Market Rigidities and Labour Market Flexibility: An International Comparison

The effects of product and labour market rigidities on labour market dynamics are analysed using a panel of two-digit ISIC level data for seven OECD countries. As expected, employment protection was found to slacken labour market flows. Centralized wage bargaining also reduced the degree of job turnover, although a priori the effect of centralized wage bargaining on labour market flexibility is not clear. Industry subsidies have a positive impact on job reallocation by increasing job creation. The labour market dynamics are also compared in detail for two economies regarded as extremes in terms of regulations, the U.S. and Norway.     

Market Size, Technology Choice, and Market Structure

We introduce technology choice into a model of monopolistic competition and analyze the structural effects of changes in market size. A larger market leads to the adoption of a large-scale technology. If a technology switch occurs, the number of firms decreases, and a rationalizing effect arises: individual and aggregate output increases; prices fall. This need not benefit consumers since a technology switch is associated with a decrease in product variety.     

Pitfalls in Including Current Earnings in Labour Market Choice Estimating Equations

This paper examines the conditions under which an empirical model of employment choice based on the differential in current earnings is an adequate specification when the theoretical model suggests the use of the difference in present values of the stream of lifetime earnings. The difference between the two approaches is shown to be variables for the growth rates of earnings in the employment states over which choice is being made.     

Reputation and Reciprocity: Consequences for the Labour Relation

Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one-shot and repeated) of a gift-exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that, in the repeated game, some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that long-term interaction is a "reciprocity-compatible" contract enforcement device.
JEL classification : J 30; C 91     

Displacement Effects of Active Labour Market Policy: The Youth Labour Market in Finland

In 1994 the number of workers participating in active labour market programmes in Finland was 299,000. On average there where 125,000 workers in these programmes at any one time, the average length of participation in a programme being about 5 months. In relation to the 2.5 million-strong Finnish labour force, these figures are proportionally large. In 1994 the total expenditure on unemployment amounted to 6.7 per cent of GNP of which the share spent on active labour market programmes was about 25 per cent. The study investigates the displacement effects of active labour market programmes in the youth labour market in Finland. The two age groups analysed are 15-19-year-olds and 20-24-year-olds. The results, based on a VAR analysis of quarterly data from the period 1981.1-1995.2, suggest that the displacement effects of job-creation programmes may be substantial. The study cannot, however, provide any robust estimates of the likely size of such displacement effects on youth employment in Finland. This revised version was published online in July 2006 with corrections to the Cover Date.     

Market Integration,Choice of Technology,and Welfare

This paper develops an international trade model where firms in a duopoly may diversify their technologies for strategic reasons. The firms face the same set of technologies given by a tradeoff between marginal costs and fixed costs, but depending on trade costs firms may choose different technologies. Market integration may induce a technological restructuring where firms either diversify their technologies or switch to a homogeneous technology. In general, market integration improves welfare. However, a small decrease of trade costs which induces a switch from heterogeneous technologies to a homogeneous technology may locally reduce global welfare. The model also shows that productivity differences lead to intra‐industry firm heterogeneity in size and exports similar to the “new–new” trade models with monopolistic competition.     

Unemployment Responses to 'Skill-biased' Technology Shocks: the Role of Labour Market Policy

Do skill-biased shocks that increase the spread of labour productivities, interacting with different policy regimes, explain the rise in unemployment in Europe relative to the United States in the 1980s and 1990s? The hypothesis is an implication of a version of the Mortensen and Pissarides (1994) model of equilibrium unemployment which allows for worker heterogeneity. A calibrated version of the model implies that a similar unemployment increase would have occurred in the United States over this period, given changes in relative productivity by education implied by observed wage changes, had unemployment compensation and employment protection policies been at European levels.     

The Australian Labour Market and the Early Impact of COVID-19: An Assessment

From March to June 2020 was the most dramatic four months in the history of the Australian labour market. Never before has a such a substantial decrease in labour demand (and partial reversal) occurred so quickly. In this article, we present an overview of the early impact of COVID-19: the main drivers it brought into play and the consequent labour market developments. Aggregate effects and how impacts differed by type of job and worker are described. We conclude with a brief review of the main government response to COVID-19, the JobKeeper program.     

Choice of School in Australia: Determinants and Consequences

This article examines the determinants of school choice (government, Catholic or other independent schools) as well as the success in completing year 12 for cohorts of students born in 1961 and 1970. The results show that those attending Catholic and other independent schools have favourable socio-economic backgrounds. Ability has a significant and positive effect on the probability of completing year 12. There is no evidence of unobserved selection effects on the probability of completing year 12 for the 1961 cohort. For the 1970 cohort, there is negative selection into other independent schools and positive selection into Catholic schools. Decomposition results further reveal that selection on the basis of observed characteristics accounts for only a small part of the observed differences in year 12 completion rates across the three school systems. In comparison, selection on the basis of unobserved factors is an important part of the difference in year 12 completion rates. The school effects for both cohorts are much larger than those reported in previous studies.     

The Spanish Labour Market: Reforms and consequences

The institutional design of the Spanish labour market has been subjected, during the last three decades, to permanent pressure fuelled by two beliefs. On the one hand, by the assumption that a higher degree of flexibility would help to reduce unemployment; on the other, by the assumption that such increased flexibility would also help to reduce inflation rates and, consequently, the inflation gap between Spain and the rest of the European countries. The recent history of the Spanish labour market is, therefore, the history of the reforms implemented to increase the flexibility in such a market. The aim of this paper is, firstly, to describe the main features of these reforms, showing the measures implemented in order to increase the flexibility in the labour market and, secondly, to show the degree of flexibility reached in the labour market. Finally, we will briefly analyse the macroeconomic consequences of these reforms.     

The Labour Market and Inequality

Newspoll reported in 2000 that by a margin of 70 to 28 per cent, Australians would prefer the gap between rich and poor to get smaller rather than have the nation's overall wealth grow as quickly as possible. This article examines the reasons for the increase in the dispersion of earnings, and changes in unemployment and workforce participation, which are central to this concern about inequality. The major finding is that the widening dispersion of earnings and changes in labour force status are principally due to changes in the structure of labour demand in favour of more skilled jobs. The article then considers what this changing job mix implies for policy directed to maintaining income inequality.     

Labour Market Policies and Long-term Unemployment in a Flow Model of the Australian Labour Market

This paper develops a general equilibrium job matching model, which is used to assess the impact of active labour market policies, reductions in unemployment benefits and reductions in worker bargaining power on long-term unemployment and other key macro variables. The model is calibrated using Australian data. Simulation experiments are conducted through impulse response analysis. The simulations suggest that active labour market programs (ALMPs) targeted at the long-term unemployed have a small net impact and produce adverse spillover effects on short-term unemployment. Reducing the level of unemployment benefits relative to wages and worker bargaining power have more substantial effects on total and long-term unemployment and none of the spillover effects of ALMPs.     

A Characterization of Australian Unemployment Compensation: An Analysis of Labour Market Adjustment*

This paper uses a labour contracting framework to analyze the microeconomics of the Australian unemployment compensation system. We find that employers adjust labour inputs by using layoffs rather than shortened workweeks or work-sharing during economic recessions. Increases in government benefits tend to reinforce this result Countervailing influences are shown to be the severity of the income test applying to benefits eligibility and the Family Allowance Supplement in its role as supplementing the income of low-income families.     

Compulsory Superannuation and Labour Market Responses

Compulsory contributions to superannuation have significant second round effects on labour market outcomes. The effects of employer, employee and government contributions are compared and contrasted for markets with different degrees of wage flexibility. With a flexible wage, the market wage adjusts to offset most of the initial effects of the superannuation levies. However, compulsion means that many employees perceive the present value of the future retirement income to be less than the levy. The levies as a form of tax on labour lead to lower overall remuneration for employees and lower employment