The effect of working time and labor force participation on unemployment: A new argument in an old debate

This paper introduces a new argument into the theoretical literature on labor market effects of changes in working hours and labor force participation. We advance a general equilibrium model in which increased labor supply reduces unskilled unemployment via consumer demand: longer work hours and higher labor force participation imply higher incomes and less (leisure) time. In consequence, home production is reduced in favor of outsourcing domestic tasks to the market, shifting consumer demand toward unskill-intensive goods. Relative demand for unskilled labor rises and unemployment falls.     

Optimal Fiscal Policies,Congestion and Over‐entry*

By shedding light on market imperfections and the congestion of public goods, we show that free entry in a market equilibrium will lead to excessive entry relative to the social optimum. Moreover, by specifying a generalized congestion function, it is also shown that different fiscal policies, including labor income tax, capital income tax and government expenditure, play a distinct role in terms of remedying market distortions. Specifically, optimal income taxes decrease with the degree of market imperfections in order to remove the monopoly inefficiency, while they increase with the degree of congestion in order to remedy the adverse externality caused by congestion distortion. Since a higher degree of increasing returns to an expansion in the variety of intermediate goods is found to intensify the congestion effect of government infrastructure expenditure, the optimal rule of government expenditure proposed by Barro (1990) should be modified.     

Labor Mobility, Trade, and Social Capital

Labor market integration raises welfare in the absence of distortions. This paper examines labor and goods market integration in a general‐equilibrium model with social capital. The findings are: (i) labor market integration has an ambiguous impact on welfare, and raises it if the goods and labor skills are sufficiently different; (ii) compared to Pareto optimum, labor mobility (social capital) is excessively large (depleted); (iii) trade is superior to labor market integration if trading costs are no higher than private migration costs, otherwise the outcome is ambiguous; and (iv) the creation of new institutions in response to labor market integration has an ambiguous impact on welfare.     

A three state model of worker flows in general equilibrium

We develop a simple model featuring search frictions and a nondegenerate labor supply decision along the extensive margin. The model is a standard version of the neoclassical growth model with indivisible labor and idiosyncratic productivity shocks and frictions characterized by employment loss and employment opportunity arrival shocks. We argue that it is able to account for the key features of observed labor market flows for reasonable parameter values. Persistent idiosyncratic productivity shocks play a key role in allowing the model to match the persistence of the employment and out of the labor force states found in individual labor market histories.     

Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes

Summary. To a greater extent than is often stressed in existing literature, preference assumptions affect responses to money shocks in equilibrium monetary models. Temporary money shocks can have persistent real effects if the marginal utility of leisure is a decreasing function of consumption, where leisure is measured as time endowment less market labor effort, and consumption refers to market produced goods. This condition is an empirically supported implication of home production models. Though not theoretically necessary for supporting the existence of short run real effects, the presence of distortionary taxes and endogenous productivity can have significant quantitative effects on responses to temporary money supply shocks. Received: August 21, 1996; revised version: February 3, 1997     

Can child allowances improve fertility in a gender discrimination economy?

While it is believed that child allowances can improve fertility in principle, this paper shows that the effects of child allowances with gender discrimination should be reconsidered. It points out that gender wage discrimination can inhibit the positive effects of child allowances on fertility. With high gender wage discrimination, assuming that both parental time and market childcare goods are indispensable for childrearing, child allowances significantly increase maternal childcare time. On the other hand, child allowances also reduce childcare expenditure due to the decline in female labor time and increase in the relative price of market childcare goods, which eventually decreases fertility. We show that when the gender discrimination factor is greater than a certain cutoff, the effects of child allowances on fertility become negative. Moreover, male childcare time also plays an essential role in increasing fertility rates. Therefore, gender equality is a prerequisite for increased child allowances to be effective.     

Competition and the capital-labor conflict

This paper analyzes the distributional effects of changes in the intensity of product market competition. The focus is on the interaction between imperfect competition in product markets and bargaining in the labor market. The main result is that, while a uniform intensification of product market competition increases employment, it may cause real wages to fall, in the short run as well as in the long run. This is especially likely if labor market regulations are favorable to workers. Therefore, product market and labor market regulations tend to reinforce each other politically, and compensatory fiscal transfers may be needed in order to enact employment-enhancing deregulation policies.     

Effect of goods market segmentation on labor mobility: Evidence from China

This study empirically investigates the effects of goods market segmentation on interregional labor mobility using data from National Population Surveys in China. The findings reveal that a one-standard deviation increase in the goods market segmentation index reduces interprovincial migration by 4.0%. Restraining interregional trade and improving industrial specialization are the two mechanisms at work. Further analysis indicates that the restrictive effect of goods market segmentation is greater on highly educated laborers and the labor flows from poorer to richer regions. The heterogeneous analysis also implies that migrants are more concerned about educational resources and consumption diversity.     

A model of relative national price levels under pricing to market

This paper proposes an alternative to the Balassa-Samuelson theory of how relative price levels between countries are determined. The theory is a general equilibrium formulation of a model where pricing to market arises endogenously from firm decisions. It differs from Balassa-Samuelson in that it centers on the distinction between segmented national goods markets rather than the distinction between traded and nontraded goods. The paper also explores how Balassa-Samuelson might be updated by combining it together with pricing to market elements. Applied to the case of a monetary union, the theory offers an alternative explanation for the inflation differentials observed in EMU. It implies that such differentials may be a natural and enduring feature of a monetary union in which markets for goods and labor are less than fully integrated.     

Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States*

We use a 12‐dimensional VAR to examine the aggregate effects of two structural technology shocks and two policy shocks. For each shock, we examine the dynamic effects on the labor market, the importance of the shock for labor market volatility, and the comovement between labor market variables and other key aggregate variables in response to the shock. We document that labor market indicators display “hump‐shaped” responses to the identified shocks. Technology shocks and monetary policy shocks are important for labor market volatility but the ranking of their importance is sensitive to the VAR specification. The conditional correlations at business cycle frequencies are similar in response to the four shocks, apart from the correlations between hours worked, labor productivity and real wages. To account for the unconditional correlations between these variables, a mixture of shocks is required.     

The Effects of Trade Liberalization in a Vertical Structure

Despite the importance of international trade on intermediate goods, the literature did not pay much attention to this aspect in determining the effects of trade liberalization in the presence of a labor union. We take up this issue here and show the effects of trade liberalization on the final goods and/or the intermediate goods, where the domestic firm pays unionized wage and imports intermediate goods. We show that trade liberalization on the intermediate goods (final goods) increases (decreases) the unionized wage, labor union's utility and domestic profit. Trade liberalization on both the final goods and intermediate goods may either increase or decrease the domestic unionized wage, labor union's utility and domestic profit depending on the input coefficients and the initial tariff levels. Our qualitative results are robust with respect to the intermediate goods market structure, the pricing strategy of the intermediate goods producers and the union's objective function.     

Macroeconomic policy lessons of labor market frictions

The paper explores the consequences of macroeconomic policy for labor market outcomes in the presence of frictions. It shows how policy may be useful in over-riding frictions, as well as how it might generate adverse outcomes. A partial-equilibrium, empirically grounded model is used to simulate policy effects.The key results are that policy has effects on the stochastic behavior of key variables - measures that reduce unemployment also reduce its persistence and increase the volatility of vacancies. Hiring subsidies and unemployment benefits have substantial effects on labor market outcomes, while employment subsidies or wage tax reductions are not very effective policy instruments.     

THE DIVISION OF LABOR AND ROUNDABOUT PRODUCTION: ALLYN YOUNG REVISITED

Abstract.  This paper investigates Allyn Young's two important doctrines concerning the division of labor and roundabout production. First, apart from advancing the state of knowledge, the progressive division of labor that can occur within a given population encourages the adoption of more specialized, differentiated intermediate goods in the production process. Second, the level of division of labor and the extent of the market depend on each other. Using a general equilibrium model with increasing returns to specialization, economies of complementarity between intermediate goods, and transaction costs, we demonstrate that the level of division of labor and the number of intermediate goods increase concurrently as transaction conditions are improved.     

中国行业垄断的收入分配效应

收入分配差距过大是中国社会发展的难点和热点问题,行业垄断已经成为加剧中国收入分配矛盾的重要原因。为此,本文构建新的垄断-竞争两部门利润分享模型,揭示行业垄断影响收入分配的内在机制,并结合中国的经验数据进行实证分析。研究表明,行业垄断在产品与要素市场中,通过最终产品消费的福利转移、要素的区别定价以及垄断利润在不同就业者之间的非均衡分享导致收入分配差距的扩大;在行业垄断力量对经济干预较多的阶段,收入差距扩大问题较为严重,并且往往表现为劳动总收入的下降。因此,持续提升劳动者收入,保持收入分配的合理化,必须配合行之有效的行政垄断部门改革,打破行业垄断所形成的二元经济结构,降低行业垄断在生产和分配领域中的影响。     

Do search frictions matter for inflation dynamics?

We assess the empirical relevance for inflation dynamics of accounting for the presence of search frictions in the labor market. The new Keynesian Phillips curve explains inflation as being mainly driven by current and expected future marginal costs. Recent empirical research has emphasized different measures of real marginal costs to be consistent with observed inflation persistence. We argue that, allowing for search frictions in the labor market, real marginal cost should also incorporate the cost of generating and maintaining long-term employment relationships, along with conventional measures, such as real unit labor costs. In order to construct a synthetic measure of real marginal costs, we use newly available labor market data on worker finding and separation rates that reflect hiring and firing costs. We then estimate a new Keynesian Phillips curve by generalized method of moments (GMM) using the imputed marginal cost series as an observable and find that the contribution of labor market frictions in explaining inflation dynamics is small.     

INFLATION AND THE DISPERSION OF REAL WAGES*

The article studies the effects of inflation on real wage dispersion in a search‐monetary framework. The economy is characterized by frictions in both the goods and the labor markets. In the goods market, buyers and sellers bargain over prices, whereas in the labor market firms post wage offers. In equilibrium, a lower inflation rate increases the dispersion of real wages. This result is consistent with both the observed trends in wage dispersion and the inflation rate witnessed in the 1980s and the 1990s in the United States and the empirical literature linking reduced inflation to greater wage dispersion.     

汇率制度、经济开放度与中国需求政策的有效性

在全球经济金融一体化的背景下,中国对外经济开放度的提高对需求、供给政策的有效性产生了复杂深刻的影响。本文通过构建OR模型分析框架,分析了不同汇率制度下金融市场和商品市场一体化程度对需求政策、利率泰勒规则、财政供给和劳动供给政策有效性的影响。根据理论分析和数值模拟以及以中国年度数据进行实证检验,提出了一个可检验的假说,表明开放条件宏观政策的有效性取决于商品市场和金融市场一体化程度及二者的相互作用。     

On the static and dynamic costs of trade restrictions for small developing countries

We analyze the costs of trade restrictions for a small developing economy (LDC). Intermediate goods invented elsewhere are only introduced on the LDC market if it is profitable to do so. The LDC economy evolves to a balanced growth path in which income, welfare, and the share of available goods increase if trade restrictions fall. The adjustment path is asymmetric: an increase in trade restrictions leads to a slow-down of economic growth, while a decrease may lead to a rapid catch-up process. The dynamic costs of trade restrictions are in general substantially larger than the static costs.     

The German labor market during the Great Recession: Shocks and institutions

This paper analyzes Germany's unusual labor market experience during the Great Recession. We estimate a general equilibrium model with a detailed labor market block for post-unification Germany. This allows us to disentangle the role of institutions (short-time work, government spending rules) and shocks (aggregate, labor market, and policy shocks) and to perform counterfactual exercises. We identify positive labor market performance shocks (likely caused by labor market reforms) as the key driver for the “German labor market miracle” during the Great Recession.     

Anticipated Fiscal Policy Changes and Goods Market Adjustments

Abstract. Government policies are frequently known to be temporary and thus their termination is perfectly anticipated. These foreseen policy changes must be consistent with equilibrium in both the goods market and asset markets. Potential problems arise because prices often play dual roles, both as final goods prices, and as asset prices, as components of rates of return. We show how the economy accommodates an anticipated policy change depends upon its production flexibility and its structure. With flexible investment, an anticipated reduction in government expenditure is fully accommodated by capital accumulation. When investment involves adjustment costs, the marginal utility of wealth and the price of capital both jump so as to maintain equality among rates of return. Goods market clearance is maintained by a combination of increases in consumption and investment. Extensions of the model to include inventories and to a small open economy are also considered and contrasted.