Will the skill-premium in the Netherlands rise in the next decades?

While the skill-premium has been rising sharply in the US and the UK for 20 years, the Dutch skill-premium decreased for much of that period and only started to rise in the early 90s. In this article, we investigate whether the Dutch skill-premium will rise in the next decades. To answer this question, we forecast the skill-premium using the Katz and Murphy (1992 Katz, L and Murphy, K. 1992. Changes in relative wages, 1963–1987: supply and demand factors. Quarterly Journal of Economics, 107: 35–78. [Crossref], [Web of Science ®] , [Google Scholar]) and the Krusell et al. (2000 Krusell, P, Ohanian, L, Ríos-Rull, J-V and Violante, G. 2000. Capital-skill complementarity and inequality: a macroeconomic analysis. Econometrica, 68: 1029–53. [Crossref], [Web of Science ®] , [Google Scholar]) models. The Katz and Murphy model (KM) explains demand shifts by skill-biased technological change in unobservable variables captured by a time trend. In contrast, the Krusell et al. model (KORV) explains demand shifts by (observable) changes in the capital stock under a capital-skill complementarity technology. The results show that while the KM model predicts that the skill-premium will have increased by 30% in 2020, based on realistic predictions of the stock of capital, the KORV model predicts that the skill-premium will remain between ?5 and +5% of its 1996 level.     

Further investigation of the uncertain trend in US GDP

The presence of deterministic or stochastic trend in US GDP has been a continuing debate in the literature of macroeconomics. Ben-David and Papell (1995 Ben-David, D and Papell, DH. 1995. The great wars, the great crash, and steady growth: some new evidence about an old stylized. Journal of Monetary Economics, 36: 453–75. [Crossref], [Web of Science ®] , [Google Scholar]) found evidence in favour of trend stationarity using the secular sample of Maddison (1991 Maddison, A. 1991. Dynamics Forces in Capitalist Development: A Long-Run Comparative View, Oxford: Oxford University Press.  [Google Scholar]). More recently, Murray and Nelson (2000 Murray, CJ and Nelson, CR. 2000. The uncertain trend in U.S. GDP. Journal of Monetary Economics, 46: 79–95. [Crossref], [Web of Science ®] , [Google Scholar]) correctly criticized this finding arguing that the Maddision data are plagued with additive outliers (AO), which bias inference towards stationarity. Hence, they propose to set the secular sample aside and conduct inference using a more homogeneous but shorter time-span post-WWII sample. In this article we re-visit the Maddison data by employing a test that is robust against AO's. Our results suggest the US GDP can be modelled as trend stationary process     

Within-groups wage inequality and schooling: further evidence for Portugal

This article provides further evidence on the positive impact of schooling on within-groups wage dispersion in Portugal, using data on male workers from the 2001 wave of the European Community Household Panel. The issue of schooling endogeneity is taken into account by using the latest available instrumental-variable technique for quantile regression, i.e. the control-function estimator due to Lee (2007 Lee, S. 2007. Endogeneity in quantile regresssion models: a control function approach. Journal of Econometrics, 141: 1131–58. [Crossref], [Web of Science ®] , [Google Scholar]). The findings are compared with earlier results based on different techniques, i.e. the instrumental-variable estimator due to Arias et al. (2001 Arias, O, Hallock, KF and Sosa-Escudero, W. 2001. Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data. Empirical Economics, 26: 7–40. [Crossref] , [Google Scholar]) and the standard exogeneity-based estimator due to Koenker and Bassett (1978 Koenker, R and Bassett, G. 1978. Regression quantiles. Econometrica, 46: 33–50. [Crossref], [Web of Science ®] , [Google Scholar]).     

Salaried employment and earnings in Indonesia: new evidence on the selection bias

This article uses household survey data to estimate the determinants of earnings in Indonesia, a country where nonsalaried work is widespread and earnings data are available for salaried employees only. We deal with the selection bias by estimating a Full-Information Maximum Likelihood (FIML) system of equations, where selection into the labour market is modelled in a multinomial setting. We find that some estimated parameters of the earnings equation differ from a binomial selection procedure by Heckman (1979 Heckman, J. 1979. Sample selection bias as a specification error. Econometrica, 47: 153–61. [Crossref], [Web of Science ®] , [Google Scholar]), in particular for those variables with the strongest impact on the selection into the different labour-market statuses. However, the estimated returns to education are unaffected, even when we deal with the endogeneity of educational attainment following Duflo (2001 Duflo, E. 2001. Schooling and labour market consequences of school construction in Indonesia: evidence from an unusual policy experiment. American Economic Review, 91: 795–813. [Crossref], [Web of Science ®] , [Google Scholar]). Overall, our findings show that the choice of the selection rule affects the estimates of the earnings determinants in the Indonesian labour market.     

The persistence of Taiwan's output fluctuations: an empirical study using innovation regime-switching model

In this article we examine the persistence nature of Taiwan's aggregate output fluctuations by using the ‘innovation regime-switching’ (IRS) model in which the effect of an innovation may be permanent or transitory, depending on an unobservable state variable that follows a first order Markov chain. By applying the IRS model to Taiwan's real GDP data, we find that during the 1961 to 2000 period 61% (39%) of the real output shocks are likely to have permanent (transitory) effects. Moreover, the innovations in the officially identified expansion (contraction) are more likely to have a permanent (transitory) effect. These results are similar to those found in many studies of US real output fluctuations, e.g. Beaudry and Koop (1993 Beaudry, P and Koop, G. 1993. Do recessions permanently change output?. Journal of Monetary Economics, 31: 149–63. [Crossref], [Web of Science ®] , [Google Scholar]), Kim and Nelson (1999 Kim, C-J and Nelson, CR. 1999. Friedman's plucking model of business fluctuations: tests and estimates of permanent and transitory components. Journal of Money, Credit and Banking, 31: 317–34.  [Google Scholar]) and Kuan et al. (2005 Kuan, C-M, Huang, Y-L and Tsay, RS. 2005. An unobserved component model with switching permanent and transitory innovations. Journal of Business and Economic Statistics, 23: 443–54. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). However, we also find that Taiwan's output dynamics have changed drastically ever since year 2000. In particular, the shocks to real GDP have become more likely to have only transitory effect, even during the period of post-2001:IV expansion.     

Economic class and the distribution of income: a time-series analysis of the UK economy, 1955–2010

This paper contributes to our understanding of the determinants and dynamics of surplus-value using quarterly UK data, 1955–2010, and the Johansen (1988 Johansen, S. 1988. Statistical analysis of cointegrated vectors. Journal of Economic Dynamic and Control, 12: 231–54. [Crossref], [Web of Science ®] , [Google Scholar], 1991 Johansen, S. 1991. Estimation and hypothesis of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) cointegration and vector error correction model (VECM). A model is introduced to define this Marxian concept, before we explain distribution, paying attention to three forces that are traditionally seen as drivers of power in this struggle: (i) working class militancy; (ii) the size of the ‘reserve army’ of the unemployed; and (iii) political party. Our results demonstrate the ongoing relevance of Marxian economics in providing an alternative, robust and significant explanation of distribution in the post-war UK economy.     

Estimating persistence in Canadian unemployment: evidence from a Bayesian ARFIMA

The degree of persistence in aggregate Canadian unemployment is estimated within a Bayesian ARFIMA class of models. The results conclude that unemployment exhibits persistence in the short and intermediate run. The evidence of persistence is stronger than previously reported by Koustas and Veloce (1996 Koustas, Z and Veloce, W. 1996. Unemployment hysteresis in Canada: an approach based on long-memory time series models. Applied Economics, 28: 823–31. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). This persistence cast a vital implication regarding disinflation policies, Based on the unemployment rate, these policies will prove very costly in terms of lost output and – if implemented – they considerably lengthen recessions.     

Institutions and growth: evidence from estimation methods robust to weak instruments

This article focuses on the empirical approach proposed by Hall and Jones (1999 Hall, RE and Jones, CI(HJ99). 1999. Why do some countries produce so much more output per worker than others?. The Quarterly Journal of Economics, 114: 83–116. [Crossref], [Web of Science ®] , [Google Scholar]) to estimate the effect of what they call ‘social infrastructure’ on productivity across countries. We consider the issue of weak identification in their linear instrumental variables model. The evidence obtained from partially robust estimators, such as the k-class and jackknife estimators, is interpreted on the basis of Monte Carlo studies. Our findings suggest that using certain k-class estimators allows exclusive reliance on the linguistic variables to instrument for institutional quality despite their low correlation with the endogenous regressor in question.     

The Interest Rate Brake on Maturity Transformation

Must banks match asset and liability maturities, as William Barnett and Walter E. Block (2009 Barnett, William and Walter E. Block. “Time Deposits, Dimensions and Fraud.” Journal of Business Ethics 88, 4 (2009): 711–716.[Crossref], [Web of Science ®] , [Google Scholar], 2011 Barnett, William and Walter E. Block. “Rejoinder to Bagus and Howden on Borrowing Short and Lending Long.” Journal of Business Ethics 100, 2 (2011): 229–238.[Crossref], [Web of Science ®] , [Google Scholar]), as well as Ivan Jankovic (2011) Jankovic, Ivan. “Economic Calculation, Maturity Mismatching and the Credit Cycle.” New Perspectives on Political Economy 7, 1 (2011): 105–124. [Google Scholar], surmise? While we agree with these authors that issuances of fiduciary media breed financial instability, we disagree that maturity transformation represents such a case. Maturity transformation — otherwise known as borrowing short-term and lending long-term — guided by several base legal principles, does not result in the issuance of fiduciary media. Most notable among these principles is that any credit issued must be funded by borrowing of a positive duration, i.e., not via a demand deposit. We demonstrate that two factors instigate larger degrees of maturity transformation than would otherwise be the case, breeding potential instability: a continual increase in the credit supply and the provision of a lender of last resort. We also show that the interest rate is a natural stabilizing brake on the over-issuance of longer-dated credit against short-term financing.     

Explaining the Delayed Effect of Monetary Policy: The Role of Inventories and Factor-hoarding

This paper proposes a new model accounting for the delayed effect of monetary policy shocks on output. The key feature of the model is to distinguish a variety of margins (i.e., inventory adjustments, hours per worker, efforts and employments) on which firms adjust output in response to macroeconomic shock. When these multiple margins are properly introduced to an otherwise standard modern monetary business cycles model, the interplay between inventory adjustments and the one-period lag in adjusting employment can produce the hump-shaped response of output to monetary shock. Given the weak evidence on habit formation at household level found in Dynan (2000) Dynan, K. (2000). Habit formation in consumer preferences: evidence from panel data. American Economic Review, 90 (3), 391–406. doi: 10.1257/aer.90.3.391[Crossref], [Web of Science ®] , [Google Scholar] and Flavin and Nakagawa (2008) Flavin, M., &; Nakagawa, S. (2008). A model of housing in the presence of adjustment costs: a structural interpretation of habit persistence. American Economic Review, 98, 474–495. doi: 10.1257/aer.98.1.474[Crossref], [Web of Science ®] , [Google Scholar], therefore, this paper provides an alternative explanation for the delayed effect of monetary policy without relying on the habit formation.     

Insurance and rural welfare: what can panel data tell us?

Assessing the scope for insurance in rural communities usually requires a structural model of household behaviour under risk. One of the few empirical applications of such models is the study by Rosenzweig and Wolpin (1993 Rosenzweig, MR and Wolpin, K. 1993. Credit market constraints, consumption smoothing, and the accumulation of durable production assets in low-income countries: investment in bullocks in India. Journal of Political Economy, 101: 223–44. [Crossref], [Web of Science ®] , [Google Scholar]) who conclude that Indian farmers in the ICRISAT villages would not benefit from the introduction of formal weather insurance. In this article we investigate how models such as theirs can be estimated from panel data on production and assets. We show that if assets can take only a limited number of values the coefficients of the model cannot be estimated with reasonable precision. We also show that this can affect the conclusion that insurance would not be welfare improving.     

The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach

This article examines the J-curve phenomenon for 16 European transition economies. While previous studies assume a linear relationship between the exchange rate and the trade balance, this paper allows for nonlinearity. Following Bahmani-Oskooee and Fariditavana (2015 Bahmani-Oskooee, M., and H. Fariditavana. 2015. “Nonlinear ARDL Approach, Asymmetric Effects and the J-curve.” Journal of Economic Studies 42 (3): 519–530. doi:10.1108/JES-03-2015-0042.[Crossref], [Web of Science ®] , [Google Scholar], 2016 Bahmani-Oskooee, M., and H. Fariditavana. 2016. “Nonlinear ARDL Approach and the J-curve Phenomenon.” Open Economies Review 27 (1): 51–70. doi:10.1007/s11079-015-9369-5.[Crossref], [Web of Science ®] , [Google Scholar]), the empirical method used is the nonlinear cointegrating autoregressive distributed lag (NARDL) model of Shin et al. (2013 Shin, Y., B. Yu, and M. J. Greenwood-Nimmo. 2013. “Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework.” In Festschrift in Honor of Peter Schmidt, edited by William C. Horrace and Robin C. Sickles. New York, NY: Springer Science and Business Media. [Google Scholar]) in which short-run and long-run nonlinearities are introduced via positive (appreciation) and negative (depreciation) partial sum decompositions of the real exchange rate. We argue that the lack of support for the J-curve phenomenon could be due to the linearity assumption. This issue is examined by utilizing the linear and the NARDL models. Using the linear autoregressive distributed lag (ARDL) model, we are unable to find support for the J-curve phenomenon in any case. However, when the NARDL model is used, we are able to find evidence for the J-curve in 12 out of the 16 countries. This suggests that allowing for nonlinearity in the adjustment process is important when studying the J-curve phenomenon.     

Estimation of SEs for heteroscedastic and cross-sectionally correlated data

This study develops SE estimators for heteroscedastic and cross-sectionally correlated data. The new estimators are a cross-sectional version of the White and Domowitz (1984 White, H and Domowitz, I. 1984. Nonlinear regression with dependent observations. Econometrica, 52: 143–61. [Crossref], [Web of Science ®] , [Google Scholar]) and Newey and West (1987 Newey, W and West, K. 1987. A simple positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix. Econometrica, 55: 703–8. [Crossref], [Web of Science ®] , [Google Scholar]) estimators, and therefore, consistent in the presence of heteroscedasticity and cross correlation of unknown form. Unlike the estimators in the literature, these estimators can control for cross correlation even for single-period cross-sectional data.     

Two Sides of the Same Coin: Re-examining Nepotism and Discrimination in a Segmented Society

Abstract

We report the results from a series of trust games designed to distinguish racial discrimination from racial nepotism, played with a sample of high school students in Cape Town, South Africa. In contrast to the original work in this regard by Fershtman et al. (2005 Fershtman, C., Gneezy, U. and Verboven, F. 2005. “Discrimination and Nepotism: the efficiency of the anonymity rule,”. Journal of Legal Studies, 34: 371–396. [Crossref], [Web of Science ®] , [Google Scholar]), we find considerably greater heterogeneity in the way that proposers respond to the revealed racial identity of their partner, with nepotism being a dominant behavior. However, while some proposers exhibit a nepotistic bias in their offers that favors in-group members on average, others exhibit a nepotistic strategy that favors out-group members. A consequence of this nepotism is that both efficiency and equity are reduced on average.     

Export-led growth: are the results robust across methodologies and/or data sets? A case study of Latin America

We examine the export-led growth (ELG) hypothesis from a different perspective asking if the choice of data and/or methodology drives the results. We apply the Granger causality test modified by the corresponding error correction model using real export data from two common sources: the International Monetary Fund and the United Nations Commodity Trade Statistics. Additionally, to determine if the level of deflation could be a factor, we deflate the data at a disaggregated level and by a single export unit price index. Outcomes are compared to those obtained through the Granger causality procedure developed by Toda and Yamamoto (1995 Toda, H and Yamamoto, T. 1995. Statistical inference in vector autoregressions with possibly integrated process. Journal of Econometrics, 66: 225–50. [Crossref], [Web of Science ®] , [Google Scholar]) and Dolado and Lütkepohl (1996 Dolado, JJ and Lütkepohl, H. 1996. Making wald tests work for cointegrated VAR systems. Econometric Reviews, 15: 369–86. [Taylor &; Francis Online] , [Google Scholar]). We use sixteen Latin American countries to test our hypotheses. The analysis reveals inconsistencies in the results both by selection of data and methodology suggesting much of the debate regarding ELG, at least for Latin America, is fuelled by data and/or methodology choice, putting into question previous studies.     

Consumer decision making,E-commerce and perceived risks

This article studies how adoption and usage behaviour of the Internet and online shopping, respectively influence the preference to use electronic commerce to purchase different types of products. We empirically model the preference for electronic commerce when consumers have to buy different types of products and thus face different types of risks (Cox and Rich, 1964 Cox, D and Rich, S. 1964. Perceived risk and consumer decision making-the case of telephone survey. Journal of Marketing Research, 1: 32–9. [Crossref], [Web of Science ®] , [Google Scholar]). Unlike previous research, we find that consumers who have previously shopped online, display stronger preferences to buy products on the Internet irrespective of the perceived level of product-specific risks of online shopping. This article provides an interesting and novel insight into how both adoption and usage of electronic commerce impact on the attitude and risk perception of buying less predictable (more risky) products on the Internet.     

The Kyoto Protocol,market power,and enforcement

The Kyoto Protocol aims to limit aggregate carbon emissions by participating countries to 1990 emissions levels in aggregate. It also allows for the creation of a permit market in which countries will be able to buy and sell the right to emit carbon dioxide. This paper investigates how market power, held by the countries of the former Soviet Union, and enforcement of the carbon emission limits might affect the abatement and the cost of compliance with the Kyoto Protocol. To do so, it uses a modified version of the van Egteren–Weber (1996 Van Egteren, H and Weber, M. 1996. Marketable permits, market power, and cheating. Journal of Environmental Economics and Management, 30: 161–74. [Crossref], [Web of Science ®] , [Google Scholar]) model to investigate a permit market in the presence of both market power and enforcement difficulties. It then simulates the model, finding that if meeting abatement targets is the goal, regulating the supply side of the market and convex fine schedules are the most effective tools.     

Trend stationary of inflation rates: evidence from LM unit root testing with a long span of historical data

The article applies the LM univariate unit root test recently developed by Lee and Strazicich (2003 Lee, J and Strazicich, MC. 2003. Minimum Lagrange multiplier unit root test with two structural breaks. The Review of Economics and Statistics, 85: 1082–9. [Crossref], [Web of Science ®] , [Google Scholar], 2004 Lee, J and Strazicich, MC. 2004. Minimum LM unit root test with one structural break, Department of Economics, University of Central Florida. Working Paper Series [Google Scholar]) to re-examine the validity of trend stationary in the inflation rates of 11 OECD and Asian countries using a longer span of historical data. Our empirical findings are favourable to the trend stationary of the inflation rates when we control the structural breaks in series, and therefore they point to the absence of hyperinflation in the majority of the countries. The results indicate that shocks to inflation rates are temporary and soon converge, with the inflation rates being trend stationary. Hence, most structural breaks in the inflation rate occur around the Great Depression, World War I, World War II, and energy shock periods. For the convergence effect, we repeat the unit root tests utilized above for smaller sub-samples so as to provide a robust analysis. The outcomes show that by selecting a longer data span, we can catch more powerful convergent evidence. Overall, some policy implications are obtained in this article.     

Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989 Blecker, R. 1989. International competition, income distribution and economic growth. Cambridge Journal of Economics, 13: 395–412. [Web of Science ®] [Google Scholar]). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990 Bhaduri, A. and Marglin, S. 1990. Unemployment and the real wage: The economic basis for contesting political ideologies. Cambridge Journal of Economics, 14: 375–93. [Crossref], [Web of Science ®] [Google Scholar]) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E., Onaran, Ö. and Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area. Cambridge Journal of Economics, 33(1): 139–59. [Crossref], [Web of Science ®] [Google Scholar]) and Hein and Vogel (2008 Hein, E. and Vogel, L. 2008. Distribution and growth reconsidered – empirical results for six OECD countries. Cambridge Journal of Economics, 32: 479–511. [Crossref], [Web of Science ®] [Google Scholar], 2009 Hein, E. and Vogel, L. 2009. Distribution and growth in France and Germany – single equation estimations and model simulations based on the Bhaduri/Marglin‐model. Review of Political Economy, 21(2): 245–72. [Taylor & Francis Online] [Google Scholar]). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.     

Unit roots and purchasing power parity: another kick at the can

Lopez et al. (2005 Lopez, C, Murray, C and Papell, D. 2005. State of the art unit root tests and purchasing power parity. Journal of Money, Credit and Banking, 37: 361–9. [Crossref], [Web of Science ®] , [Google Scholar]) demonstrated that single-equation unit-root tests cannot provide conclusive evidence of whether real exchange rates are stationary because inference depends critically on the lag-lengths used to construct the test statistics, a result reinforced by a recent work by Sweeney (2006 Sweeney, D. 2006. Mean reversion in nominal G-10 exchange rates. Journal of Financial and Quantitative Analysis, 41: 685–708. [Crossref], [Web of Science ®] , [Google Scholar]). The purpose of this article is to revisit the issue, first demonstrating the necessary conditions under which this approach of testing for Purchasing Power Parity (PPP) is appropriate.