Unemployment Benefits and Entrepreneurship

Several recent empirical papers show that unemployment benefits crowd out nascent entrepreneurs. In the present paper provide theoretical support in favour of this interesting result. Over fairly general preference patterns we obtain a measure of the opportunity cost of entrepreneurs in the presence of unemployment benefits and derive conditions under which potential entrepreneurs suffer as unemployment benefits rise. We formulate a clear transmission mechanism in the labour market that links unemployment benefits to occupational choice for a group of risk‐averse individuals.     

Financial markets,the structure of long-term investments and labour income risks

The paper develops a model to analyse the feedback between financial markets, long-term capital investments and the risk of labour incomes. We study a situation where firms are owned by entrepreneurs, who are able to share and diversify their income risk by trading on financial markets. Workers, in contrast, cannot short-sell the flows from future labour endowments and thus do not have the same opportunities. We derive two central results. Firstly, even if financial markets offer perfect risk-sharing opportunities for entrepreneurs, the participation restriction for labour incomes leads to a constrained inefficient market allocation. The constrained inefficiency arises because the effect of long-term investments on the risk of wages is not internalized by state prices. Secondly, we show that in general it is not true that workers indirectly benefit when we go from a situation with no financial markets to a situation with perfect financial markets for entrepreneurs but restricted participation for workers. The results suggest that a policy solution might require either to close some financial markets or to create new ones. We argue why there is a strong case for the creation of new markets rather than for closing existing ones.     

控制权配置对企业投资行为的影响研究——基于企业家注重声誉的视角

如何通过提高企业家声誉来优化企业投资行为事关我国企业的健康发展。通过构建企业投资支出的回归模型,对控制权配置与企业投资行为进行实证检验。实证分析表明,在企业家注重声誉的前提下,第一大股东持股比例与企业投资支出水平负相关,而当内部现金流充裕时,股权制衡比例与企业投资支出水平正相关。因此,可以通过建立企业家征信制度、完善充分竞争的企业家市场、确保企业家有长远预期和培育合格的市场主体等措施,提高企业家声誉,优化企业投资行为。     

Managerial capital,occupational choice and inequality in a global economy

This study proposes a simple theory of trade with endogenous firm productivity, occupational choice and income inequality. Individuals with different managerial talent choose to become entrepreneurs or workers. Entrepreneurs enhance firm productivity by investing in managerial capital. The model generates three income classes: low‐income workers facing the prospect of unemployment, middle‐income entrepreneurs managing domestic firms and high‐income entrepreneurs managing global firms. Trade liberalization policies raise unemployment and improve welfare. A reduction in per‐unit trade costs raises top incomes and generates labour‐market polarization. A reduction in fixed exporting costs has an ambiguous effect on top incomes and personal income distribution. Policies reducing labour‐market frictions or the costs of managerial‐capital acquisition create more jobs and improve welfare. The income distributional effects of labour‐market policies depend on which policy is implemented.     

Long-run homogeneity of labour demand. Panel evidence from OECD countries

This study makes an attempt to examine the long-run relationship between the key labour market parameters of employment, aggregate output, real product wages and labour-augmenting technical progress for a sample of 21?OECD countries covering the period from 1970 to 2000. A new panel error correction technique is applied, which allows one to constrain the long-run coefficients to be identical across the countries while letting the short-run coefficients which govern the dynamics and the error variances differ freely, respectively. Thus, this estimation approach assumes that institutional and cultural differences, albeit causing short-term deviations of labour demand behaviour across countries, leave the long-run structure of the labour markets unaffected. That is to say, the long-run equilibrium relationship between the key labour market variables is taken to be similar across the OECD economies. The empirical analysis shows that the long-run relationship between the key labour market parameters is equal across the OECD countries. However, adjustment speed of actual employment to the equilibrium is much higher in countries with flexible labour markets, such as the USA and UK, than in countries with rigid labour markets, such as Germany and Austria.     

Rigid labour markets with trade and capital mobility: theory and evidence

Abstract We develop a multi‐country model with imperfect labour markets to study the effect of labour market frictions on bilateral trade flows. We use a framework that allows for goods trade and capital mobility and show that labour market imperfections exert opposite effects in the absence of capital mobility (the short run) and its presence (the long run), respectively. In the short run, a higher degree of labour market rigidity decreases the value of total trade, but increases the share of intra‐industry trade for a country that is larger than its trading partner. The reverse effects are observed when capital is allowed to cross country borders. Using data on unemployment and income distribution for 23 OECD countries, we compute the central parameter in our theoretical model that describes the degree of labour market rigidity. We use this new empirical concept to provide evidence for our theoretical findings by means of reduced‐form regressions as well as simulation results of a calibrated general equilibrium model.     

Discrimination and Job Quality: the youth labour market in the 1980s

The purpose of this paper is to investigate the extent to which discrimination early in one's career can have lasting effects on job quality even after the discrimination itself disappears. The results show that for young workers in the 1980s, discrimination is a short run phenomenon, and furthermore, the effects disappear relatively quickly. This research makes two contributions to the existing empirical literature on labour market discrimination. First, we broaden the measure of discrimination beyond wages by utilizing the Duncan Index of job quality to measure differences in labour market outcomes. Second, most empirical work has been concentrated on the effects of discrimination at a point in time using cross-sectional data. We develop a dynamic model to measure changes in job quality over time as workers gain experience over their first three years in the permanent labour market. From the results found in our empirical work, we are able to analyze the long run impact of initial discrimination. In other words, our methodology allows us to examine time dependent effects that are not observed in cross-sectional studies.     

On the nature of micro-entrepreneurship: evidence from Argentina

We analyse the nature of micro-entrepreneurship in Argentina. We focus on whether the sector resembles its counterpart in industrialized countries, characterized by the risk-taking nature of the entrepreneurial activity, or if it is the result of labour market distortions and disguised unemployment, as in the dual economy hypothesis. Our results suggest a segmentation of the micro-entrepreneur sector. Both young uneducated and middle aged highly educated salaried workers have the highest likelihood of becoming entrepreneurs. However, the first segment has a high probability of becoming own-account workers, while the probability of becoming micro-entrepreneurs with employees is strictly increasing in both age and education. Moreover, the probability of entrepreneur failure (as measured by the transition to the salaried sector) has an inverted U shape, implying that both high and low skill individuals are more likely to remain entrepreneurs.     

The Beveridge curve in Europe: new evidence using national and regional data

The Beveridge curve depicts the empirical negative relationship between job vacancy rate and unemployment rate, and reflects the efficiency of the job matching process. Movements along a fixed downward sloping Beveridge curve are associated with cyclical shocks, while shifts of the curve arise from structural factors that alter the matching efficiency between job vacancies and unemployed workers. National and regional data on job vacancies and unemployment are combined to estimate the Beveridge curves of five European countries and their regions, focusing on the period 1975 to 2004. I also analyse whether shifts in European Beveridge curves are due to changes in the composition of the unemployed pool, labour market rigidities or cyclical and structural shocks. The empirical evidence suggests that changes in labour market rigidities, long term unemployment, as well as cyclical shocks are responsible for outward shifts in European Beveridge curves. I also find evidence of nonlinearities in the relation between unemployment and labour market institutions.     

Monetary Expressions of Labour Time and Market Prices: Theory and Evidence from China,Japan and Korea

This article presents estimates of labour values and prices of production following two approaches: the first is based on the classical and Marxian theory of value and distribution; the second on the so-called ‘new solution’ to the ‘transformation problem’ and its variant, the Temporary Single-System Interpretation (TSSI). The major advantage of the latter approach is its simplicity, along with the relatively low data requirements. Our empirical findings from the economies of China, Japan and South Korea suggest that both approaches give estimates of labour values and prices of production which are extremely close to each other as well as to actual market prices. On further examination, however, we conclude that our empirical findings are absolutely consistent with the theoretical requirements of the classical approach and contradict those of the TSSI.     

Labour market rigidity and expansionary austerity

This study provides new evidence on how labour market rigidities affect the transmission of fiscal consolidations using a sample of 17 OECD countries. Owing to a novel empirical approach, the outcomes of consolidations are modelled as a function of employment and wage rigidities. The evidence confirms that tax-based consolidations are distortionary, while expenditure-based consolidations have wealth effects. These effects are then magnified by flexible employment and rigid wages, while they are moderated by rigid employment and flexible wages. This indicates that labour market conditions influence how fiscal consolidation is propagated in the economy by affecting both the magnitude and the transmission channels of consolidation plans. This result has crucial policy implications and suggests that the design of consolidation plans should account for the labour market structure.     

Unemployment,long-term employment relations and the determination of unit labour cost growth in US manufacturing industries

This paper examines the effect that unemployment and long-term employment relations exert on the determination of unit labour costs. The paper proceeds in three sections. Section one analyses the relationship between labour market conditions and unit labour costs by developping a simple model of a firm that relies upon dismissal threats to elicit work effort. The comparative static properties of this model suggest that a tightening of labour markets may result in an increase in unit labour costs. In addition, it is argued that the labour market disequilibrium that occurs at full employment levels of unemployment will likely result in an increase in the growth rate of unit labour costs. The second section of the paper reviews diverse theories of long-term employment relations (LTERs), each of which suggest that the presence of LTERs ought to reduce the effect that labour market conditions exert on unit labour costs. The third section of the paper presents empirical estimates of the effect unemployment and LTERs exert on unit labour costs. The central empirical findings can be briefly summarized. First, movements towards full employment increase the growth rate of wages, reduce the growth rate of labour productivity and increase the growth rate of unit labour costs. Secondly, where long-term employment relations are prevalent, the effect of unemployment on wage, labour productivity, and unit labour cost growth is diminished. The paper concludes by discussing the implications these findings have for effort regulation models and the macroeconomic foundations of microeconomic labour market structures     

Value added,wages and labour market flows at the establishment level

In this article, we analyse the connection between value added, wages and labour market flows at the establishment level. We develop a simple model to illustrate the expected comovement of these variables. For the empirical analysis, we link the new German Administrative Wage and Labor Market Flow Panel data set to the IAB Establishment Panel. We show that establishments’ hires rates have a positive and separations rates a negative comovement with establishment-specific value added, whereby hires react by more than separations. In addition, we provide evidence that establishments’ partial equilibrium reaction is an important driver for aggregate labour market dynamics.     

The minimum wage and the Lithuanian labour market

This paper presents a comprehensive and non‐standard labour market analysis based on univariate and multivariate models for wages. The novelty of this paper lies in the use of non‐normalized cointegrating vectors for labour market analysis. Wages are the basis of labour market models, as well as the key factor for employees and employers; therefore, the central analytical axis is a classical wage bargaining process, where one side requires and the other side proposes a certain level of wages. Analysis is divided into two parts: foremost, a careful analysis of Lithuanian wages is conducted and a univariate model for the investigation of interactions between the minimum wage and the rest of the wages is proposed; only after the minimum wage model is drafted can the multivarate model for the whole economy be built up. Briefly, the methodology used in this article can be annotated as a synthesis of sequential theoretical and empirical considerations that combine the results of theoretical macroeconomics with data‐generating patterns and stylized facts. The model is considered as the final one only if macro‐theory preconditions, statistical prerequisites, and stylized real‐world requirements are met and fulfilled. In addition, this article gives an example and a quantitatively, as well as qualitatively, motivated suggestion as to how to incorporate minimum wages into econometric models and puts forward an explanation for why it is necessary to include minimum wage dynamics into labour market analysis. The article is nothing but an empirical case study that demonstrates how many minor details have to be taken into account until a realistic labour market model is built up. Although the paper deals with the labour market, the suitable application of time series methods is the main subject of the analysis.     

An Index of Segmentation in Local Labour Markets

This study tests for the existence of labour market segmentation by exploiting the variation in industrial structure across 59 labour market areas, as defined by MSAs. By creating an index of the relative explanatory power of standard and segmented earnings function models for each area, empirical evidence supports the hypothesis that segmentation exists and that the index reflects the degree of segmentation in local labour market areas.     

Occupational Choice and Dynamic Incentives

We study an overlapping generations version of the principal-agent problem, where incentive contracts are determined in general equilibrium. All individuals are workers when young, but have a choice between becoming entrepreneurs or remaining workers when old. Imperfections in the credit market give rise to rents in entrepreneurial activities involving capital. These rents motivate poor young agents to work hard and save to overcome the borrowing constraints. With a labour market that is subject to moral hazard, the increased effort raises social welfare. Policies that reduce credit market imperfections, or redistribute income, may reduce welfare by dampening this effect.     

Labour market implications of EU product market integration

European labour markets are in a state of flux due to the changing market situation induced by international integration. This process affects wage formation through more fierce product market competition and increased mobility of jobs. This development is by some observers taken to enforce labour market flexibility, while for others it signals an erosion of social standards and in turn possibly the welfare society. Since labour is not very mobile in Europe, the effects of international integration on labour markets are mostly indirect via product market integration. We review the channels through which product market integration affects labour markets and perform an empirical analysis of the convergence and interdependencies in wage formation among EU countries. We find that integration is changing labour market structures and inducing wage convergences as well as stronger wage interdependencies, but it is a gradual process. Moreover, the present study does not support the view that international integration will lead to a 'race to the bottom' and rapidly erode domestic labour markets standards, nor that it will relieve politicians of the need to consider labour market reforms to improve labour market performance.     

The role of unemployment in wage determination: further evidence on the wage curve from Turkey

This paper presents an empirical estimation of the correlation between wages and regional unemployment rates in Turkey, more specifically it explores the role of regional unemployment rates in wage determination. The analysis builds upon a series of recent empirical studies on the wage-unemployment relationship, now commonly known as ‘the wage curve’, a downward sloping curve in wage-unemployment space. The existing studies are for most part in advanced market economies, while this paper presents one of the few attempts at a wage curve analysis within the context of a developing market economy. A cross-sectional estimation of micro level individual wage data for the Turkish labour market in 1994, suggest a statistically significant negative correlation between wages and regional unemployment rates. Separate regressions for men and women, however, show a wage curve to exist only in the male labour market. The study also presents the results on other variables of wage determination such as returns to schooling, returns to age, job tenure, gender, industrial and occupational affiliation of the worker, economic sector and union status.     

An empirical approach on labour segmentation. Applications with individual duration data

This article proposes empirical tools to account for the role of heterogeneities in the labour matching process, and shows an application to the Andalusian labour market which relies on individual data. The central idea of the paper is that the labour market is segmented, and this segmentation can be treated empirically by grouping workers, jobs and matches into labour groups according to their characteristics. In a segmented labour market the probability that a match occurs in a particular job group affects the probability that a match occurs in a particular worker group or vice versa. We propose two empirical measures related to this idea: propensity to match, and segmentation in worker and job groups. The usefulness of this empirical framework is shown by its application to different labour market analyses. Firstly, we use a clustering methodology, based on a similarity measure, to obtain a better overview of the structure of the labour market. Secondly, we propose a measure of mobility based on our similarity measure, and estimate a regression model that relates mobility to worker and job characteristics and to the economic cycle. Finally, these tools are included in an unemployment duration model. The proposed methodology may be useful in labour intermediation by helping seekers to follow a ‘roadmap’ of successful paths.