Supply and demand macro-econometric model of a small economy: evidence from Namibia

This study develops a macro-econometric model for the Namibian economy. This macro-econometric model estimates both the demand and supply sides of the Namibian economy. This model incorporates the price sector, in order to serve as a link between the supply and demand sides of the economy. The model consists of behavioural equations, linked by identities and definitions. These behavioural equations were estimated and simulated individually. They were then combined together to form a full macro-econometric model of the Namibian economy. The full macro-econometric model was closed using two models. The first model activates the supply side and marginalises the demand side. The second model is demand side orientated, which activates the demand side and marginalises the supply side. The results indicate that the estimated values closely approximate the actual values. This macro-econometric model can be used to apply policy simulations, in order to determine appropriate economic policies for Namibia.     

Labour hoarding in Dutch manufacturing industry

Summary Comfronting strong output fluctuations, companies are in no position to adjust their labour volume instantly to the technically efficient level. Because of that, they may find themselves with an internal labour reserve at one moment, and be short of labour at another. This phenomenon is called labour hoarding. In this article we propose a new method for the measurement of labour hoarding and apply it to the Dutch manufacturing industry. The results suggest that in the period 1972 to 1982, labour surpluses in that sector varied between five and fifteen percent of employment. Labour shortages appear to have been minor in the same period. Output uncertainty and real wage costs are supposed to be the main causes of the discrepancy between actual and technically efficient employment. Under this assumption an employment function is derived and fitted. The results are in accordance with the theoretical model on which the employment function was based.The author is attached to the Netherlands Economic Institute, Rotterdam.Based on the author's dissertation,Omvang en oorzaken van labour hoarding, Rotterdam, 1987.     

Minimum wage rates and unemployment in The Netherlands

Summary A static limited dependent variable model is formulated to analyse the Dutch labour market from an individual's viewpoint. Results suggest that high minimum labour costs are an important source of unemployment. Secondly, the reduced-form participation equation is replaced by a neoclassical labour supply equation. Thus, also the effect of high minimum wage rates on employment through labour supply is taken into account. Supply appears to be forward bending and participation is insensitive with respect to unemployment benefits. Simulations suggest that the effect of lowering the productivity threshold by reducing before-tax minimum wages dominates supply effects.The author wishes to thank Geert Joosten, Arie Kapteyn, Peter Kooreman, Bertrand Melenberg, Viji Narendranathan and Theo Nijman for helpful comments and the Netherlands Central Bureau of Statistics for providing the data. The views expressed in this paper do not necessarily reflect the policies of the CBS.     

Unemployment on account of market imperfection in the Netherlands since the second world war

Summary By means ofUV analysis it has been attempted to gain some insight into the development of unemployment on account of market imperfection in the Netherlands between 1956 and 1975. Three conclusions can be drawn. (i) The imperfection of the labour market has increased not inconsiderably between 1956 and 1975. (ii) Since the beginning of the Seventies structural unemployment has been caused both by the qualitative discrepancies between supply and demand and by a quantitative shortage of jobs. (iii) The increase in market imperfection must be ascribed above all to the steadily growing imperfection of the sections of the labour market corresponding to the occupational groups.[/p]Professor of Economics and Graduate Assistant, Universtiy of Groningen, The Netherlands.The authors would like to thank Professor Th. van de Klundert and their colleagues of the Department of Economics for their valuable comments on the first version of this article.     

Output and employment growth in the Netherlands in the postwar period: A putty-clay approach

Summary An attempt has been made to estimate a putty-clay vintage model for the Netherlands in order to test the assumption, usually made in the Dutch vintage model discussion, of complementarity ex ante. The estimation led to the following conclusions: an elasticity of substitution of about 0.32, a planning period of 13 years and apart from the 1950s the existence of embodied labour-augmenting technical progress only. The model outcomes lead to the conclusion of capital shortage being the ruling phenomenon in the postwar period with only some short periods in the 1950s and the late-1960s of capital abundance. Since the late-1970s employment growth is not only depressed by too slow a growth of capacity demand for labour but also by the increasing underutilization of productive capacity. Part of this research has been made possible by a grant of the Netherlands Organization for the Advancement of Pure Research (ZWO) and the National Programme of Labour Market Research (NPAO). The authors are indebted to Professor Th. van de Klundert for valuable comments.     

Contribution Ceilings and the Incidence of Payroll Taxes

Social security contributions (SSCs) are typically formally split between employers and employees as payroll taxes, levied on earnings at a constant tax rate that applies only up to a ceiling, above which the marginal tax rate falls to a reduced rate, often 0. Such contribution ceilings create a concave kink point in the budget set of workers and hence should generate a dip in the distribution of earnings around the ceiling through labour supply responses (the reverse of bunching expected at convex kink points) but such a dip is not observed empirically. This paper sets out a new approach to infer the incidence of SSCs that exploits the absence of this dip and the fact that (mechanically) the distributions of labour cost (earnings inclusive of all payroll taxes), gross earnings (net of employer payroll taxes) and net earnings (net of both employer and employee payroll taxes) cannot all be smooth around a kink. The other papers in this special issue apply the method to data for Germany, France, the Netherlands and the UK and all find that distribution of gross earnings is smooth around kinks (implying that the distributions of labour costs and net-of-tax earnings are not) even though the concept of gross earnings is irrelevant in the standard static model of labour supply and demand that dominates the public economics literature. This suggests that other features of the labour market, such as wage bargaining based on the gross earnings concept, are relevant for determining the incidence of SSCs.     

Incorporating inventories into supply and demand analysis

Conclusion In the microeconomic portions of principles and intermediate macroeconomics, supply and demand analysis is presented as the truth. However, the simple Keynesian macroeconomic model virtually ignores market clearing, while the standard microeconomic model of supply and demand assumes perfect market clearing. Since hidden assumptions are a major source of confusion and misunderstanding between economists and the general public, students should be exposed to stock-flow analysis at the intermediate level as a separate or integrated chapter on supply and demand.     

Who Bears the Burden of Social Security Contributions in the Netherlands? Evidence from Dutch Administrative Data

This paper sheds light on the incidence of social security contributions (SSC) in the Netherlands. Our unique dataset on earnings inclusive and exclusive of these SSC enables us to apply the methodology by Alvaredo et al. (De Econ. doi: 10.1007/s10645-017-9294-7, 2017) and draw clear conclusions on local incidence. First, our finding of a smooth distribution of gross earnings indicates that both employer and employee do not shift their contributions. This contradicts the standard incidence prediction of full shifting of SSC to employees but corroborates recent findings. Moreover, it is hard to reconcile with the standard static model of labour supply and demand where gross earnings are irrelevant. Second, our finding of a discontinuity in labour costs supports our conclusion of non-shifting and renders out measurement error as an alternative explanation. Overall, these findings suggest that the statutory split matters and that the burden of SSC close to thresholds is borne by employers.     

Causes of labour supply and demand mismatches in the Dutch building trades

Summary In this paper the significance of some hypotheses on possible causes of labour supply and demand mismatches is tested on data of the Dutch building trades by means of a UV analysis. In contrast with most other UV research this study does not refer to a search-theoretical framework, but focuses on skill differences between labour supply and demand. Three significant causes of labour market frictions appear to be: the development of the skill composition of labour demand, the apprenticeship possibilities and the relatively high wages of older workers. Some other hypotheses show weakly significant results: bumping-down processes, reschooling of unemployed older workers and the development of secondary labour market segments.At the moment of writing this paper the author was working at the Department of Economics, Free University, Amsterdam, The Netherlands.The author would like to thank Professor J.A.M. Heijke, dr. N. van Hulst, Professor J.G. Knot, Professor J.J.M. Theeuwes and Professor A.J. Vermaat for their helpful comments on an earlier draft of this paper and G.A. van Pruissen for his assistance in computer work.     

Utilising a Demand-led Approach in a Local Labour Market

Traditional labour market activation policies have tended to be focused on labour supply and improving the opportunities for new entrants or re-entrants to obtain appropriate paid employment. This emphasis was encouraged in the 1980s and 1990s by shifts in the location and nature of employment (deindustrialisation), growing and persistent levels of unemployment and policy concerns with labour market disadvantage. More recently, the need to ensure international competitiveness, often by minimising local labour costs and enhancing labour flexibility, has been accompanied by a concern amongst employers at the impact of skill shortages. One response has been to shift the policy focus from supply to demand, essentially by seeking to understand the changing nature of local labour demand and by developing appropriate labour market initiatives. This paper analyses the case study provided by a labour market initiative in a regional labour market in New Zealand to assess the utility of such an approach. The Waitakere Employment and Skills Project (WESP) is a collaborative approach to labour demand, involving a number of economic development and local/national government agencies, as well as a university research team (including the author).     

Unemployment Dynamics, and Propagation of Aggregate and Reallocation Shocks in the Netherlands

This paper models the propagation at the macro level of four types of shocks using the SVAR approach. Time series data for the Netherlands on job creation, job destruction, the number of vacancies and labour supply are used to identify aggregate demand and supply shocks, and reallocation demand and supply shocks as different sources of unemployment dynamics. Each of these four types of shocks appears to have at least some influence on unemployment both in the short and long run. The long run influence of the aggregate labour supply shock is estimated to be very limited. It indicates that additional labour supply is almost fully absorbed by labour demand in the long run.     

EEN Actief Arbeidsniarktbeleid

Summary The period following the second world war was characterised in The Netherlands by full employment. As a result, the policy with regard to the labour market underwent some remarkable changes. Before the war, the principal aim of that policy had been the prevention of unemployment. Now far more stress is being laid on the creation of a state of equilibrium between the various parts of the market. At the same time, because people became more aware of the fact that economic policy in general should be directed towards attaining a high rate of economic growth, another new element was introduced into labour market policy. It was felt to an increasingly strong extent that such policy should also be made to serve the purpose of attaining an optimal use of the available and potential labour force.The author is of opinion that labour market policy should be a matter of co-operation between government and socialeconomic organisations, and the entrepreneurs. It should start at the level of general and professional education, and take into account that the present phase of economic development shows important shifts. Agricultural employment in The Netherlands is narrowing down from 8% of the total working population at present, to probably 6% in 1970. Employment in manufacturing is levelling off at a percentage of around 42. This means that employment in the tertiary sector is surpassing 50%. An active labour market policy should be part of a program of general economic planning at middle-long term, and include a policy, directed towards establishing a higher rate of mobility of labour. Co-ordination of an active labour market policy with other sectors of socio-economic policy could be reached by the creation of governmental or semi-governmental bodies, designed to give special attention to the optimal use of the labour force as a factor of production, with due regard to the human element.Referaat gehouden voor de jaarlijkse bijeenkomst van de Vereniging van Afgestudeerden der N.E.H. te Rotterdam, op 17 Mei 1967.     

Wage costs and labour demand with some reference to employment in the Netherlands

Summary This article evaluates some of the well-known theories of labour demand, with special reference made to macro-economic unemployment problems in the Netherlands. Two fields of problems have been distinguished. The first concerns the formulation of the new goals of economic policy. The second group regards the question of selecting the best fitting, in a statistical sense. As a final resolve, this approach defines that, what ever the best theory may be, there clearly exists a negative relation between wage costs and employment in the Netherlands. However, it is also determined that the negative effects of high wage costs are not so large as suggested in the Central Planning Bureau studies, based on a Solow-Robinson model of embodied technological progress.     

Post- war European economic development as an out of equilibrium growth path. The case of the Netherlands

The paper examines a number of aspects of post-war economic development of the Netherlands in the light of recent out of equilibrium growth theory. It contains a comparison of the stylized facts of the long run performance of the economies of the United States and the Netherlands which suggests that the US has been on an equilibrium growth path for more than a century, but that the Netherlands followed a radically different growth path, especially after 1945. It is attempted to explain this erratic behaviour of the investment ratio and the wage share after 1945 by examining two aspects more in detail: the financing of the acceleration of growth after 1945 and the phase of too rapid growth during the 1950s and 1960s, when the growth of the demand for labour tended to be higher than the increase in its supply.     

Over de beheersbaarheid van de geldhoeveelheid in Nederland

Summary The well-known multiplier approach to money supply processes is extended to the case of the open economy of the Netherlands. It was found, first, that the Dutch banking system serves as an important buffer in the Dutch money supply process. Second, the short-run elasticities of money supply and money demand with respect to the call-money rate were found to be +0.23 and −0.09 respectively. Third, the impact multiplier of money with respect to the open market policy variable turned out to be 0.52. The conclusion is that the Dutch central bank is capable, in principle, to control the stock of money in the short run.

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Rede, uitgesproken bij de aanvaarding van het ambt van gewoon hoogleraar in de staathuishoudkunde aan de Rijksuniversiteit te Rotterdam op donderdag 22 maart 1973.     

Equity and efficiency in unemployment insurance

Summary This paper is concerned with equity and efficiency in unemployment insurance. It examines the rationales for unemployment insurance, or more generally, social security. It stresses that social security is a second-best solution, since, in practice, taxes that do not distort economic decisions and benefits without moral hazard are impossible. The paper determines a relation between the feasible levels of equity and efficiency,i.e., the output possibilities curve. Three typical views on equity are confronted with this output possibilities curve: the extreme liberal view, the moderate liberal view and the egalitarian view. We construct two output possibilities curves for unemployment insurance in The Netherlands: one curve, assuming that the Dutch labour market is characterized by excess supply and another curve, assuming that the Dutch labour market is instantaneously cleared by flexible wages. The equilibrium model yields substantially higher efficiency costs of Dutch unemployment insurance than the disequilibrium model. Finally, we calculate the output gains of a mini-system of unemployment insurance. Again, the results indicate that much depends on what is in the eye of the beholder.At the time of writing research fellow at the Applied Labour Economics Research Team (ALERT) of the Vrije Universiteit, Amsterdam and the Tinbergen Institute. The author thanks an anonymous referee ofDe Economist, Frank den Butter, Bernard Compaijen, Edmond Malinvaud, Christopher Pissarides, Niels Westergaard-Nielsen, Rob van de Wijngaert, Gerrit Zalm and the participants of the ALERT/Tinbergen Institute workshops Modelling the Labour Market (6–8 January 1992 at the Vrije Universiteit, Amsterdam) and Dutch Thoughts on Unemployment (18 March 1992 at the Vrije Universiteit, Amsterdam) for their useful comments on earlier versions of this paper. The usual disclaimer applies.     

The Rising Supply of College Graduates and Declining Returns for Young Cohort: The Case of Korea

Abstract

This study analysed the effect of an increase in the supply of youth college graduates, in terms of the return on education. The rate of return on education in Korea substantially dropped from 1983 to 1994. Since then, however, the declining trend of the rate of return on education stopped and turned upward. The rate of return has declined especially for college graduates, and such a decline has been most prominent for young cohorts, among college graduates, since 1987. The observed trend of the rate of return appears to be related to the sharp increase of labour supply of college graduates since the mid 1980s.

The elasticity of substitution between education levels and age groups was estimated in this study, using a generalized demand-supply model. The effects of relative supply of college graduates (as a whole and by age) on the relative wages of college graduates by age were analysed under the assumption of constant skill-biased technological change. As it turned out, the relative college graduates’ labour supply of each age group had large bearings upon relative wages of each corresponding group, while the relative labour supply of all college graduates did not. It implies that labour is an imperfect substitute, not only between education levels but also between age groups.

Thus, as youth college graduates’ supply increases, there needs to be a corresponding demand increase for them, to avoid the drop in the wage or employment level for them. Therefore, to tackle with the issues of youth labour market, such as youth unemployment, separate policies targeting the youth group are called for.     

Regional development effects of a free market for sugar in South Africa

In a free market for sugar it is estimated that the area under sugar‐cane would decrease by 49 per cent and labour employment by 26 per cent relative to the single‐price policy which was in operation until 30 April 1985. Sugar‐cane would be produced in areas of comparative advantage, namely the Eastern Transvaal, Zululand high and low rainfall areas, the North Coast, Indian and Mangete areas and KwaZulu. The domestic equilibrium sucrose price is estimated to be about 9 per cent below the price under the single‐price policy and 17 per cent below the A‐pool producers’ price under the present two‐tier price scheme.

Full irrigation water tariffs have a considerable impact on enterprise mix. Farmers would shift from sugar‐cane to higher return crops or leave land fallow if they perceived the risk to be too high. Land values would fall in irrigation areas and increase in dryland areas.

Results are obtained from a regional linear programming model which incorporates negative sloping demand functions for crops, limited substitution in demand between crops, positive sloping labour supply functions and variance/ covariance risk matrices.     

A demand and supply model of economic growth

Summary A demand and supply model of economic growth has been developed. By means of this model a number of characteristics of the growth process have been investigated. Special attention has been given to the causes and consequences of growth disequilibria and the determinants of income distribution.The analysis leads to the conclusion that three growth situations must be distinguished: output is restricted by effective demand, by effective supply, and by the size of the labour force. The causes of growth disequilibria and the determinants of income distribution differ in each of these three cases. In this respect the model is more general than traditional post-keynesian, neo-keynesian and neo-classical growth models.The author is indebted to Professor Frits J. de Jong for his non-desisting support during the preparation of this paper. He is grateful to Mrs. Gerda H. de Jong of Veendam, The Netherlands, and to Dr. James H. Gapinski, Assistant Professor, Florida State University, Tallahassee, Florida for kindly improving the English of this article.In many respects this article draws heavily upon my doctoral dissertation:De betekenis van vraag- en aanbodfactoren in groeimodellen met één sector, mimeographed, Groningen, 1970.     

An Indonesian Economic Forecast Based on a Yearly Econometric Model

This paper presents an ex-ante medium-term forecast of the Indonesian economy (1991–97) based on a yearly macro-econometric model developed by the author at the University of Indonesia. The model uses a combined supply and demand framework and reflects a mixture of Keynesian, monetarist and classical approaches. The paper explains the model structure and the assumptions adopted in the projection, and presents the results of the forecast. Discussion of results emphasises selected variables considered important in the country's macroeconomic affairs. The short-term trend for 1991–93 is also briefly discussed.