Vanishing income redistributions: Keynesian clues about model surprises in the short run

A compact, one-sector version of recent large-scale income distribution models is presented. Different specifications of endogenous and exogenous variables in the model (or assumptions about how it is closed) change its qualitative behavior directly. A ‘Keynesian’ closure in which investment is exogenous and nominal changes in prime cost are passed along into price increases demonstrates relative insensitivity of the functional income distribution to factor prices. An alternative ‘neoclassical’ closure in which investment is endogenous (determined by savings) and output prices are fixed is much more responsive. The large-scale models are closed on Keynesian lines, and also have relatively insensitive functional distributions. If these models adequately describe real economies, causes besides general equilibrium price response must be invoked to explain distributional change.     

Joan Robinson as a teacher

Sraffa's construct, the standard commodity, responds to Ricardo's search for an ‘invariable’ measure of value, since it is a measurement unit invariant to changes in distribution. But Sraffa suggests that there is no ‘counterpart,’ no analogous search or needed construct, for the ‘problem’ of ‘difference’ as distinct from change (‘why two commodities produced by the same quantities of labour are not of the same exchangeable value’). Difference in this sense is crucial to Marx, who distinguishes value and surplus-value from capitalist price and profit in part in order to theorize differences as systematic value transfers. In that effort, Marx repeatedly poses commodities and capitals as ‘aliquot parts’ of the whole, so that profit is a redistributed share of aggregate surplus-value. This paper shows that, when Marx's aliquot part imagery is formalized, the resulting hypothetical system represents a meaningful ‘counterpart,’ a construct with a function in Marx's analysis of difference comparable to that of Sraffa's standard commodity in analyzing distributional change. A Marxian ‘standard system’ posing each commodity as an aliquot part of the social capital (a) defines the needed labor-time unit of social account by homogenizing heterogeneous concrete labors as socially average (‘abstract’) labor while simultaneously (b) allowing the derivation of exchange-value (e.g., capitalist production price) on that scale via summation of directly and indirectly embodied labor. Indeed, Marx's approach to production prices as resulting from an inter-industry redistribution of aggregate surplus-value is shown to be algebraically identical to the calculation of labor-embodied under ‘aliquot part’ production conditions.     

Credit market imperfection,labor supply complementarity,and output volatility

This paper argues that output volatility depends on the degree of credit market imperfection. In the early stages of financial development, agents are constrained in their borrowing ability. As a result, the individual savings, affected by the labor supply, play a dual role in the economy, having repercussions on the interest rate. On the one hand, high savings imply high investment, low marginal product of capital and thus low interest rate. On the other hand, high savings affect the agents' ability to run highly productive investment projects, which increases the interest rate. When the former effect is dominant, a dynamic complementarity between individual and aggregate labor supply arises. This leads to a local and global indeterminacy of equilibrium paths. If the borrowing constraint is relaxed, the complementarity between individual and aggregate labor supply decisions weakens, equilibrium becomes globally unique and the possibility of having aggregate fluctuations in output disappears.     

Impact of Chinese growth and trade on labor in developed countries

This paper examines the impacts of growth in China's economy and trade on the skill premium of labor in developed countries. We utilize a unique global dataset that disaggregates workers by occupations to identify impacts across labor categories with different skill sets, complementing the widely used GTAP Data Base in the CGE framework offered by the GTAP model. To study the impacts of China's fast-paced growth, we model the counterfactual, i.e., what if China grew and opened at a more modest rate; we then compare this baseline with China's actual growth. Results indicate that a strong rise in manufacturing exports from China to the US impacts output and employment in the US. The US shifts its production away from light manufacturing sectors to more service-oriented sectors that also tend to engage higher skilled labor. There is a small decrease in the real wages of unskilled labor and a rise in the real wages of skilled labor. Interestingly, not all categories of unskilled labor lose, rather those that are more directly linked with manufacturing sectors are impacted; unskilled ‘service and shop workers’ and the unskilled ‘agricultural workers, machine operators, assemblers, craft workers, and others’ observe a small decline in real wages, while the impact on unskilled ‘clerks’ is insignificant. For all categories of skilled workers, there is an increase in real wages primarily driven by the shift in production to services and high-skilled labor intensive categories, resulting in the rising skill premium. Hence disaggregating the labor data provides greater depth on the understanding of the differential impacts on domestic workers resulting from trade, and thereby guides policy on how these differential impacts can be smoothed through redistribution of benefits. Consistent with other study findings, there is a positive impact on overall growth and welfare in the US, EU and Australasia.     

Currency diversification and export competitiveness: A model of the ‘Dutch disease’ in Egypt

The paper presents a dynamic portfolio model under currency inconvertibility which rationalizes the recent Egyptian experience of real exchange rate appreciation and currency diversification following the increase in oil exports and the partial financial liberalization that took place after 1976. The two shocks are linked because the relative price of manufacturing exports in terms of oil is also the premium of the ‘gray’ market rate over the official exchange rate. The effects of various official exchange rate policies on the temporary equilibrium values of the premium and the real wage and on the steady-state values of asset stocks are examined. A review of the Egyptian experience in light of the model results suggests that the unification of 1979 was ineffective against this variant of the ‘Dutch disease’ but that the restoration in 1981 of a parallel rate closer to the ‘gray’ market rate applicable to competitive exports may be more effective.     

Relative importance of sectoral and aggregate sources of price changes

This paper estimates a dynamic common factor model to assess relative importance of the aggregate and the sector-specific factors that determine changes in the prices of individual products. It also examines how aggregate price changes are affected by these factors. Two different specifications of the model are estimated: the baseline model with one aggregate factor, and a second specification with two aggregate factors. In the one-actor model, the aggregate factor contributes little to the movements of changes in prices, mostly of nondurable goods whereas it seems to have important contributions to the movements of changes in prices of commodity groups mainly used as intermediate or capital goods. In the specification with two aggregate factors, the additional factor has significant effects on changes in prices of ‘farm products’ and ‘processed foods and feeds’ only. Forecast-error variance decompositions of both aggregate and disaggregate price changes suggest that sectoral factors account for most of the variability at short horizons while the contributions of the aggregate factors increase as the time horizon lengthens. The results also show that sectoral factors are not only important for relative price changes but also have significant impact on aggregate inflation. The estimated common factors have statistically significant correlations with money growth and changes in the unemployment rate.     

The French Revolution and the Creation of Benthamism

Abstract

The article investigates Knut Wicksell's interpretation of aggregate economic fluctuations. It is shown that Wicksell described the business cycle as oscillations of an economy with increasing population and scarce natural resources around its steady growth path ('dynamic equilibrium'), provoked by sporadic technological progress. The ‘shocks’ bring about a wave‐like motion because of psychological and technical lags in the economic structure. Wicksell's suggestion that excess net savings in the depression take the form of stocks of commodities is compared to his contemporaries’ answers to the question ‘What happens to savings during the depression?’ The article also puts forward a relatively neglected connection between Malthus’ and Wicksell's notions of over‐production. Divergences between the natural and market rates of interest — essential to his better‐known ‘cumulative process’ ‐ are not a necessary part of Wicksell's business cycle, but they are important to explain why the upper turning‐point can have the nature of a crisis, which results from wrong expectations induced by cumulative price movements.     

Trade,Wages, and Specific Factors*

In this paper, we use a multisector specific‐factors model with sector‐specific capital and two mobile factors, skilled and unskilled labor, to examine the effects of trade, technology, and factor endowments on the skill premium in US manufacturing industries. Based on this model and data for the US manufacturing sector from 1958–96, we calculate changes in the skill premium and then carry out a decomposition to identify the changes caused by product price changes (trade), technological progress, labor, and capital endowment changes. The decomposition reveals that trade effects, working through product price changes, caused the skill premium to increase moderately. Changes in capital endowments (new investments) had a positive effect on the skill premium, with the strongest impact during the 1980s, while the effect of technological change on the skill premium varied over time. Finally, changes in relative labor endowments had a negative effect on the skill premium.     

一般均衡理论的价值基础

现代西方主流经济学中的一般均衡理论缺乏应有的价值基础。近年来试图建立马克思主义的一般均衡理论的努力也一直未能成功。然而,根据马克思的劳动价值论可以证明,在假定社会总产品的价格总量等于价值总量、平均利润总量等于剩余价值总量的条件下,必然有且仅有一个恰好等于相应价值向量的一般均衡价格向量。这意味着,一般均衡理论完全可以建立在劳动价值论的基础之上。本文首先根据马克思关于两大部类社会总产品构成的理论,建立包括技术关系在内的价值体系和相应的价格体系,其次说明在价格体系中存在有无穷多的一般均衡价格向量,最后从无穷多的一般均衡价格向量中确定一个"标准"的价格向量,并证明这个标准价格向量必然等于相应的价值向量。     

The price premium of generic to brand-names and pharmaceutical price index

The price premium of generic pharmaceuticals to brand-names is examined under different competitive market situations. The result of this study shows that the number, market share, and the age of both brand-name and generic products have the most explanatory power for explaining the price premium. This study further applies this method to a pharmaceutical price index in order to explain ‘Drug Price Index Perplexities.’     

Observed expectations,news shocks,and the business cycle

This paper exploits information from the term structure of survey expectations to identify news shocks in a DSGE model with rational expectations.We estimate a structural business-cycle model with price and wage stickiness. We allow for both unanticipated and anticipated components (“news”) in each structural disturbance: neutral and investment-specific technology shocks, government spending shocks, risk premium, price and wage markup shocks, and monetary policy shocks.We show that the estimation of a standard DSGE model with realized data obfuscates the identification of news shocks and yields weakly or non-identified parameters pertaining to such shocks. The identification of news shocks greatly improves when we re-estimate the model using data on observed expectations regarding future output, consumption, investment, government spending, inflation, and interest rates - at horizons ranging from one-period to five-periods ahead.The news series thus obtained largely differ from their counterparts that are estimated using only data on realized variables. Moreover, the results suggest that the identified news shocks explain a sizable portion of aggregate fluctuations. News about investment-specific technology and risk premium shocks play the largest role, followed by news about labor supply (wage markup) and monetary policy.     

The problem of the uninsured

The problem of the uninsured cannot be fully understood without considering the role of non-market alternatives to ‘market insurance’ called ‘self-insurance’ and ‘self-protection’ (SISP), including the public ‘health care safety-net’ system. We tackle the problem by formulating a ‘full-insurance’ paradigm that accounts for all four interacting insurance measures. We apply two versions of the full-insurance model to estimate, via calibrated simulations, the impacts of SISP on the fraction of uninsured, health spending, and health levels, and to assess how the mandated Affordable Care Act might affect these outcomes in comparison with the CBO projections in 2010. The results indicate that policy analyses which overlook the role of the real price of market insurance relative to the shadow prices of SISP in determining the decision to insure can grossly distort the capacity of mandated reforms like the ACA to insure the uninsured, contain overall health care costs, and improve health and welfare outcomes.     

CAN FINANCING CONSTRAINTS EXPLAIN THE ASSET PRICING PUZZLES IN PRODUCTION ECONOMIES?*

General Equilibrium asset pricing models have a difficult time simultaneously delivering a sizable equity premium, a low and counter cyclical real risk free rate, and cyclical variation in return volatility. To explain these stylized facts, this article introduces occasionally binding financing constraints that impede producers’ ability to invest. The financial frictions drive a wedge between the marginal rate of substitution and firms’ internal stochastic discount factors so that the shadow value of capital is not tied to the average price of capital. The model delivers higher and more volatile asset returns during recessions as well as a counter cyclical equity premium.     

Wage inequality,segregation by skill and the price of capital in an assignment model

Some pieces of empirical evidence suggest that in the U.S., from the 1970s to the 1990s, (i) wage inequality between-plants rose much more than wage inequality within-plants and (ii) there was an increase in the segregation of workers by skill into separate plants. This paper presents a frictionless assignment model in which these two features can be explained simultaneously as the result of the decline in the relative price of capital. Additional implications of the model regarding the skill premium and the dispersion in labor productivity across plants are also consistent with the empirical evidence. The model permits to consider changes in the skill distribution too. Combining these changes with falling capital prices provides a more comprehensive view of the overall trend of wage inequality and of workers' segregation by skill in the data, and it helps explaining some episodes of decreasing wage inequality.     

The optimal rate of decline of an inefficient industry

This paper considers the problem of the optimal time path of contraction of an industry which has been hit by foreign competition, and shows that in general, along the optimal path, a production subsidy is warranted. The optimal subsidy trades off the benefit of unemployment in speeding up the approach to the new long-run equilibrium against the cost of lost output in the ‘inefficient’ industry. The dynamic shadow price of labour in this industry is also derived and shown to be always positive, though below the industry wage rate.     

A decomposition of the Harberger expression for tax incidence

In this paper we propose a decomposition of the Harberger expression for the incidence of the corporate income tax into ‘commodity price distortion’ and ‘factor price distortion’ effects. By applying Harberger's estimates of the parameters for the U.S. economy, we will demonstrate that the factor price distortion effect, which has an extremely simple formal expression, explains 115 percent of the total effect of the tax change on the rate of return. This suggests that the commodity price distortion effect may be relatively unimportant in explaining the tax incidence. The difference between our two effects and Mieszkowski's (1967) output and factor substitution effects is also noted.     

INCOME,CONSUMPTION AND SAVING IN URBAN AND RURAL INDIA*

The main purpose of the study is to determine the savings potential of urban and rural households in India and in the process determine the possible savings and consumption functions separately for urban and rural areas. Four different possible functions have been used for determining the savings behaviour of the households both at the aggregate level and at the per capita level. The rural households, according to the results, have an extremely low rate of saving with income elasticity of saving of less than unity. For the urban households on the other hand, the income elasticity of saving is high enough to suggest the possibilities of considerably high savings potential. To understand the consumption behaviour of these households, the long-run and the short-run marginal propensities to consume and the marginal propensities to consume out of‘permanent’ or ‘normal’ income and ‘transitory’ income have been worked out. For the urban sector none of these give encouraging enough results and the analysis has been extended to examine whether other factors like prices and household assets are of any significance. Whereas for the rural sector, Milton Friedman's theory of ‘permanent’ or ‘normal’ income is somewhat substantiated, other factors like ‘transitory’ income, prices and assets appear to inthence urban consumption behaviour though no single one of them substantially enough. A negligible effect of ‘permanent’ income on urban consumption behaviour is, on the other hand, very clearly suggested by the results. Household consumption and savings have next been projected using the above results to determine the possible levels for the next three years. The results suggest that the rate of domestic savings likely to be achieved by the end of the Third Five Year Plan (1965–66) falls short of the targets laid down.     

Wage and price differences,technology gap and labor flow dynamics

The relationship between wage difference and relative employment is a very important issue in the field of economic structural change. An M-sector economic growth model is constructed in this paper to investigate the relationship between wage difference, price difference, technology gap, relative employment and sectoral dynamic change from the perspective of technologies. Labor flow is regarded as a decision-making behavior to maximize the benefits of economic agents. The benefits of labor flow mainly come from sectoral wage difference, and the costs of labor flow mainly come from the social resource expenditure during labor flow process. Our model illustrates that: (i) the relative employment is positively correlated with the real wage difference and technology gap; (ii) the sectoral dynamic changes coexist with the aggregate economic growth; (iii) increases in technology gap, and price and wage differences will stimulate labor migration, exacerbate the unbalanced growth of sectoral economies, and lead to faster and more effective aggregate economic growth.     

When is market incompleteness irrelevant for the price of aggregate risk (and when is it not)?

In a standard incomplete markets model with a continuum of households that have constant relative risk aversion (CRRA) preferences, the absence of insurance markets for idiosyncratic labor income risk has no effect on the premium for aggregate risk if the distribution of idiosyncratic risk is independent of aggregate shocks and aggregate consumption growth is independent over time. In equilibrium, households only use the stock market to smooth consumption; the bond market is inoperative. Furthermore, the cross-sectional distributions of wealth and consumption are not affected by aggregate shocks. These results hold regardless of the persistence of idiosyncratic shocks, even when households face tight solvency constraints. A weaker irrelevance result survives when we allow for predictability in aggregate consumption growth.