A Fiscal Stimulus and Jobless Recovery

We analyze the effects of a government‐spending expansion in a dynamic stochastic general equilibrium model with Mortensen–Pissarides labor‐market frictions, deep habits in private and public consumption, investment adjustment costs, a constant elasticity of substitution (CES) production function, and adjustments in employment at both intensive and extensive margins. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.     

Inflation and output dynamics in a model with labor market search and capital accumulation

In a sticky-price model with labor market search and habit persistence, Walsh (2005) shows that inertia in the interest rate policy helps to reconcile the inflation and output persistence with empirical observations for the US economy. We show that this finding is sensitive with regard to the introduction of capital formation. While we are able to replicate the findings for the inflation inertia in a model with capital adjustment costs and variable capacity utilization, the output response to an interest shock is found to be too large and no longer hump-shaped in this case. In addition we find that the response of output to a technology shock can only be reconciled with empirical findings if either the adjustment of the utilization rate is very costly or there is only a modest amount of nominal rigidity in the economy.     

An Empirical Study of Dynamic Labor Demand with Integrated Forcing Processes

In this paper, we examine a version of the Sargent (1978) and Kennan (1979) labor demand model under the assumption that the forcing processes are nonstationary. We derive a simple model of dynamic labor demand and highlight the important econometric and time-series implications of the optimization problem. The empirical results are surprisingly favorable and consistent with the underlying dynamic theory. Specifically, we find estimates that imply adjustment costs are about fourfold more important than disequilibrium costs in determining the dynamic demand for labor.     

Measuring Price Responsiveness Under a Profit Maximization Framework

The distinguishing feature of the study is in using a globally flexible functional form that permits one to calculate different types of elasticities under both constant and variable output hypotheses. The Symmetric Generalized McFadden cost function alongwith the output supply condition form the basis of the econometric model. To measure inputsubstitutabilities, we used Alien-Uzawa, Morishima, and Shadow elasticities of substitution. Empirical results, based on 300 farm households from West Bengal, India, show that fertilizer is most price sensitive input. It is a gross substitute for manure and human labor but complement to bullock labor. Manure is a gross substitute for all the inputs whereas human labor is gross complement to bullock labor. Using the Morishima measure we find that the fertilizer and bullock labor are complements when the price of the latterchanges. Similar complementary relationship is found between bullock and human labor due to changes in the price of human labor. All other inputs are Morishima substitutes. The Shadow elasticity of substitution estimates indicate that all factors are substitutes. The estimate of returns to scale indicates the presence of diminishing returns to scale.

     

Adjustment costs and threshold effects in factor demand relationships

It has been recently argued that producers may not respond to every input price change in the way that a linear factor demand model would predict. This lumpy response is due to adjustment costs that are inherent in the act of adjusting the mix of inputs applied in the underlying production technologies. This study aims to provide a solid conceptual framework for these nonlinearities in factor demand relationships. Industry-specific implications of convex and non-convex adjustment costs for the linearity of the factor demand relationships as well as price and substitution elasticities are explored. A two-regime threshold system of factor demand equations is estimated for several manufacturing industries in the United States. Empirical results suggest significant threshold effects in the factor demand relationships in most nondurable goods sectors. The size and the nature of thresholds depend upon industry characteristics, including input composition and (non)convexity of underlying adjustment costs. Complete matrices of price and substitution elasticities for each industry are derived using estimates of threshold factor demand systems. Discussion of two contrasting cases in greater detail sheds light on how the effect of price shocks on factor demand relationships varies across industries with different adjustment cost structures.     

Labor protection and government control: Evidence from privatized firms

In this paper, we examine whether labor protection determines the decision to retain a golden share in privatized firms. Using a sample of firms privatized in developing and industrialized countries, we find a negative relation between the likelihood of observing a golden share and labor protection. However, we find that this relation does not hold in the post-financial crisis period, suggesting that the recent crisis is associated with an increase in government control. Furthermore, we show that privatized firms in countries with strong labor protection are penalized with a higher cost of equity. Overall, our results underline the importance of labor protection for an important government control mechanism, namely golden shares, as well as for equity financing costs of privatized firms.     

Dept and input misallocation of agricultural supply and marketing cooperatives

Kim and Maksimovic provide an empirical model to examine the effect of dept on a firm. Their model is adopted to examine agricultural supply and marketing cooperatives. Using a short-run variable cost function, we find firm efficiency decreases as dept increases. A US$1 increase in indebtedness increases total short-run variable costs by US$0.0167 or roughly 1.67% Dept tends to shift input usage away from labour inputs. A test developed by Conrad and Unger is applied to determine whether the agricultural supply and marketing cooperatives are at a long-run equilibrium capacity. It is found that most of the cooperatives were overinvested in capacity. However,dept does not explain this overinvestment. Finally,the effect of dept on total productivity over the study period is examined. It is found that dept has had a small positive impact on total factor productivity growth. Scale economics and non-optimal capacity had large impacts on total factor productivity. Although dept is associated with short-run misallocation of resources, we find little evidence that dept is associated with long -run suboptimal capacity.     

Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records

We show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms. We develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs. We present evidence supporting three predictions of this model by analyzing bunching at kinks using Danish tax records. First, larger kinks generate larger taxable income elasticities. Second, kinks that apply to a larger group of workers generate larger elasticities. Third, the distribution of job offers is tailored to match workers' aggregate tax preferences in equilibrium. Our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods.     

Tax revenue and the marginal cost of public funds in Sweden

We assess the welfare cost of raising a marginal unit of tax revenue in a balanced-budget, general-equilibrium framework. The calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin. ‘Best-guess’ assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0.67 and 4.51 at prevailing tax rates in Sweden. Alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs. Marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply.     

ARE WAGE INCREASES IN CHINESE STATE INDUSTRY EFFICIENT? PRODUCTIVITY IN NANJING'S MACHINE-BUILDING INDUSTRY

Since China's economic reform began, wages in state enterprises have increased at rates much faster than the rate of price inflation. This paper investigates the source of this rapid wage increase for a sample of Chinese state-owned machine-building enterprises to determine whether increased wages can be best explained by changes in productivity, changes in the output market, or changes in input markets. CES production function estimates find the marginal product of labor was stagnant between 1980 and 1992 but initially higher than wages. Rising wages were therefore consistent with other evidence that the reform process cost the state sector its labor monopsony. ( JEL P31)     

On-the-job human capital accumulation in a real business cycle model: Implications for intertemporal substitution elasticity and labor hoarding

A substantial fraction of a worker's time at work goes to acquiring human capital. This paper explicitly considers on-the-job human capital accumulation from the perspective of time invested for acquiring skills and learning by doing in an RBC model and shows that the inability to account for human capital accumulation leads to a substantial bias in conventional estimates of intertemporal substitution elasticity.Our main results are based on the standard intuition that the opportunity cost of time invested in acquiring human capital moves procyclically, so that on-the-job time invested in acquiring human capital is “counter-cyclical.” Furthermore, the true wage rate becomes less procyclical, while production hours become more procyclical than total hours at work. The overall results can be viewed as providing a micro foundation for labor hoarding models without adjustment costs.     

VERTICALLY INTEGRATED PRODUCTIVITY MEASURES: TESTS OF STANDARD ASSUMPTIONS

In this paper we use an input-output framework to examine two criticisms of standard measures of total factor productivity. These criticisms are (1) that the contribution of capital to productivity growth is underestimated, and (2) that the use of cost shares to weigh factor input contribution is questionable. Using various vertically integrated productivity measures we find that capital's productivity contribution is underestimated in the neoclassical formulation. We also find that in a Pasinetti-Rymes growth model, factor shares do not approximate output elasticities. We conclude that the argument made by Pasinetti, Rymes, and others is supported, that in long-run productivity analysis capital should not be treated as a primary input, but should be measured as an intermediate, produced input.     

Supply-side effects of strong energy price hikes in German industry and transportation

This article studies the short-term effects of energy price hikes on the supply of industrial goods and transport services including the repercussions on remuneration of input factors. The empirical analysis is based on a theoretical model, which assumes that the output good is produced by capital, labour and energy according to a nested production function framework where capital and energy are combined by a CES function at the intermediate stage. The output responses to energy price changes are derived, using estimates of the elasticity of substitution. While industry suffered more from the oil price shock of the late 1970s than from that of the early 1970s and the 2004?C2008 upsurge, evidence suggests the reverse for transportation. Regarding the impact on income distribution, both sectors share the same pattern, whereby in the recent episode, rising energy costs were more than compensated by falling unit labour costs, while in the 1970s, cost structures had been strained by an expansive wage policy in addition to the oil price shocks.     

Intertemporal production and intertemporal substitution in output supply and input demand

This article presents an intertemporal model of production with multiple inputs to investigate substitution opportunities facing firms over time. The firm’s intertemporal profit maximization problem is characterized with the familiar cost function, and various intertemporal substitution elasticities are delineated for output supply and input demand. The absence of intertemporal substitution in production can imply production smoothing, and allowance for intertemporal substitution in labour demand reinforces the prediction of the real business cycle model. For aggregate US manufacturing, we find substantial substitution in output supply and labour demand over time due to intertemporal changes in output price and wage rates.     

Varying Political Economy Weights of Protection: The Case of Colombia

In this paper, we examine trade policy determinants and trade reform in a developing country setting using a political economy model. The government determines tariffs by balancing the political support from producers vs. consumers, while placing a higher political weight on producers’ welfare relative to average citizens. We then expand the model in several directions to guide our subsequent estimations at the three‐digit industry level for Colombia between 1983 and 1998. We account for import substitution motives for protection but describe how the government's move away from these policies leads to unilateral trade liberalization. We innovatively allow the political weights to vary based on key industry variables beyond a common denominator. The sectors with higher employment, labor cost, and preferential trade agreement (PTA) import shares receive a larger political weight compared to otherwise similar sectors. The novelty of our approach is estimating the effect of sectoral characteristics on protection filtered through the political weights. We obtain more realistic estimates for these weights and provide some evidence for a slowing down effect of PTAs on trade liberalization.     

中国工业部门的能源替代研究——基于对ALLEN替代弹性模型的修正

To overcome the drawbacks in estimating the rate of input substitution in existing econometric models, our paper is first to estimate the absolute/net rate of input substitution of capital and labor for energy in China’s industrial sector. Based on trans-log cost function with constant elasticity of substitution and combined MES method with technology progress and output effect, our paper finds a significant substitution relationship between labor and energy and an uncertain substitution relationship between capital and energy with some complementary characteristics. Furthermore, technology progress and output effect are found to have enhanced the substitution of labor for energy in the past 30 years. Based on these empirical findings, constructive suggestions are made concerning the medium and long-term development strategy of energy in China’s industrial sector. __________ Translated from Shuliang jingji jishu jingji yanjiu 数量经济技术经济研究 (The Journal of Quantitative & Technical Economics), 2008, (5): 30–42     

Measuring resource scarcity in non-renewable resource with an application to oil and natural gas in Alberta

In this paper annual Canadian exploration data are used to estimate a multiple-output translog exploration cost function. A new definition of depletion is introduced and its estimated coefficient is found to be statistically significant. The fitted cost function parameters are then used to obtain estimates of the marginal costs of exploration for oil and gas. Our estimated marginal exploration costs are smaller than in previour studies because we have allowed for technical progress which offsets the depletion effects. These marginal cost estimates are employed, along with previous estimates of exploration rents, to measure resource scarcity. We find some evidence for the increased scarcity of oil and gas in Alberta. For oil there is a 10.1% per year increase in scarcity along the trend line while for natural gas there is a 2.4% per year increase in scarcity along the trend line.     

A dynamic profit function with adjustment costs for outputs

It is well known that there are adjustment costs associated with many input factors, which delays firms response to changes in relative prices. Although adjustment costs are implicitly acknowledged when a cost rather than profit function is used, little attention has been given to adjustment costs for outputs. However, in many cases there will also be adjustment costs associated with changes in the product mix for multioutput firms. In this paper we formulate a firm’s optimization problem in a profit maximizing set up that allows adjustment costs for all netputs from which it follows that adjustment cost for some factors affect the adjustment of both inputs and outputs. We also show that one can test whether a factor is quasi-fixed or fully fixed.      

Trade, Skills and Adjustment Costs: A Study of Intra-Sectoral Labor Mobility

The relationship between the ability of workers to change job, sector or industry and the short‐run adjustment costs associated with a reallocation of labor is the subject of lively debate among academics. This paper examines recent sector and industry level labor market adjustment in the UK using data from the Quarterly Labour Force Survey. We explore the link between the nature of UK trade patterns and labor adjustment within the manufacturing sector and employ a multinomial logit approach to examine the determinants of “within” and “between” industry mobility. By controlling for individual skill specificity we find some evidence of a link between intra‐industry trade and intra‐industry labor adjustment.     

The cost of labor adjustment: Inferences from the gap

This paper studies the aggregate implications of micro-level labor adjustment costs. Caballero and Engel [Caballero, R., Engel, E., 1993. Microeconomic adjustment hazards and aggregate dynamics. Quarterly Journal of Economics 108, 313–358] find a dependence of aggregate employment growth on the cross sectional distribution of “employment gaps.” This paper uses those results as moments in an indirect inference procedure to infer the underlying labor adjustment costs. We specify a dynamic optimization problem at the plant level, allowing for both convex and non-convex adjustment costs. Consistent with evidence at the micro level, our findings indicate that non-convex adjustment costs are necessary to match these aggregate moments.