Employment and wages with sector-specific shocks and worker moral hazard

We study a model of worker moral hazard with identical workers and where sectoral prices are subject to stochastic shocks. When firms are short-run maximizers, employment is shown to be distorted downward relative to the case of certain prices, and more so the higher is the current price. This implies that employment is relatively insensitive to sectoral output-price changes, and that average employment and output are reduced when price volatility increases. When firms can commit to future employment levels, employment is greater in low-demand states (implying labor hoarding), and thus even less sensitive to shocks, while average employment is less distorted downward by uncertainty. The model gives a new explanation of how increased sector-specific volatility can lead to output losses, and of the possibility of negative comovements of unemployment and turnover.     

Vertical Specialization and International Business Cycle Synchronization*

We explore the impact of vertical specialization—trade in goods across multiple stages of production—on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings.     

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.     

Business Cycle Volatility in Germany

Abstract. Stylized facts suggest that output volatility in OECD countries has declined in recent years. The causes and the nature of this decline have so far been analyzed mainly for the United States. In this paper, we analyze whether structural changes in output volatility in Germany can be detected. We report evidence that output volatility has declined in Germany. It is difficult to answer the question whether this decline in output volatility reflects good economic and monetary policy or merely ‘good luck’.     

Unemployment and econometric learning

We apply well-known results of the econometric learning literature to the Mortensen and Pissarides real business cycle model. Agents can always learn the unique rational expectations equilibrium (REE), for all possible well-defined sets of parameter values, by using the minimum-state-variable solution to the model and decreasing gain learning. From this perspective the assumption of rational expectations in the model could be seen as reasonable. But using a parametrisation with UK data, simulations show that the speed of convergence to the REE is slow. This type of learning dampens the cyclical response of unemployment to small structural shocks.     

Block recursive equilibria for stochastic models of search on the job

We develop a general stochastic model of directed search on the job. Directed search allows us to focus on a Block Recursive Equilibrium (BRE) where agents' value functions, policy functions and market tightness do not depend on the distribution of workers over wages and unemployment. We formally prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. Solving a BRE is as easy as solving a representative agent model, in contrast to the analytical and computational difficulties in models of random search on the job.     

Public Employment and Regional Risk Sharing*

We provide an empirical analysis of regional risk sharing in Norway over the period 1977–90. The approach of Asdrubali, Sørensen and Yosha (1996) is extended to take public employment into account as a possible shock absorber. The other channels of risk sharing are capital markets and commuting, taxes and transfers, and credit markets. The estimated degree of regional consumption insurance is very high. We cannot reject the hypothesis that there is full interregional risk sharing in the short term. Public employment absorbs up to 25 percent of private sector output shocks in our analyses. Generally, central government insurance against regional shocks is relatively more important, the more permanent the shocks are, and vice versa for market‐based risk‐sharing channels.     

Labor market cycles, unemployment insurance eligibility, and moral hazard

If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to working, so, by itself, it promotes job creation. If individuals are risk neutral, then there is a UI contribution scheme that eliminates any effect of UI on employment decisions. As with Ricardian Equivalence, this result should be useful to pinpoint the effects of UI to violations of its premises. Our baseline simulation shows that if the neutral contribution scheme derived in this paper were to be implemented, the average unemployment rate in the United States would fall from 5.7 to 4.7 percent. Also, the results show that with endogenous UI eligibility, one can simultaneously generate realistic productivity driven cycles and realistic responses of unemployment to changes in UI benefits.     

A Reappraisal of the Virtues of Private Sector Employment Programmes*

This paper evaluates the employment effects of active labour market programmes for Danish welfare benefit recipients, focusing on private sector employment (PSE) programmes. Using a latent variable model that allows for heterogeneous treatment effects among observationally identical persons, we estimate commonly defined mean treatment effects and the distribution of treatment effects. We find no significant mean treatment effect of PSE programme participation as compared to participation in other programmes for PSE programme participants. However, we find substantial heterogeneity in the treatment effects, and those most likely to participate in PSE programmes are those who benefit the least from such programmes.     

Real wage cyclicality in urban China

This paper investigates the cyclical behaviour of real wages in urban China. We find wage pro-cyclicality in the public sector and in small/medium firms, but not in the private sector and in big firms.     

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.     

Labor‐market Volatility in Matching Models with Endogenous Separations*

The business‐cycle behavior of a matching model with endogenous separations is studied in this paper. We show that whether aggregate productivity shocks have a larger effect on the vacancy–unemployment ratio than in a model with exogenous separations depends on whether worker productivity stochastically increases with tenure. The difference in the response is quantitatively small, however. We also show that the cleansing effect introduced by allowing for endogenous separations can help in reconciling the model with observed fluctuations in the unemployment rate, but not with those in the vacancy rate.     

Stock-flow matching

We develop the implications of the stock-flow matching model for unemployment, vacancies, and worker flows. Workers and jobs are heterogeneous, so most worker-job pairs cannot profitably match, leading to the coexistence of unemployment and vacancies. Productivity shocks cause fluctuations in the number of jobs, which in turn cause fluctuations in other labor market variables. We derive exact expressions for employment and for worker transition rates in a finite economy and analyze their limiting behavior in a large economy. A calibrated version of the model is consistent with the observed co-movement and volatility of labor market variables.     

A Search Model of Unemployment and Inflation*

This paper introduces money into the standard labor‐matching model. A double‐coincidence problem makes money necessary as a medium of exchange. In the long run, a rise in the growth rate of money leads to higher inflation and higher unemployment, such that the long‐run Phillips curve is not vertical. The optimal monetary growth rate decreases with greater worker bargaining power, the level of unemployment benefits, and the payroll tax rate.     

The anatomy of unemployment dynamics

This paper examines the relation between individual unemployment durations and incidence (inflow size) on the one hand and the time-varying macroeconomic conditions in the economy on the other. We develop a model for the analysis of aggregate unemployment incidence and duration data and estimate this model on quarterly French data over the period 1982-1994 stratified by sex. We find upward trends in both incidence and durations. The former is relatively important for females, the latter for males. Male incidence and durations are countercyclical, with only a minor role for cohort effects on durations. In contrast, female cohorts entering at the top of the cycle have relatively short unemployment spells and the female incidence is, if anything, procyclical. There is strong seasonal variation, in particular in the incidence. Finally, we find relatively small non-monotonic individual duration dependence in the first six quarters of unemployment. Unobserved heterogeneity explains the observed negative duration dependence at these durations. We provide some evidence that negative individual duration dependence, and not heterogeneity, is important at higher durations.     

新古典宏观经济学的经济周期理论述评

二十世纪七十年代初,凯恩斯主义经济学在受到经济实践批判的同时,新古典宏观经济学也指出了其理论的缺陷,并以此为基础构建其宏观经济学的微观基础,即经济主体的理性原则、理性预期、市场出清,建立了货币经济周期理论和实际经济周期理论,否定政府政策的有效性,反对政府干预,力图完成其对凯恩斯主义经济学全面彻底的批判。     

Employment, wages, and the economic cycle: Differences between immigrants and natives

In this paper, we analyse differences in the cyclical pattern of employment and wages of immigrants and natives for two large immigrant receiving countries, Germany and the UK. We show that, despite large differences in their immigrant populations, there are similar and significant differences in cyclical responses between immigrants and natives in both countries, even conditional on education, age, and location. We decompose changes in outcomes into a secular trend and a business cycle component. We find significantly larger unemployment responses to economic shocks for low-skilled workers relative to high-skilled workers and for immigrants relative to natives within the same skill group. There is little evidence for differential wage responses to economic shocks. We offer three explanations for these findings: an equilibrium search model, where immigrants experience higher job separation rates, a model of dual labour markets, and differences in the complementarity of immigrants and natives to capital.     

Optimal monetary policy in a Phillips-curve world

In this paper, we study optimal monetary policy in a model that integrates the modern theory of unemployment with a liquidity model of monetary transmission. Two policy environments are considered: period-by-period optimization (time consistency) and full commitment (Ramsey allocation). When the economy is subject to productivity shocks, the optimal policy is pro-cyclical. We also characterize the long-term properties of monetary policy and show that with commitment the optimal inflation rate is inversely related to the bargaining power of workers. Both results find empirical support in the data.     

JOB FLOWS AND UNEMPLOYMENT IN AN EQUILIBRIUM UNEMPLOYMENT MODEL WITH FIRM‐SPECIFIC SKILL TRAINING*

We introduce productivity enhancing firm‐specific skill training into the labour search model in which the firm‐specific skill training intensity and the job destruction rate are endogenously determined. It is shown that the higher the intensity of such training, the lower the rates of unemployment, job creation and job destruction. The paper's model provides a theoretical framework to understand the often mentioned peculiarity of the Japanese labour market; prevalently low rates of unemployment, job creation and job destruction in Japan are due to its training system which promotes workers to acquire firm‐specific skills.     

The Effects of Marginal Employment on Subsequent Labour Market Outcomes

Abstract. Unemployed workers in Austria do not lose their unemployment benefits (UI) if they work in a job where their earnings are below a certain threshold [‘marginal employment’ (ME)]. ME might improve their labour market status by signalling effort, or worsen it through reduced job‐search effort. Those who work in ME while claiming UI have less employment and lower earnings afterwards than those who do not. The penalty lessens over time but is still present after three years.