Search frictions and labor market participation

Cross-country differences in labor market participation are often larger than differences in unemployment rates. The same holds true across demographic groups within a given economy. We argue that the interaction between labor force participation decisions and labor market frictions can help us understand these patterns. This interaction highlights dynamic aspects of the participation decision, in contrast to standard textbook treatments that emphasize static costs and benefits of participation. We extend the standard labor market search problem to allow for a third state—non-participation—and assumes that stochastic participation costs precipitate flows into and out of non-participation. We fully characterize the worker's decision problem and use numerical simulations to demonstrate how participation patterns vary with individual characteristics and with labor market conditions.     

INTERACTIONS BETWEEN WELFARE CASELOADS AND LOCAL LABOR MARKETS

This paper provides an empirical examination of interactions between welfare caseloads and local labor markets using data on caseload stocks, entries, and exits. Granger‐causality tests show that unemployment rates Granger‐cause caseload activity but caseload activity does not Granger‐cause unemployment rates. The results also reveal differential dynamics between caseloads and labor market conditions for rural versus metropolitan markets. Several models of one‐way association between caseload activity and unemployment rates are presented. The results show that higher unemployment rates are positively associated with welfare caseloads and entries and negatively related to exits. (JEL I38, R23)     

Demographic trends and international capital flows in an integrated world

This paper examines the impact of projected demographic trends on international capital flows. The analysis builds upon a ten-region overlapping generations' model of the world economy where capital is mobile across regions. Results show that, over the first half of the century, emerging regions will finance the demand of capital coming from the developed world where population aging is relatively advanced. In particular, the findings suggest that in the coming decades China will be the world's main creditor region. However, in the second half of the century, India will take over this leading position because of the predicted decline in the Chinese labor force. An additional analysis demonstrates that the economic consequences of demographic changes depend on the degree of capital market integration between regions.     

Guard labor

We explore the economic importance of the private and public exercise of power in the execution of contracts and defense of property rights. We define power and represent it in a model of growth in a modern capitalist economy, borrowing themes from the classical economists (unproductive labor, profit-driven investment), Marx (the labor disciplining effect of unemployment), and the contemporary theory of incomplete contracts (the role of monitoring and enforcement rents). We use this model to identify the resources devoted to the exercise of power, which we term guard labor as we measure these in labor units. Data from the United States indicate a significant increase in its extent in the U.S. over the period 1890 to the present. Cross-national comparisons show a significant statistical association between income inequality and the fraction of the labor force that is constituted by guard labor, as well as with measures of political legitimacy (inversely) and political conflict. Some observations on the welfare implications of guard labor conclude the paper.     

Globalization and the decline in labor shares: Exploring the relationship beyond trade and financial flows

We employ data from up to 125 countries during the 1970–2009 period to explore the relationship between globalization and labor share. Existing studies report a negative relationship between trade and investment flows and labor shares. While we also find that economic flows are often negatively related to labor shares, measures of social globalization tend to be positively related to labor shares. While greater mobility of goods and capital may be associated with increases in capital's bargaining power, all else equal, greater flows of information, ideas, and people may increase the bargaining power of workers.     

The immigration surplus and the substitutability of immigrant and native labor: evidence from Spain

How immigration affects the labor market of the host country is a topic of major concern for many immigrant-receiving nations. Spain is no exception, as a consequence of the rapid increase in immigrant flows experienced over the past few decades. We assess the impact of immigration on Spanish natives’ incomes by estimating the net immigration surplus (IS) under the assumption of perfect and imperfect substitutabilities between immigrant and native labor of similar educational attainment. To address the imperfect substitutability between immigrant and native labor, we use information on the occupational distribution of immigrants and natives of similar educational attainment to learn about the equivalency of skilled immigrants to skilled and unskilled natives. The results show that the magnitude of the IS significantly rises with the degree of imperfect substitutability between immigrant and native labor.     

International Comparisons of Living Standards by Equivalent Incomes*

We propose a measure of living standards for international comparisons. Based on GDP per capita, the measure incorporates corrections for international flows of income, labor, risk of unemployment, healthy life expectancy, household demography and inequalities. The method for comparing populations that differ in some non‐income dimension consists of computing the equivalent variation of income that would make each population indifferent between its current situation and a reference situation with respect to the non‐income dimension. This is applied to 24 OECD countries. The obtained ranking of countries differs substantially from the GDP ranking.     

The labor market effects of introducing unemployment benefits in an economy with high informality

Unemployment benefit systems are nonexistent in many developing economies. Introducing such systems poses many challenges which are partly due to the high level of informality in the labor markets of these economies. This paper studies the consequences on the labor market of implementing an unemployment benefit system in economies with large informal sectors and high flows of workers between formality and informality. We build a search and matching model with endogenous destruction, on-the-job search, and intersectoral flows, where agents in the economy decide optimally whether or not to formalize jobs. We calibrate the model for Mexico, and show that the introduction of an unemployment benefit system, where workers contribute when employed in the formal market and collect benefits when they lose their jobs, even if they obtain informal jobs, can lead to an increase in formality in the economy, while also producing small increases in unemployment. The exact impact of incorporating such benefits depends on the relative strength of two opposing effects: the generosity of the benefits and the level of the contributions that finance those benefits. We also show important policy complementarities with other interventions in the labor market. In particular, combining the unemployment benefit program with policies that reduce the cost of formality, such as lower employment taxes and firing costs, can produce greater decreases in informality and lower impacts on unemployment than when the program is applied in isolation.     

POPULATION AGING AND INTERNATIONAL CAPITAL FLOWS*

We use the neoclassical growth framework to model international capital flows in a world with exogenous demographic change. We compare model implications and actual current account data and find that the model explains a small but significant fraction of capital flows between OECD countries, in particular after 1985.     

Labor market integration policies and the convergence of regions: the role of skills and technology diffusion

We study the role of different labor market integration policies on economic performance and convergence of two distinct regions in an agent-based model. Production is characterized by a complementarity between the quality of the capital stock and the specific skills of workers using the capital stock. Hence, productivity changes in a region are influenced both by the investment of local firms in high quality capital goods and by the evolution of the specific skill distribution of workers employed in the region. We show that various labor market integration policies yield, via differing regional worker flows, to distinct regional distributions of specific skills. Through this mechanism, relative regional prices are affected, determining the shares that the regions can capture from overall consumption good demand. There occurs a trade-off between aggregate output and convergence of regions with closed labor markets resulting in relatively high convergence but low output, and more integrated labor markets yielding higher output but lower convergence. Furthermore, results differ substantially in several respects as distinct labor market opening policies are applied.     

Economic growth, labor market and demographic patterns

This study addresses the dynamic interaction between income growth, patterns of demographic variables, and characteristics of the labor market. We attempt to provide an endogenous explanation for the origin and nature of long-run sustained oscillations in the population and in economic variables. First, we develop an economic growth model containing unemployment. The resulting dynamics reveal that the emergence of irregular sustained oscillations is related to the lack of sensitivity in wage growth to changes in the employment rate. Next, labor force growth is endogenized in the basic model through micro-founded fertility choices of individuals. By introducing the endogenous fertility rate into the basic model, we generate a demographic transition. Next, consistent with Malthusian cycle literature, the inevitable time lag between individual reproductive decisions and subsequent market needs, in conjunction with a highly specialized labor force, appear to be the primary source of such long-run oscillations. Finally, the model predicts that raising the age of entry into the labor force increases economic growth.     

Orderly exits from adjustable pegs and exchange rate bands

This paper examines the exit process from adjustable pegs and exchange rate bands, and the role of capital flows in these exits. It dwells on the experience of various countries, including Chile, Colombia, Egypt, Israel, India, Poland, and Yemen. It begins by identifying conditions under which exits are sought. Next, it discusses the prerequisites for a successful exit, factors affecting the pace of exit, and the nature of the post‐exit regime. It then examines the behavior of private capital flows, interest rates, and official reserves before and after three successful exits (Chile, India, and Poland), and draws broad policy lessons.     

Job Creation and Job Destruction in a Regulated Labor Market: The Case of Austria

We study Austrian job reallocation in the period of 1978 to 1998, using a large administrative dataset where we correct for spurious entries and exits of firms. We find that on average 9 out of 100 randomly selected jobs were created within the last year, and that about 9 out of randomly selected 100 jobs were destroyed within the next year. Hence, the magnitude of Austrian job flows seems to be comparable to other countries, similar to the well-known results of Davis et al. (1996) for the United States. Job reallocation appears to be driven primarily by idiosyncratic shocks. However, job creation increases significantly during cyclical upswings whereas job destruction rises in downturns. We also find substantial persistence of job creation and destruction. The pronounced pattern of job reallocation rates falling with firm size and age continues to hold when we use a set of controls. Finally, we show that – controlling for sector and firm size composition – Austrian job reallocation rates are only half the rates for the U.S. This result is not surprising given the impact of tighter regulation and labor law in Austria.     

National labor markets, international factor mobility and macroeconomic instability

We consider a standard two-country environment, where one of the two countries has a rigid labor market, and analyze how global economic integration affects the economies with respect to expectations-driven cycles and steady state welfare. We show that by allowing free capital mobility, equilibrium indeterminacy is exported from the rigid wage country to the world economy. If further liberalization is permitted, by allowing free movements of labor, the scope for indeterminacy is reduced and open labor markets may produce a stabilizing effect on the global macro-economy. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries, which determines the direction of migration flows.     

A tale of two countries: Directed technical change,trade and migratory movements

We propose a North-South model that reconciles trade and production strategies, flows of innovators and the path of economic divergence, or convergence, between countries. We explain the mechanisms behind these forces and show how the technological and economic gaps can be reversed if southern countries stop imitating northern goods and, instead, produce complementary goods. Such a strategy of complementarity on production yields the necessary incentives to innovators to engage in research in southern countries, which enhances the catching-up process between countries. It is also shown that migratory movements of unskilled labor between countries are also relevant to understand the dangers and benefits of different trade strategies for economic growth. This paper suggests a positive (negative) correlation between technological innovation in the North (South) and the level of substitutability in production, while under complementarity, technological innovation catches up in the South, therefore fostering the economic catching up process. A positive correlation between inflows of skilled and unskilled labor and substitutability of production between countries is also verified.     

The Neolithic Revolution from a price-theoretic perspective

The adoption of agriculture during the Neolithic period triggered the first demographic explosion in history. When fertility returned to its original level, agriculturalists were more numerous, more poorly nourished, and worked longer hours than their hunter-gatherer ancestors. We develop a dynamic price-theoretic model that rationalizes these events. In the short run, people are lured into agriculture by the increased labor productivity of both adults and children. In the long run, the growth in population overrides the productivity gains, and the later generations of agriculturalists end up being worse-off than the hunter-gatherers. Counter-intuitively, the increase in the labor productivity of children causes the long-run reduction in welfare. In the long run, the increase in adult labor productivity only contributes to population growth.     

性别偏好与人口转型

人口转型是工业化发展过程中普遍发生的重要经济和社会现象。本文从性别偏好对生育决策的影响这个角度解释了为什么当经济发展到一定程度后,人口生育率会显著下降。本文通过动态一般均衡模型说明了资本积累和技术进步会缩小男女劳动力在生产效率上的差异,从而使男女工资的不平等减少。而性别偏好程度又取决于男女劳动回报的差异,因此经济发展会降低性别偏好的程度,提高女孩对于家庭效用的贡献,这将影响到家庭的生育决策。数值模拟的结果表明,性别偏好程度的下降对人口转型具有重要的影响,当性别偏好程度显著降低时,人口生育率会下降。     

中国省际劳动力流动的特征演变及经济合理性研究:1995-2010

通过比较1995—2010年三次人口调查数据,考察我国省际劳动力流动的特征演变及经济合理性。结果表明,1995—2010年我国省际劳动力流动数量上呈现出规模趋大,流入流出分布均呈空间极化和时间惯性,典型流入省区的流出增幅趋大,流动重心北移等特征。结构演变则表现为省际流动劳动力年龄分布趋于集中,纵比中年化与横比年轻化并存、受教育水平趋高但增幅趋小、经济型流动为主且日趋明显、中西部短期化流动倾向增强,东部和东北部则渐趋长期化、就业集中于二三次产业,且东部更趋向集中等。计量结果显示,1995—2010年的省际劳动力流动有助于促进地区经济发展和缩小省区间经济增长差距,具备经济合理性。     

Phasing out: Routine tasks and retirement

This paper studies the link between task content of jobs and exits to retirement by older workers. This research provides a comparative analysis of retirement timing in Germany and Great Britain. In Germany, workers in more routine jobs had between one and two percentage points higher probability leaving the labor market faster when compared to workers in less routine occupations. The relationship is robust and relatively constant over time. In Great Britain, by contrast, workers from routine and non-routine jobs appear to leave the labor market with a similar timing. I contend that institutional characteristics can explain the differences across countries.     

Job creation and job destruction in the presence of informal markets

In developing economies, the fraction of informal workers can be as high as 70% of total employment. For economies with significant informal sectors, business cycle fluctuations and labor market policy interventions can have important effects not only on the unemployment rate, but also on the allocation of workers across regulated and unregulated jobs. In this paper, using worker flows data from Brazil, we build, calibrate, and simulate a two-sector search and matching labor market model, in which firms have the choice of hiring workers formally or informally. We show that our model can explain well the main cyclical patterns that lead to those cyclical reallocations. We also show how the effect of government interventions in the labor market depend on the magnitude of the reallocation of labor across regulated and unregulated sectors. For our calibration, policies that decrease the cost of formal jobs, or increase the cost of informality, raise the share of formal employment while reducing unemployment.