This paper models the interactions of a labor union and a monopoly firm under an import quota in a small open economy. The distorted equilibrium is depicted in a diagram, in which wages and employment in both sectors, and the monopoly rent, can be identified. The imposition of an import quota in the unionized sector reduces monopoly rent, union employment, and wages in both sectors, compared with the case of autarky. In addition, the paper presents several surprising comparative statics results. For instance, an increase in the world price causes the protected (i.e., "wrong") sector to shrink, wages to decrease, and national income to rise if the initial world price is low.     

Involuntary unemployment,macroeconomic policy,and a behavioral model of the firm: Why high real wages need not cause high unemployment

The perspective of modern macroeconomic theory, be it new classical or old and new Keynesian, is that unemployment can be reduced only if real wages are cut. The modern Keynesians, basing themselves upon the microfoundations of efficiency wage theory, argue that real wages cannot and will not be cut by firms for efficiency wage reasons. This generates involuntary unemployment based on a market coordination problem. A behavioral model that contrasts with efficiency wage theory is presented here which suggests that reducing real wages need not affect the marginal cost of labor and, therefore, the number of individuals employed. In the behavioral model, wherein there exists some linearity in the relationship between real wages and working conditions and labor productivity, a lower real wage rate is not a necessary condition for reducing the unemployment rate nor is a higher real wage an obstacle to reducing it. In this scenario, unemployment, to the extent that it is demand-side induced, is not related to movements in real wages. Therefore, restoring full employment after a negative demand shock becomes a matter for demand management, not demand management that must be coordinated with measures designed to reduce real wages.     

Wages and Employment in China''s SOEs, 1980–1994: Corporatization, Market Development, and Insider Forces

Using firm-level panel data, we evaluate the importance of reform measures, market development, and insider forces in wage and employment determination in China's state sector. Initial output per worker is positively correlated with change in employment, and market wages are significantly associated with firm employment and wages in the later period. Both indicate development of the labor markets. Corporatization lowered wages by 11 to 15% and improved productivity by 6%. Finally, we find evidence that labor markets for managers and engineers have been developed more than those for production workers and that wage premiums for college graduates have increased dramatically since the late 1980's. J. Comp. Econom., December 1999, 27(4), pp. 702–729. IRIS, University of Maryland, College Park, Maryland 20742.