Wage rigidities and jobless recoveries

Real wage rigidities cause jobless recoveries. Suppose that a one-time shock reduces the capital stock below trend. If wages are flexible, they decline and employment increases at the moment of the shock, before both revert back to normal levels as the economy grows back to trend. If wages are completely rigid and the labor market is otherwise frictionless, the shock causes a proportional and permanent decline in employment, capital, output, consumption, and investment relative to trend. In a search model with rigid wages, the shock causes a persistent but not permanent decline in these economic outcomes, a jobless recovery.     

Capital Structure Equilibrium under Market Imperfections and Incompleteness

This paper generalizes Miller's supply-side equilibrium argument to other forms of capital market imperfections and incompleteness. If corporations possess a comparative advantage in dealing with these imperfections, they have an incentive to act as financial intermediaries. Corporations' attempts to profit from these intermediation activities dictate an optimal capital structure for the corporate sector as a whole, but in equilibrium the capital structure of any single firm is a matter of indifference. In addition, the positive role that corporate finance plays in completing the market restores standard perfect market results on asset pricing and the associated portfolio separation properties.     

Taxing Mobile Capital with Labor Market Imperfections

Taxing internationally mobile factors of production has been dismissed as an inefficient means of raising tax revenue. This paper addresses the question of whether it is efficient to tax capital at source when labor markets and the taxation of lumpsum income suffer from imperfections. Four reasons for taxing capital are identified: (i) institutional constraints rendering any taxation of profit income infeasible; (ii) market power in the demand for labor; (iii) market power in the supply of labor if it increases with the employment of capital; (iv) unemployment benefits that are not tied to net real wages. It is argued that the case for taxing capital is not particularly strong. By reinterpreting capital as energy the results are applicable to the discussion about ecological tax reforms.     

The business cycle implications of reciprocity in labor relations

A reciprocity-based model of wage determination is incorporated into a modern dynamic general equilibrium framework and estimated on U.S. data. The estimation reveals that rent-sharing (between workers and firms) and wage entitlement (based on past wages) are important determinants of wage setting for the model to fit the dynamic responses of output, wages and inflation to various exogenous shocks. Aggregate employment conditions (measuring workers’ outside option), on the other hand, are found to play only a negligible role for wage setting. These results are consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the determinants of wage setting.     

秘密握手协议、生产率传递与工资的规模溢价

头部企业为什么能打破市场均衡而将生产率优势转化为工资租？理论分析表明,市场份额越大,雇主与雇员之间越易达成“秘密握手协议”,即通过联合来操纵劳动供给,以抬高人均生产率并进行分割。在这一过程中,员工分割比例虽有所下降,但不足以抵消人均生产率上升的影响,进而产生工资租。以上市公司为例,市场份额位于前10%的头部企业,人均生产率对工资的传递力度仅比市场份额位于中位值附近的企业低4%,但人均生产率却高出40%以上,直接导致了较高的工资优势。进一步借鉴Blanchard and Summers(1986)的方法进行检验,发现头部企业确实存在更明显的“合谋”迹象,程度比中位值附近的企业高出近一倍。“秘密握手协议”的本质是通过限制劳动力流动阻碍工资均等化,在扎实推进共同富裕的道路上,不仅要反产品市场垄断,也要防范不合理攫取生产率红利的行为。     

On the Design of Contingent Capital with a Market Trigger

Contingent capital (CC), which aims to internalize the costs of too‐big‐to‐fail in the capital structure of large banks, has been under intense debate by policy makers and academics. We show that CC with a market trigger, in which direct stakeholders are unable to choose optimal conversion policies, does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante. The “no value transfer” restriction precludes penalizing bank managers for taking excessive risk. Multiplicity or absence of equilibrium introduces the potential for price uncertainty, market manipulation, inefficient capital allocation, and frequent conversion errors.     

The Demand for Life Insurance: An Application of the Economics of Uncertainty

Financial economists typically assume that capital income uncertainty, derived from investments in uncertain returned marketable securities, represents the major source of household consumption uncertainty. But, for many households, if not most, labor income uncertainty dominates capital income uncertainty. This study analyzes households optimal reactions to labor income (human capital) uncertainty that is derived from the possibility of their wage earners' non–survival. By introducing a risk resolution mechanism—an insurance market—and allowing for the possibility that future tastes may be state–dependent, simple demand–for–insurance equations are mathematically derived to explicitly describe households optimal responses to human capital uncertainty.     

中国资本产出、资本回报与资本流向之谜--基于劳动力价格扭曲视角北大核心

本文通过建立生产部门的要素买方垄断市场均衡模型,利用1996-2016年中国省级面板数据测算中国劳动力价格扭曲程度,并使用固定效应模型(FE)及面板固定效应的工具变量(IV)估计方法加以分析,从劳动力价格扭曲视角解答了中国资本产出、资本回报与资本流向之谜,即中国经济如何在赶超阶段面临资本深化不断加剧和TFP增长乏力的情况下,依靠劳动力价格扭曲实现低资本产出与高资本回报水平共存,从而维持长期高速资本积累以及优质的资本流向结构。实证研究表明:劳动力价格扭曲降低了资本产出效率,但这并不能掩盖由劳动力向资本方转移的垄断利润对资本回报的直接补贴,因此劳动力价格扭曲对中国维持高资本回报水平起到了重要的支撑作用,并通过高资本回报水平实现了地区资本快速积累,劳动力价格扭曲对资本流向的积极作用还体现在抑制资本"脱实向虚"及吸引外资流入。因此,应正视劳动力价格扭曲在赶超阶段的特殊作用,在矫正扭曲的过程中循序渐进,更积极采取措施规避其对资本回报和资本流向可能产生的不利影响。     

Search Frictions,Financial Frictions,and Labor Market Fluctuations in Emerging Markets

This article examines the role of the extensive and intensive margins of labor input in the context of a business cycle model with a financial friction. We document significant variation in the hours worked per worker for many emerging-market economies using manufacturing data. Both employment and hours worked per worker are positively correlated with each other and with output. We show that a search-theoretic context in a small open-economy model requires a small wealth effect to explain these regularities at the expense of a smaller wage response. On the other hand, introducing a financial friction in the form of a working capital requirement can explain the observed movements of labor market variables such as employment and hours worked per worker, as well as other distinguishable business cycle characteristics of emerging economies. These include highly volatile and cyclical real wages, labor share, and consumption.     

Downward wage rigidity and business cycle asymmetries

The growth rates of wages, unemployment and output of a number of OECD countries have a strongly skewed distribution. In this paper we analyze to what extent downward wage rigidities can explain these empirical business cycle asymmetries. To this aim, we introduce asymmetric wage adjustment costs in a New-Keynesian DSGE model with search and matching frictions in the labor market. Increasing wages is less costly than cutting them. It follows that wages increase relatively fast and thus limit vacancy posting and employment creation, but they decline more slowly, leading to a strong reduction in vacancies and employment. The presence of downward wage rigidities strongly improves the fit of the model to the observed skewness of labor market variables and the relative length of expansions and contractions in the output and the employment cycles. The asymmetry also explains the differing transmission of positive and negative monetary policy shocks from wages to inflation.     

Raising Capital in an Insurance Oligopoly Market

We consider an oligopoly market where firms offer insurance coverage against a risk characterised by aggregate uncertainty. Firms behave as if they were risk averse for a standard reason of costly external finance. The model consists in a two-stage game where firms choose their internal capital level at stage one and compete on price at stage two. We characterise the subgame perfect Nash equilibria of this game and focus attention on the strategic impact of insurers capital choice. We discuss the model with regard to the insurance industry specificities and regulation.     

中国资本市场的层次构建与转板制度——基于分离均衡模型的研究

建设多层次资本市场是缓解我国中小企业融资难和推动产业结构优化的重要环节。但是现有的研究对于为什么资本市场要分层次以及用何种机制将多层次的市场联系成有机的整体未能提供可信的理论解释。本文尝试运用分离均衡模型来构建多层次资本市场与不同成长阶段企业之间的匹配关系,并提出设立有升有降的转板制度以实现动态的分离均衡。本文并设计了分离均衡式契约安排来揭示出企业不同成长阶段的风险收益特征,以得出各层次市场的基本准入条件和转板条件。     

El sistema financiero y su efecto en la dinámica sector privado

In the framework of a closed economy, identical agents, constant returns to scale and introducing a financial market, through a model of endogenous growth the macroeconomic equilibrium is characterized and it is shown that capital distribution is perfect with the existence of an efficient financial market. Nevertheless, the capital distribution is ineffective when the financial market is not efficient, which generates distortions that increase the cost of capital and hence rate of growth decreases. At the same time, a welfare analysis is carried out to verify the impact due to both types of financial markets, an efficient one and an inefficient one.     

The Impact of Labor Market Regulations

This article investigates the impact of labor market regulationsin a setting with incomplete compliance. It takes as its startingpoint the limited evidence regarding the distortionary costsof labor market regulations and argues that there may existnatural limits to the efficiency losses engendered by such regulations.The article reviews some stylized facts regarding labor marketbehavior, presents an analytical model that may explain suchbehavior, and provides a checklist for assessing the distortionaryimpact of regulations such as minimum wages.     

Sharing rules and equilibrium in an international capital market under uncertainty

International capital market equilibrium is characterized for a world economy in which consumption preferences are defined multiplicatively over many commodities. It is shown that the set of relative asset prices under pure exchange in international capital markets depends on the real purchasing power of nominal payoffs under uncertainty and does not depend on the currency in which the nominal payoffs are denominated. A Sharpe-Lintner type international capital asset pricing model is derived as a special case. Proportional ad valorem commodity taxes and transportation costs are incorporated in the valuation model, interest rate parity and purchasing power parity are reinterpreted under uncertainty, and international differences in borrowing and lending are shown to reflect, in part, differences in risk aversion across countries.     

The anticipated real interest rate,capital utilization and the cyclical pattern of real wages

This paper develops a channel through which increases in anticipated real interest rates can be ‘expansionary’ for current aggregate labor demand and current output supply. The key feature of the model is the introduction of a user cost of capital utilization which confronts the firm with the intertemporal problem of the optimal choices of capital utilization and depreciation. The resulting variation in capital utilization and capital services in response to fluctuations in the real rate of interest shifts the marginal product of labor and, thus, the demand for labor at the same time and in the same direction that Lucas-Rapping real interest rate effects operate on labor supply. The complete model places no a priori restrictions on the cyclical pattern of real wages, thus avoiding the countercyclical real wage prediction made by Keynes and various classical writers that is rejected by the data. Estimates of a labor demand schedule for the annual U.S. data reveal a significantly positive real interest rate effect.     

Minimally altruistic wages and unemployment in a matching model with monopsony

A monopsony model with a symmetric equilibrium is developed where posting higher wages reduces employee departures. This monopsony implies that wage changes have small effects on profits so that employer altruism affects wages as well. Even selfish firms act altruistically if workers punish firms that fail to do so. If the marginal utility of income falls sharply with income, the model can explain modest responses of wages to shifts in labor demand. If there are fluctuations in the altruism required by workers, the low correlation of wages and employment and the sizes of the cyclical fluctuations in these two series can be rationalized.     

Outsourcing with long term contracts: capital structure and product market competition effects

This paper analyzes how capital structure and product market competition affect the firms’ strategic choice between outsourcing with long term contracts and outsourcing to the spot market. When outsourcing to the spot market firms are exposed to price uncertainty, whereas a long term contract allows them to set in advance the outsourcing price. We show that, to the extent that leverage and uncertainty can lead to financial distress costs in bad states of nature, firms may use long term contracts as a risk management device to hedge input price uncertainty. With a monopoly in the final product market, the outsourcing decision involves a trade-off between a positive convexity effect of input price uncertainty under the spot regime and the option to avoid financial distress costs under the long term contract regime. Moreover, product market competition among buyers can lead to an increase in financial distress costs not only for firms outsourcing to the spot market but also for firms outsourcing with a long term contract. We examine the monopolist’s outsourcing decision and derive the equilibrium for an oligopoly, and show that the equilibrium depends on the magnitude of these costs and on the level of efficiency of the supplier.     

How much inflation is necessary to grease the wheels?

Tobin's proposition that inflation “greases” the wheels of the labor market is studied using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. The simulated method of moments is used to estimate the nonlinear model based on its second-order approximation. Optimal inflation is determined by a benevolent government that maximizes the households’ welfare. Econometric results indicate that nominal wages are downwardly rigid and that the optimal level of grease inflation for the U.S. economy is about 0.35% per year, with a 95% confidence interval ranging from 0.04% to 0.87%.     

Human Capital,Bankruptcy, and Capital Structure

We derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade‐off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information. Consistent with empirical evidence, persistent idiosyncratic differences in leverage across firms also result. In addition, wages should have explanatory power for firm leverage.