Tax Level and Tax Internalization Effects on Union Wage Bargaining

High taxes and generous social benefits are often blamed for causing unemployment. The conventional view is that if taxes on labour are (too) high, jobs will be lost and that generous social benefits will exert an upward pressure on unions' wage claims. In the case where unions co-ordinate their wage bargaining strategy, this need not be the case. A simple model is used to illustrate the effects of the tax rate level and tax internalization on unions' wage bargaining strategy. A high marginal tax rate along with endogeneity of the average tax rate shifts the union's trade-off between wages and employment in favour of the latter. These shifts may have contributed to the success of the so-called polder model or tulip model of the Netherlands.     

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.     

The Dutch Transportation System in the nineteenth Century

The actual discussion on the Betuwe-line and the construction of this new railway for freight transportation from Rotterdam to Germany is placed into a historical perspective. Right from the beginning of railway history in the Netherlands, the construction of an Iron Rhine was disputed. As analytical tool, the social saving approach is used. The conclusion of this cost-benefit analysis is that it did not and does not matter that much for the level of welfare in the Low Countries or the Rhineland whether the goods from major coastal ports are transported on the river Rhine or by the four Iron Rhines.     

Game equilibrium modelling

Summary Non-cooperative game theory has in recent years become one of the main tools in the social sciences and economics. It deals with decision problems of more than one (rational) player. The actions of those players result in outcomes that are the best that may have happened to a player, given the actions of the other players. This is precisely the content of the 'Nash equilibrium' concept. It would be nice when each game had a unique Nash equilibrium. Unfortunately, both non-existence and multiple equilibria occur. An important role in game theory is played by the information available to the players. Among the economic applications are: the Theory of Industrial Organisation, Bargaining and the Economic Theory of Information.Comments by Eric van Damme and Casper de Vries on an earlier draft of this paper have greatly improved the presentation. I have benefited from the comments of the editor and an anonymous referee ofDe Economist. For all omissions, all possible errors and the revealed views in this paper, I alone am responsible.     

Substitution assumptions versus empirical evidence in manpower planning

Summary There exist basically two manpower planning methodologies. Firstly, the manpower requirements approach which stipulates that there are needs in the economy for given numbers of qualified persons in the labour force. Secondly, the rate of return approach which focuses on the costs and benefits of producing one extra qualified person at the margin.This paper contrasts the theoretical foundations of the two approaches with particular emphasis on the degree of substitution between different types of educated labour. The empirical evidence on elasticities of substitution is reviewed and it is concluded that the cost-benefit model fits better the real world.I am indebted to Dr. Christopher Dougherty for reading a draft of this paper and making many important corrections.     

Policies for economic growth

Summary The old growth theory of the 1950s led to certain conclusions about the sorts of economic policies that would promote economic growth, and also about their limitations. The new growth theory of the 1980s makes much stronger assumptions and leads to correspondingly stronger conclusions about the scope of growth-promoting policy. This article argues that: (1) empirical work so far has neither confirmed nor denied the strong assumptions underlying the new theory; (2) the theory is worth pursuing because of its intrinsic interest and the possibilities it opens up; (3) whatever the final verdict on the new theory, both theory and evidence support the belief that significant long-run gains, even if not permanent changes in the growth rate, can be achieved by increased investment in the broadest sense, including human capital, technological knowledge, and industrial plant and equipment.Fifth Tinbergen Lecture delivered on October 4, 1991, in Amersfoort for the Royal Netherlands Economic Association     

Health care system collapse in the united states: Capitalist market failure!

Summary When compared with other industrialized free-market economies, the United States has the highest per capita health expenditure, yet, Americans are the least satisfied with their health care system. This industry has been confronted with serious problems resulting in a departure from the Pareto efficient conditions. There are many circumstances under which this departure may occur, one such cause is market failure. Sources of market failure in the health care industry are identified as: 1) lack of competition; 2) insufficient information; 3) inadequate access to health care services; 4) presence of externalities; and 5) a persistent disequilibrium in the hospital, physicians, and nurses markets. The pricing of physician's services has often been described as that of a discriminating monopolist. Through market segmentation and patient demand manipulation the physician is able to charge different prices for virtually identical services. One form of market segmentation is that of physician specialization and sub-specializations thus contributing to the explosion in medical costs. This paper concludes that America's health care industry has reached a crossroad. A national health insurance is needed including the implementation of uniform pricing and the discouragement of sub-specializations with its price discriminatory practices. But National Health Insurance comes with a price of its own, the possible development of a medical-industrial complex.We are grateful to the anonymous referee(s) for valuable comments that enhanced the writing of this paper and we would like to extend our appreciation to Mr Qi Zhou, Graduate Assistant at Bryant College, for his contributions to this research project.     

Trade policies,imperfect competition,and endogenous growth

Summary This paper analyses the effects of trade policies in a general equilibrium two-conutry model with imperfect competition. This model generalizes the models of monopolistic and Cournot competition. Trade is shown to be welfare-increasing in the monopolistic completition model. The same holds true in the case of endogenous growth. In the model of Coumot competition, the welfare effects of trade policies depend upon the type of entry and exit. Indeed, it is possible for two countries to increase their welfare by pursuing a coordinated policy of protection. In an endogenous growth setting, the validity of the latter finding depends upon the consumer rate of time preference.At the time of writing, the author was affiliated with the Ministry of Economic Affairs. An earlier version of this paper was presetned at the ECOZOEK-day, June 11, 1993, Tilburg and was awarded theKVS-prize 1993 of the Royal Netherlands Economic Association. The author would like to thank an anonymous referre, P.A.G. van Bergeijk, R.A.de Mooij, A. Nieuwenhuis, F. van der Ploeg, J. van Sinderen, S. Smulders, and P.M. Waasdorp for useful comments. The views expressed in this paper are strictly presonal.     

On the specification of an investment function

Summary In this paper the process of investment planning is followed step by step. It is assumed that the objective of the planning is to maximize the present value of net receipts. Two alternative assumptions (perfect and imperfect competition), concerning the market where the output is sold, are analyzed. One result is the optimal (desired) quantity of capital on hand plus on order, from which investment demand (i.e. the orders to be placed) is derived. This demand is compared with available internal funds, where a positive difference between the two is supposed to be bridged only partially by external financing. The extent to which this occurs depends on the amount to be bridged. Then actual investment demand appears to be a convex linear combination of investment demand not restricted by funds available and of internal funds. The weights of the components, however, are not constants. An outline is given of the relation of the above approach to the traditional approach of maximizing profits by equalizing the marginal efficiency of investment and the marginal cost of funds. This is done by considering a two-period model in which costs of funds are explicitly introduced.The author thanks Professor W. H. Somermeyer for criticizing a previous draft of this paper.     

Art and Appropriability in Renaissance Italy and The Netherlands in the Seventeenth Century: The Role of the Academy

The concepts selection systems and appropriability are used to discuss the developments of the competitive process between painters and the strategic choices open to them in Renaissance Italy and The Netherlands in the seventeenth century. The presence or absence of an academy, an institution such as the Florentine Accademia del Disegno, is seen to be a crucial factor with respect to safeguarding appropriability in the new selection system that replaced market selection.     

Country size and ‘insulation’ from external disturbances

Summary This paper considers the relationship between economic size and vulnerability to external disturbances. In order to analyze this issue effectively a model comprising three different-sized economies is constructed. The issue of economic size and insulation is approached from this alternative perspectives depending upon the relative size of (a) the `recipient' country and (b) the transmitting country. The results of the analysis indicate that, contrary to popular belief, a small country under floating exchange rates is less severely affected by external economic events than a large economy regardless of the type of external disturbance and the degree of domestic wage indexation.This paper has been improved by the helpful comments of a referee. We alone are solely responsible for all remaining errors.     

Immigrant wages in The Netherlands: The valuation of pre- and postimmigration human capital

Summary This article presents an empirical analysis of the wages of male immigrants from The Netherlands Antilles, Surinam, Turkey and Morocco living in The Netherlands. The principal findings of the study are the following. Educational attainment before and after immigration is equally productive for the Antilleans and the Surinamese only. Among Mediterraneans, only Dutch school years of Moroccans exert significant wage effects. The Dutch labour market rewards experience accumulated after immigration at a higher rate than foreign experience. Of the differences in observed characteristics, that in the number of Dutch school years is most important in explaining wage inequality across immigrant groups.Earlier versions of this paper were presented at the ECOZOEK-dag 1989, Landbouwuniversiteit Wageningen, and at the 1989 Econometric Society European Meeting, Ludwig-Maximilians-Universität München. I appreciate comments from Christian Mulder at the latter meeting. I would also like to thank Joop Hartog, Hessel Oosterbeek and a referee of this journal for their comments on earlier drafts. This research was financed by NWO-Stichting ECOZOEK.     

Testing Korteweg's rational expectations model for a small open economy

Summary Korteweg extended the Barro, Lucas, Sargent, Wallace type of rational expectations model to a small open economy. This paper tests Korteweg's model with Dutch data. A major error in the specification and estimation is pointed out and corrected: the differenced expected variables are not defined consistently. This error implies that Korteweg's and Bomhoff's previous empirical results on the model are invalid. The test results for the corrected model indicate that this model has to be rejected for The Netherlands. The restrictions implied by an extremely simple empirical alternative are, however, not rejected.I would like to thank Dr. Th.E. Nijman, Professors F. van der Ploeg, W.H. Buiter and J.J.M. Theeuwes and Dr. A. J. de Zeeuw for their stimulus and helpful comments on previous versions of this paper, and Professor P. Korteweg for his open-minded attitude towards this research. Responsibility for the contents remains, of course, with the author. Financial help, from the Stichting Bekker-La Bastide-Fonds and the Stichting A.A. van Beek-Fonds is gratefully acknowledged.     

Mercantilism and Imperialism in the Rise and Decline of the Dutch and British Economies 1585-1815

This essay locates the rise and relative decline of the economy of the Netherlands over the period l585-l8l5 in geopolitics. It has used the rise of Britain, l688-1815 as a point of reference and for bilateral comparison, in order to validate a hypothesis that the degree of avoidable decline had less to do with inefficiencies in the economic sphere, but flowed essentially from political failures to countervail blatant and violent challenges from the new nation's mercantilist rivals – particularly France but also Britain. I concluded that a similar pattern of political complacency, cultural inertia and liberal myopia marked the response of imperial Britain to the threat from Germany after its reunification in l870.     

Smoke of leets

Summary This is a review of some of Mrs. Joan Robinson's ideas, and the author's conclusion is that these ideas do not contribute to the present state of economic theory. Her view on international trade is lopsided, her criticism of traditional capital theory goes too far, her refutation of income distribution theory is mainly unfounded. Basically, Mrs. Robinson rejects the notion of relative scarcity of capital; the author believes that this is a useful notion in economics. Moreover, her recent work shows a strong anti-empiricist tendency. If Mrs. Robinson's negative train of thought were to be applied to all concepts of macro-economic theory (total labour force, real national income etc.) these concepts would vanish in thin air. The whole of macro-economics might go up in smoke.     

Interdisciplinary economics

Summary Starting from Robbins and Hennipman and with the help of Becker and Lindenberg a theoretical framework has been constructed within which the strong points of economics and sociology are combined,viz,. the formal but relatively bare-bones modelling of economics and the often so much richer, in terms of social content, analysis of sociology. This theoretical framework also appears to enable more balanced analyses of the effectiveness and efficiency of legislation and regulation than the kind of law and economics so much in fashion at the moment, which is often not devoid of economism and in whichhomo econornicus still all too often figures as the prototype of man.(Economic Institute/Centre for Interdisciplinary Research on Labour Market and Distribution Issues (CIAV)); Associate of The Netherlands Interdisciplinary Demographic Institute (NIDI) in The Hague and the Interuniversity Center for Social Science Theory and Methodology (ICS). This article is an adapted version of my inaugural lecture.     

Rational spirits and the post Keynesian macrotheory of microeconomics

Summary The argument that post Keynesian theory rejects rationality and maximization as a basis of agent behaviour and is thus non-rational and lacking micro-foundations is contrasted by reference to Keynes' use of his early work on probability in the General Theory. Instead of presuming rational choice over perfectly known events, post Keynesian theory builds on Keynes' explanation of agents' rational beliefs in uncertain propositions about their knowledge of the world. These rational spirits lead to the recognition of the macro constraints to individual action or a macrofoundations of microeconomics linked to the role of money and to the role of liquidity preference as both a measure of rational belief and a determinant of money prices which equate the rates of return on all existing and newly produced goods. In this equilibrium prices will generally diverge from costs of production, in contrast to perfect competition but in concordance with the post Keynesian microeconomic theories of mark-up pricing.Comments by L. Hoogduin are gratefully acknowledged. He is relieved from any responsibility for my impressionistic presentation of Keynes' views on probability.     

On the theory of macroeconomic policy

Summary Jan Tinbergen originated the theory of policy in the 1950s. Here I apply it to contemporary macroeconomics. The two standard instruments of short-run demand management cannot achieve the two usual targets, full employment and price stability. With respect to those goals, these two instruments are collinear, except for small and transient effects on foreign exchange rates. But the mix of fiscal and monetary policies, relative to one another, does have important effects on the composition of national output, as between investment and consumption.I point out that policy-makers, like portfolio managers, should diversify the instruments they use when they are uncertain of their effects. I discuss some pitfalls in the empirical estimation of policy effects, especially possible misinterpretations of simple correlations, and I note that policy rules cannot be invariant to changes in macroeconomic structure. I argue that policy rules should involve responses to new information and in practice allow discretion. Finally, I suggest that Tinbergen's theory of policy needs to be extended to policy coordination among nations.Third Tinbergen Lecture delivered on October 20, 1989, in Utrecht for the Royal Netherlands Economic Association.     

The infant industry argument for protection: A reevaluation

Summary Despite its importance as an exception to the free trade case, the argument for infant industry protection has only sporadically been subjected to close theoretical scrutiny. This article helps to fill this gap by evaluating the various traditional and modern perceptions of the topic. The paper concludes that none of the existing formulations of the infant industry theory are fully satisfactory. The classical view on the argument seems too static and too restrictive, whereas the modern approaches fail to provide a convincing theoretical framework. The proposed reappraisal of the infant industry idea is based on the classical principle of comparative advantage, but places the argument in the dynamic context of modern theories.     

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.