Specification and estimation of a dynamic disequilibrium model

A disequilibrium model is considered, in which unsatisfied demand or supply in any given period carries over into the next period. An estimation procedure based on a LIML approach is then suggested.     

A conditional least squares estimation procedure for a disequilibrium market model with autocorrelated errors

Maximum likelihood estimation of parameters in a market disequilibrium model with unknown sample separation and autocorrelated errors is computationally intractable [Quandt (1981) and Lee (1984)]. This paper presents a computationally convenient conditional least squares procedure for estimation of parameters in this model.     

Segmented labour markets and the estimation of wage functions

This paper uses a stratified random sample of private sector employees to estimate wage equations for both the male labour market as a whole and six ‘segments’ of the labour market, segement which are defined with respect to the industry and size characteristics of the employing establishmen. Highly conventional results are obtained when wage equations are estimated for the male labour market as a whole, or within two segements, comprising almost half the survey population. However, one can reject conclusively the hypothesis that the same estimating equation is appropriate for modelling wage determination in all segments and if a ‘human capital’ (HK) model is, within segements, tested against more appropriate alternative hypotheses for wage determination using the Davidson and Mackinnon (1981) methodology for the testing of non-nested hypotheses, the conclusion is that one should reject the HK specification and not reject the alternative.

It is therefore argued that the disaggregation of labour market data reveals differences in the wage determination process that are not consistent with the view that labour markets are ‘dualistic’ but are consistent with the view that are segmented.     

The inflationary bias of real uncertainty and the harmonic Fisher equation

Summary. We argue that real uncertainty itself causes long-run nominal inflation. Consider an infinite horizon cash-in-advance economy with a representative agent and real uncertainty, modeled by independent, identically distributed endowments. Suppose the central bank fixes the nominal rate of interest. We show that the equilibrium long-run rate of inflation is strictly higher, on almost every path of endowment realizations, than it would be if the endowments were constant.Indeed, we present an explicit formula for the long-run rate of inflation, based on the famous Fisher equation. The Fisher equation says the short-run rate of inflation should equal the nominal rate of interest less the real rate of interest. The long-run Fisher equation for our stochastic economy is similar, but with the rate of inflation replaced by the harmonic mean of the growth rate of money.Received: 25 February 2005, Revised: 26 May 2005, JEL Classification Numbers: C7, C73, D81, E41, E58.An earlier version of this paper “Inflationary Bias in a Simple Stochastic Economy,” as a 2001 Cowles Foundation Discussion Paper No. 1333.     

The British labor market in disequilibrium: Did the dole reduce employment in interwar Britain?

In this paper we estimate an econometric model of the labor market in interwar Britain. We reject the hypothesis that wages adjust sufficiently speedily to clear the labor market in each year in favor of a disequilibrium model in which the level of employment is determined by the lesser of labor demand or supply. We find that the level of unemployment benefits is a key determinant of labor supply. We estimate that a reduction in benefits to approximately half the 1925-38 average would have resulted in an increase in employment of between eight and twelve percent.     

On the consequences of trend for simultaneous equation estimation

It is shown that the presence of trend in the exogenous variables violates some standard assumptions that govern large sample asymptotics in simultaneous equations, and that contrary to the standard analysis Ordinary Least Squares may be consistent with trended data. Necessary and sufficient conditions are derived for this to happen, and in case of consistency the asymptotic distributions for a wide class of k-class estimators are shown to be identical.     

Devaluation: Keynesian trade models and the monetary approach: The role of nominal and real wage rigidity

Labor market assumptions provide the crucial ingredients by which we distinguish between a Keynesian and a classical monetary trade model (monetary approach). Domestic and foreign goods are perfect substitutes and the law of one price holds. This minimal model should be appreciated as an income-cum-price specie flow mechanism although the long-run equilibrating process is not discussed in any detail. The paper stresses the interplay between demand pull and cost-push factors as a result of exchange rate changes.     

Towards applied geographical economics: modelling relative wage rates,incomes and prices for the regions of Great Britain

One of the key issues surrounding geographical economics is whether the theory can be made operational, so that proper investigations can be made of the basic theoretical assumptions and practical use can be made of the model's predictions at a detailed spatial level. In this paper the model formalized by Fujita et al. (1999 Fujita, M, Krugman, PR and Venables, A. 1999. The Spatial Economy: Cities, Regions, and International Trade, Cambridge, MA: MIT Press. [Crossref] , [Google Scholar]) is developed in the context of 36 regions of Great Britain, enabling direct comparisons with observed wage rate data that are used to calibrate the model. Iceberg transport costs are in the form of an exponential function and a power function. For the range of parameters considered, the power function gives a better fit between model and data, suggesting scale economies in transportation. The paper shows that, in spite of the assumptions that have to be made, quite realistic distributions of relative wages, income and prices are attainable. However, caution is required in the interpretation of these simulations, which in no way provide proof of New Economic Geography theory, which clearly has limitations. Nonetheless it is hoped that the work reported in this paper does help to advance the progress of geographical economics theory towards empirical verification.     

An improved single equation estimation procedure for rational expectations models

This paper introduces a new readily programmable single-equation errors in variables estimation procedure for rational expectations models. For the illustrative example provided, this new estimator outperforms the currently available estimators.     

The estimation of a hedonic asking and offer rent equation model: An EM algorithm approach

In this paper we claim that modeling housing markets, specifically the rental housing market, should be based on some sort of disequilibrium framework. We posit a model of asking and offer rents in the spirit of a sample selectivity model. This approach allows us not only to test whether landlords and tenants agree upon the marginal evaluations of unit attributes, but also to estimate the impact on rental demand of tenant specific attributes such as family income and race. Since estimators obtained from this procedure are consistent, but not efficient in this two equation context, we employ an EM algorithm in our estimation in order to obtain MLE equivalent estimators. We have found that our data support the use of this disequilibrium approach in that the coefficient estimates for the asking rent equation, under the assumptions of a sample selectivity model, are not coincident with those obtained from an uncorrected equation.     

Spikes and spill-overs: The impact of the national minimum wage on the wage distribution in a low-wage sector

The UK National Minimum Wage (NMW) has had a minimal impact on UK wage inequality because it has been set at a modest level and because aggregate evidence suggests very small spill-over effects. But the small spill-over effects might be because of the small numbers of workers affected and widespread anticipation of the introduction of the NMW might make the impact effect appear very small. This paper investigates these issues using data collected from care homes where the NMW affected 40% of workers. But we still find no evidence of large spill-over effects and very small amounts of anticipation of the NMW.     

The long-run consequences of minimum wage regulation in a monetary economy

This paper investigates the long-run implications of minimum wage regulation on the growth process with monetary repercussions. The paper shows, among other results, that if the minimum wage floor (MWF) is sufficiently low, then the qualitative behavior of the dynamic path is similar to the case of full employment in which the steady state is a saddle point, and that if the MWF is sufficiently high, the economy decays all the way toward the origin.     

A semi-reduced form equation for the Sterling's real effective exchange rate

This paper derives and estimates a semi-reduced form expression for the UK's real effective exchange rate. The expression was derived following Blanchard and Kahn. Non-linear least squares and non-linear instrumental variables were used in estimation.     

The welfare costs of union wage compression

This paper calculates the quantitative significance of the welfare costs of union wage compression. This is done in a dynamic general equilibrium model with overlapping generations where agents choose both schooling (human capital) and assets (physical capital). The labor market in this model is characterized as a right-to-manage contract, which allows unions to compress wage differentials between high- and low-skilled workers, by implementing a binding minimum wage. This paper shows that when labor markets are competitive even low levels of wage compression lead to large welfare losses, since wage compression creates costly unemployment among low-skilled workers. The effect of wage compression on the supply of skilled labor, however, is rather small, since the disincentive effect of a lower, high-skilled wage is, to a large extent, offset by a lower opportunity cost of schooling due to higher unemployment.     

The wage effects of subsidized career breaks

This article studies how subsidized career breaks affect future labor market performance. The analysis uses a Swedish career break program where applications were accepted until local funds were exhausted. The rejected applicants serve as counterfactuals to derive estimates that are unaffected by selection or omitted variables. The estimated wage effect of a 10-month-long break is negative and in the order of 3 % 1–2 years after the interruption. The average applicant is estimated to have substantially lower returns to experience than the average worker. The results thus show that career breaks are costly, even for groups with low expected returns to experience, and in an environment with very compressed wages. The career breaks also induced an increase in job and task mobility whereas post-leave labor supply remained unaffected except for workers close to retirement.     

Employment effects of introducing a minimum wage: The case of Germany

Income inequality has been a major concern of economic policy makers for several years. Can minimum wages help to mitigate inequality? In 2015, the German government introduced a nationwide statutory minimum wage to reduce income inequality by improving the labour income of low-wage employees. However, the employment effects of wage increases depend on time and region specific conditions and, hence, they cannot be known in advance. Because negative employment effects may offset the income gains for low-wage employees, it is important to evaluate minimum-wage policies empirically. We estimate the employment effects of the German minimum-wage introduction using panel regressions on the state-industry-level. We find a robust negative effect of the minimum wage on marginal and a robust positive effect on regular employment. In terms of the number of jobs, our results imply a negative overall effect. Hence, low-wage employees who are still employed are better off at the expense of those who have lost their jobs due to the minimum wage.