Social class and consumption: employers as a special case

During the last few years it has become popular to argue that the impact of social class on personal consumption and other aspects of social behaviour is declining. This paper has two basic objectives. The first objective is to ascertain the extent of variation in consumption patterns between socio-economic groups, independent of income and type of household. As a number of studies of the class structure show, the long-term decline trend in self-employment outside of agriculture was halted or even reversed in many developed countries in the mid-1970s. However, despite evidence for the ‘new rise’ of the self-employed, and perhaps for reasons connected to the way social science has traditionally viewed it, little research has been conducted so far into the life styles and attitudes of this important group. Consequently, the second objective of this article is to analyse and compare the consumption pattern of the self-employed with that of employees — especially where income levels are the same. The results of this analysis, based on the Finnish household survey, indicate the effect of the socio-economic group is stronger than that of the income group and that the consumption pattern of the self-employed does not diverge greatly from that of the ‘well-off employee group. Nonetheless, the information on the detailed expenditure groups also reveals some interesting differences.     

Does consumption determine social class? On the changing pattern of consumption determination

When the connection between social class (and other socio-economic variables) and personal consumption expenditure is analysed, three basic approaches may be identified: (i) social class has an impact upon personal consumption expenditure; (ii) personal consumption is determined more by the person's way of life or consumption style, i.e. by a known consumption ‘enclave’ (iii) both socio-economic and consumption style variables do not have an impact on personal consumption, or rather, consumption is based on utilitarian considerations and individual matters of taste. This study seeks to show that whichever point of view is correct in any given situation depends upon the consumption item in question. The dependent variable chosen was ‘eating out’ in restaurants. This activity was found to involve different types of selection process. The results of the study, based upon the 1985 Finnish Household Survey of economically active households indicate. as expected, that the degree of relationship between given variables and consumption items depends upon the consumption item in question.     

UNIT COST MODEL FOR THE TIMING OF CAPACITY CHANGE

The optimal capacity expansion time is an essential problem especially in capital intensive industries, and capacity expansion decisions have a great influence on the firm's operations and profitability. It can be said that the timing question is quite complex, and in practice the experience and intuition of the decision-makers have a central role. We can, however, use theoretical models to explain many essential relations and deepen our understanding of the nature of capacity changes. The actual object of this study is to develop a unit cost minimization model for the timing of capacity expansion. The model is based on the costs and capacities of old and new machines, and the arithmetic growth rate of demand. The analytical solution of the model shows that the relative timing of expansion can be presented with cost advantage and capacity change ratios. It is also shown that the analogical model can be used for capacity replacement and cutting. Finally, the model is extended, and it is shown that such timing can be found which minimizes unit costs and maximizes the profit of the planning period. The original contribution of the study is to suggest an alternative evaluation method for the timing of capacity changes and to present an analytical solution to the formulated problem. The presented model is applied to an illustrative case where capacity addition is planned either through expansion or replacement. The suggestion of the model to the case company is that it is preferable to replace the old machine with a bigger one rather than to acquire a totally new machine.     

Food and social class

Food items are very good indicators of cultural differences between classes because the relative cost of food has generally decreased, thus allowing consumers more scope to choose personal food consumption models. The first purpose of this study was to make a comparison of classes and food choice between Britain and Finland. The analysis of Finnish data was conducted in an analogous way with the earlier British study. The results were in line with the findings of the British study: the boundaries between classes have been quite firm and stable from the 1960s to the 1990s. The second purpose of the study was to investigate some developmental trends of food choice on social classes in Finland in comparison with other relevant background variables. This study revealed that in 1990 there were still clear differences between the social classes in food consumption patterns. However, the impact of the socioeconomic group has slightly decreased, when the impact of type of household and the impact of income group is controlled.     

Quantifying Optimal Growth Policy

We determine the optimal growth policy within a comprehensive endogenous growth model. The model accounts for important elements of the tax transfer system and for transitional dynamics. It captures the three main growth engines based on standard ingredients in order to understand the quantitative policy and welfare implications of the existing theory. Our calibrated model indicates that the current policy leads to severe underinvestment in both R&D and physical capital, implying that both R&D and capital investment subsidies should be increased substantially. We argue that previous research has overlooked a strong evidence for the welfare significance of the quest for the optimal growth policy by failing to calibrate the distortionary tax system.     

German Wage Moderation and European Imbalances: Feeding the Global VAR with Theory

German labor market reforms in the 1990s and 2000s are generally believed to have driven the large increase in the dispersion of current account balances in the Euro Area. We investigate this hypothesis quantitatively. We develop a three‐region open economy New Keynesian model with search and matching frictions from which we derive robust sign restrictions for wage bargaining and matching efficiency shocks which we term wage moderation shocks. We impose these restrictions on a Global VAR consisting of Germany and eight EMU countries to identify a wage moderation shock in Germany. Our results show that, although the German current account was significantly affected by wage moderation shocks, their contribution to European current account imbalances was negligible. We conclude that the German labor market reforms cannot be the lone driver of European imbalances.