Cobdenism for the 1980s

The lessons of the 19th century have been ignored. Professor Castorina, author of a perceptive doctoral thesis on Richard Cobden, in book form as Richard Cobden and Manchester Economists, assesses his insights and their profound impact on the liberating economic expansion of his age. She also indicates his importance for our day.     

Outsourcing of Services and the Productivity Recovery in U.S. Manufacturing in the 1980s and 1990s

Manufacturing productivity growth recovered during the 1980s and 1990s, while other sectors, particularly services, did not. In the same period U.S. manufacturing has engaged in the “outsourcing” or “contracting-out” of service functions. Has the recovery of manufacturing been accomplished by industrial reorganization--sloughing off sluggish services--rather than technical progress? We analyze this question by reducing service inputs to their consituent elements of material inputs. Service productivity growth is thus imputed to the goods sectors, reducing the recovery of manufacturing productivity growth in the 1980s by one fifth. The recovery lasted through the 1990s, when high productivity performers in manufacturing have been relatively successful at outsourcing sluggishservices.

     

Discrimination,technology and unemployment

I study the interaction between discrimination and investment using a directed search model where firms decide the capital intensity of their production technologies before being matched. Discrimination makes some workers cheap to hire. As a consequence, some firms might save on capital costs adopting labour intensive technologies. This framework allows one to reconcile search models with three well-known facts regarding the labour market outcomes of minority workers: low wages, high unemployment and occupational segregation. Furthermore, the model questions the role of equal pay legislation in reducing inequality since removing this restriction, i.e., allowing firms to post type-contingent wages, eliminates the negative effects of discrimination on investment and wages.     

Income Inequality in Large U.S. Cities in the 1980s

Per capita personal income among states and regions has been shown to diverge during the 1980s following a long trend of income convergence. This paper investigates the divergence of income using median family income in the 1980s for the largest 51 U.S. cities. Producer services earnings and manufacturing earnings as a percent of total earnings are also investigated to shed light on income divergence. It is found that income and producer services earnings diverged in the 1980s unlike manufacturing earnings which converged. Convergence among regions for household income is also investigated. The results substantiate the common view of trends toward convergence prior to the 1980s and divergence thereafter.     

The short-run impact of the stock market appreciation of the 1980s and 1990s on U.S. income inequality

The paper uses 1980 to 2000 Panel Study of Income Dynamics (PSID) data to study the short-run effect of a stock market appreciation on U.S. household income inequality. Fixed-effects regressions suggest that a stock market appreciation raises the incomes of stockholder households more than non-stockholder households. The Gini coefficients derived from the regressions reveal a perceptible but rather volatile increase that can be attributed to the stock market appreciation, especially for the latter parts of the 1980s and 1990s. When averaged by decade, the stock market appreciation raises the Gini coefficient by about 2% for the 1980s and by 3% for the 1990s.     

Earnings-related unemployment benefits and unemployment

We show that a stronger earnings relationship of unemployment compensation reduces wages and increases employment in an economy in which wages are determined by a trade union that maximises the rent from unionisation. The opposite result applies for a utilitarian union. Using manufacturing and non-manufacturing data for 16 OECD countries, estimates suggest that a 10% increase in the earnings relationship is associated with a 1.9% fall in manufacturing wages, a 0.6% reduction in non-manufacturing wages and a 7.3% reduction in unemployment.     

Growth,unemployment and heterogeneity

The paper analyzes unemployment in a medium-run growth model, where aggregate demand and supply interact, using a top-down approach. The aim of the essay is the study of a nonlinear system where both aggregate demand and supply are endogenous and generate bounded unemployment, followed by a methodological effort direct to identify possible lines of convergence with the agent based models (ABM) approach. This is a by-product of the presence of heterogeneity in the model. Heterogeneity acts through two different channels and operates among class of agents: it comes into the aggregate consumption function where households are assumed employed or unemployed; it changes the learning process of pessimists and optimists. The analysis is carried on through simulations. The resulting system is fairly stable to changes in main structural parameters. On one hand, autonomous demand drives the dynamics of the system, while heterogeneity in the consumption function, due to the presence of unemployment, strengthens the links with supply aspects. On the other hand, both the rate of growth of labor productivity and labor supply are endogenous. Two major results are obtained. First, unemployment allows the so called Harrodian reconciliation between aggregate demand and supply. Second, unemployment remains bounded meaning that the interaction between aggregate demand and supply thwarts instability. These results are in keeping with those obtained by means of a bottom-up approach, typical of ABM. Possible explanations and implications of this convergence are put forward and open the venue to further deepening of complementarities among the two modeling strategies.

     

EDITORIAL: The economy,unemployment and industrial relations.

In analysing and criticising current UK economic strategy Brian Towers comments that the present level of mass unemployment is the most serious economic, social and political problem to face the developed countries—and with devastating consequences for the Third World—since the end of the Second World War. Yet a large part of the explanation for the deepening recession lies in the policies of individual states with support from several international economic organisations, notably the IMF.     

Migration,unemployment dispersion and the Phillips curve

Policy-makers have long known that the complexity of the labor market creates the potential for a wide variety of strategies to be utilized to improve the ‘wage inflation-unemployment’ trade-off. This research assesses the potential effect of two unemployment-reducing strategies — reducing the dispersion of unemployment rates and increasing labor-force migration. The results of the regression analysis suggest that an approach which encourages labor-force migration would be more efficient than the present shot-gun approach of CETA and other manpower programs. Cost estimates also suggest that it is more expensive to improve the Phillips curve through employment expanding expenditures than it is to improve the curve through migration inducement.     

Trade, migration and regional unemployment

A by now large literature in regional economics has greatly improved our understanding of the determinants of the observed spatial disparities in productivity. However, this literature neglects what seems to be a robust and persistent fact accompanying regional productivity differences: high productivity regions also have lower unemployment than low productivity regions. In this paper, we set out a model in the New Economic Geography (NEG)/job search tradition to explore the theoretical determinants of this fact. We find that the same forces producing regional agglomeration and productivity differences also generate persistent unemployment disparities. Moreover, we highlight a contrast between the short-run and long-run effects of migration on regional unemployment. In particular, migration from the periphery to the core may reduce unemployment disparities in the short-run, but exacerbates them in the long-run.     

minimum wage, maximum unemployment

The Minimum Wage is now a controversial part of the political debate in the run-up to the General Election. Martin Summers, a research associate of the Institute of Economic Affairs, reviews the evidence of how the minimum wage has worked in other countries and concludes that the creation of unemployment is almost the least of the evils it causes.     

Wage bargaining,union membership,and the organization of unemployment insurance

The paper offers a theoretical analysis of a labor market institution known as the Gent system, which is a system where unions run unemployment insurance (UI) through government-subsidized UI funds. This system is practiced in four Nordic countries with comparatively very high unionization rates. The analysis shows that the Gent system is more conducive to unionization than a compulsory UI system if the Gent system is heavily subsidized by the government or if workers are strongly risk averse. Moreover, a rise in the share of benefits financed by union members is likely to reduce wages as well as union membership.