Estimating utility consistent labour supply functions: Some results on pooled budget data

Demand systems AIDS, LES are augmented to include labour supply and then estimated on pooled U.K. budget data allowing for time series and cross section variation in wages. The results point to the danger of constraining the labour supply curve a-priori by use of restrictive utility systems. In addition, hypothesis relating to effects of price/wage movements on composition of ‘full income’ are tested.     

Atypical work: a threat to labour productivity growth? Some evidence from Italy

Various theories suggest the existence of a negative relationship between the use of atypical employment contracts and productivity growth, arguing that firms’ utilisation of atypical contracts may reduce the incentive to innovate and internal training, inducing firms to follow a ‘low-road’ to competitiveness, based upon cost-cutting strategies.

This paper aims to provide new evidence on the occurrence of these effects in the Italian economy, where changes in labour legislation from the mid-Nineties onwards, associated with an ‘institutional’ wage moderation period, have brought about a significant process of job creation, but also an appreciable slowdown in labour productivity.

This issue is investigated using a microeconomic approach, taking a rich source of microdata for firms and estimating a dynamic model for labour productivity on a pseudo-panel of firms for the period 2003-2008.

The results support the hypothesis of a negative impact of external labour flexibility on labour productivity growth at firm level, such effect proving stronger for small and medium than for large enterprises and of varying magnitude for the different atypical contracts.     

Segmented labour markets and the estimation of wage functions

This paper uses a stratified random sample of private sector employees to estimate wage equations for both the male labour market as a whole and six ‘segments’ of the labour market, segement which are defined with respect to the industry and size characteristics of the employing establishmen. Highly conventional results are obtained when wage equations are estimated for the male labour market as a whole, or within two segements, comprising almost half the survey population. However, one can reject conclusively the hypothesis that the same estimating equation is appropriate for modelling wage determination in all segments and if a ‘human capital’ (HK) model is, within segements, tested against more appropriate alternative hypotheses for wage determination using the Davidson and Mackinnon (1981) methodology for the testing of non-nested hypotheses, the conclusion is that one should reject the HK specification and not reject the alternative.

It is therefore argued that the disaggregation of labour market data reveals differences in the wage determination process that are not consistent with the view that labour markets are ‘dualistic’ but are consistent with the view that are segmented.     

The influence of money on prices in 14 OECD countries 1958–1975

A simple monetarist model is specified which has a reduced form relating the rate of change of prices to lagged price changes and current and lagged rates of change of money supply. The reduced form is estimated for 14 OECD countries using quarterly data for 1958–1975 and the stability of the estimated equations is examined. A policy of a constant rate of growth of money supply is found to imply a cyclical or fluctuating adjustment in the rate of price change.     

The impact of taxes on female labour supply

There is little agreement in economics on the factors influencing labour supply and hence on the impact of taxes. Within the marginal model, real wages and incomes are directing people's labour market behaviour independent of time and space, whereas the human resources approach takes account of the social environment and past behaviour. Even if strong assumptions are made, the neoclassical theory cannot predict the outcome of a wage increase. The labour supply response depends on the relative strengths of the substitution and the income effect. Since nonparticipation in the labour market is explained by a reservation wage being higher than the market wage, this is the only situation in which neoclassical theory would predict a rise in labour force participation with a wage increase. This case occured in a ‘natural experiment’ in Sweden. The Swedish tax system changed in 1971 from joint to separate taxation of spouses resulting in a substantial increase in the net wage of married women. This article investigates the impact of the change in the Swedish tax system on female labour force participation, concluding that it cannot explain the substantial rise in the participation rates of Swedish women. This is a significant result, questioning standard neoclassical theory and supporting the more institutional views of human labour market behaviour. That is that time and space as well as the social environment are important when analyzing labour supply. This will have consequences for international comparisons. Only factors which explain developments within one country might be relevant for explaining international differences, e.g. in labour force participation.     

Trade and technological explanations for changes in sectoral labour demand in OECD economies

This paper sets out to establish the main determinants of variations in the demand for aggregate labour in manufacturing and service sectors (22) for a cross-section of OECD countries (14). A relatively new panel data set is employed in the analysis, the OECD's International Sectoral Data Base. Preliminary analysis revealed that the ‘within’ sector variation in the wage share dominated overall variation for most countries and time periods. A separate dynamic model was thus generated to explain the ‘within’ sector variation in the wage share. This model contained real wages, output, the capital stock, technological change (total factor productivity) and trade (the imports to value-added ratio) as independent variables. In addition the wage level was also interacted with these explanatory variables on the presumption that skill is positively correlated with the level of wages. Because of the potential for simultaneity bias, estimation was conducted by IV and OLS. The main findings were that the capital stock and technological change were the main determinants of shifts in labour demand. While some countries reported the trade variable as significant its influence was only of slight importance in most cases. The interaction terms proved to be significant in a large number of countries. Some evidence was found that capital and technological were complementary with skill. Overall it was found that broad agreement existed across countries in the factors which influence labour demand despite considerable differences in the cross-country nature of labour market institutions.     

Wages,work, and unemployment

This paper provides new evidence on unemployment durations for individuals in Great Britain using a three state Markov framework in a competing risk setting and a nationally representative data set. The analysis is based on the premise that an individual's movements between labour market states can be represented by a Markov process. The modelling procedure combines the dynamic properties of the search approach to unemployment while using the labour supply decision at each moment in time in response to the expected wage to include participation decisions. Using this framework, we are able to determine the effect of individual characteristics, including the expected wage, on labour market behaviour. The model is estimated separately for men and women, and for young and mature workers, to investigate whether labour market behaviour differs for these groups. The validity of the Markov assumptions are tested using different model specifications, and changes in the model over calendar time are also presented.     

The making of Beveridge's Unemployment (1909): three concepts blended

The aim of this paper is to re-examine William Henry Beveridge's (1879?–?1963) early ideas on unemployment. After developing through three phases (‘from the unemployable to the unemployed’, ‘from the unemployed to unemployment’, and ‘perfection of the labour market’), Beveridge finally accomplished a coherent package of remedies for unemployment: labour exchanges with National Insurance on the basis of the living wage principle (previously unexplored but evident through his work). These three concepts, perfectly blended, formed his original and unique standpoint. By analysing this development of ideas, we can position Beveridge's doctrine of unemployment more appropriately in the history of economic thought.     

Keynes vs. the Post Keynesians on the Principle of Effective Demand *

Abstract

The American Post Keynesians – those who attach importance to the capital ‘P’ and the absence of a hyphen between ‘post’ and ‘Keynesian’– claim to be Keynes' most literal interpreters or the ‘truest’ Keynesians (Holt et al. 1998 Holt, R. P.F., Rosser, J. B. Jr. and Wray, L. R. 1998. Paul Davidson's Economics Jerome Levy Economics Institute Working Paper no. 251. Blithewood, NY (www.levy.org) [Google Scholar]: 17). This paper compares the Post Keynesian interpretation of the Principle of Effective Demand, i.e. the D/Z-model, with Keynes' own presentation in chapter 3 of the General Theory– and finds substantial differences. A re-interpretation of the D/Z-model is offered that would bring it into line with chapter 3.     

A Cross-Section Analysis of the Labour Force Participation of Married Women in Australia

'In a time when whales and seals are classified as endangered species, babies also seem to be an endangered species ˙˙˙ with so many mothers in the workforce our population growth has dropped below zero and I think the Federal government should counter that trend˙˙˙˙ Babies born in Australia are our best new Australians.' (Senator Florence Bjelke-Petersen in a speech to the Women's Action Alliance, reported in the Canberra Times, 3 June 1981 .)
The paper examines the labour supply of married women in Australia using data from the 1974 Census of Population and Housing. A number of approaches to modeling are employed. In the first instance OLS equations are estimated. These estimates are compared with instrumental variable estimates endogenizing wage rates. and with estimates from a three-equation system endogenizing fertility as well as wages. The evidence suggests that many of the factors proposed by modern theory do exercise significant influences in anticipated directions on the labour supply of married women in Australia.     

NON‐RIGID WAGES AND MERGER PROFITABILITY REVERSAL UNDER CONVEX COSTS AND CENTRALIZED UNIONIZATION

Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex costs) and centralized unionization. First, it is highlighted that a wage ‘non‐rigidity’ result applies: the post‐merger wage is higher than in the pre‐merger equilibrium. Second, it is shown that a ‘reversal result’ in relation to merger profitability actually realizes when the union is sufficiently oriented towards wages. Moreover, the higher the reservation wage, the degree of product differentiation, and the union's relative bargaining power, the higher the probability that a merger reduces profits.     

Beveridge's analysis of unemployment in 1909: the reserve of labour

Abstract

The aim of this paper is to provide a rational reconstruction of Beveridge's theory of unemployment published in 1909. First and foremost, it shows that his theory of unemployment is coherent – what Beveridge refers to as ‘the reserve of labour’ represents ‘unemployment’ as a whole; unemployment is due to the imperfection of the labour market and associated friction and the organisation of the labour market is necessary. Second, it suggests that as early as 1909, a negative relationship already existed between unemployment and job vacancies and that the segmentation of the labour market and imperfect information are key factors of friction. The first part of the paper provides a reconstruction of Beveridge's theory of the reserve of labour (1909) including causes and factors of unemployment and unemployment policies. The second part shows that certain founding principles of the ‘Beveridge curve’ (Beveridge 1944 Beveridge, W. H. 1944 [1953]. Full Employment in a Free Society, London: George Allen and Unwin.  [Google Scholar] [1953]) were already to be found in his 1909 book and that links can be established between Beveridge (1909 Beveridge, W. H. 1909. Unemployment: A Problem of Industry, London: Longmans, Green and Co.  [Google Scholar]), Phelps (1970 Phelps, E. S. 1970. The new microeconomic in inflation and employment theory. The American Economic Review, 59(2): 147–60. [Web of Science ®] , [Google Scholar]) and Pissarides (2000 Pissarides, C. A. 2000. Equilibrium Unemployment Theory, Cambridge, MA: MIT Press.  [Google Scholar]).     

Understanding the culture of markets: A reflection

This essay examines Virgil Storr’s (2013) Understanding the Culture of Markets, particularly the relationship between cultures and constitutions and the particulars of the ideal-typical ‘spirit’ of capitalism. Culture cannot be viewed as a constitution, I argue, because of fundamental differences between the two types of guidance to conduct, both for the actors within them and the researchers studying them. I also consider possibly conflicting interpretations of the idea of the animating spirit(s) of a market in the context of Storr’s example of the economic culture of the Bahamas.     

Exchange Rate Regimes and Inflation: Evidence from India

Abstract

Exchange rate stability is crucial for inflation management as a stable rate is expected to reduce domestic inflation pressures through a ‘policy discipline effect’ – restricting money supply growth, and a ‘credibility effect’ – inducing higher money demand and reduced velocity of money. Alternatively, the ‘impossibility trillema’ of Mundell (1961a Mundell, R. A. (1961a). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economics and Political Science, 29, 475–485. doi: 10.2307/139336[Crossref], [Web of Science ®] , [Google Scholar], 1961b Mundell, R. A. (1961b). Flexible exchange rates and employment policy. Canadian Journal of Economics and Political Science, 27, 509–517. doi: 10.2307/139437[Crossref], [Web of Science ®] , [Google Scholar]) predicts that in the presence of an open capital account, a stable exchange rate may lead to lack of control on monetary policy and, hence, higher inflation. Using a monetary model of Inflation, this paper investigates the impact of the ‘empirically-claimed’ de facto stable exchange rate regime on inflation in India during different sub-periods of exchange rate stability. The results show that the impact of exchange rate regime on inflation is not visible in the Indian case, which could be because of the offsetting sterilization policy undertaken by the Reserve Bank of India (RBI) during expansionary money supply growth resulting from its large-scale intervention to even out exchange rate volatility.     

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.     

Industry innovativeness,firm size,and entrepreneurship: Schumpeter Mark III?

Emphasizing the dynamics in economies and industries, Schumpeter points to entrepreneurs carrying out ‘new combinations’. His work, and in particular the Theory of Economic Development, is often interpreted as praising individual entrepreneurs setting up new firms to contribute to an industry’s innovativeness. This has come to be referred to as the Schumpeter Mark I perspective. Later, however, in his Capitalism, Socialism, and Democracy, Schumpeter has rather suggested that large incumbents are best positioned to contribute to an industry’s innovativeness (Schumpeter Mark II). In this discussion, however, the possibly different effects of structural as opposed to dynamic industry competitiveness is often not taken into account. In addition, the contribution of new and small firms to industry innovativeness are often conflated. Using New Product Announcements as a measure of innovation, we find that industries dominated by small firms prove consistently and significantly more innovative than industries where large firms dominate. Taking account of industries’ structural and dynamic levels of competition, we find that high existing and increasing levels of new firms entering an industry, exercising what Schumpeter called the ‘entrepreneurial function’, actually decrease industry innovativeness. We conclude that the contribution of small firms in terms of industry innovativeness is different from that of large as well as new firms, suggesting a Schumpeter Mark III perspective.     

Survival of the hippest: life at the top of the hot 100

We analyse the survival characteristics of recordings that reached the number one spot on the US popular music charts over the period 1955 to 2003. Our results show that there has been a statistically significant change in the time spent at number one since ‘album cuts’ were included in the compilation of Billboard?'s Hot 100. Survival time is significantly improved if the recording is by a female solo artist, or if it is an instrumental tune. We also find a significant ‘Elvis effect’.

‘I’ll never be a saint, it's true. I’m too busy surviving!’ (Madonna, 1994 Madonna. 1994. “Survival”. In Bedtime Stories Album, Hollywood, CA: Warner Brothers Records.  [Google Scholar])     

Economic status of households and labour supply to market and non-market activities mdash; some results from a poor rural economy

Assuming a given underlying utility structure for all households, we have demonstrated that the differential labour supply behaviour among household categories results owing to the different sets of constraints they face depending on their economic status and asset ownership. Using the criteria implied by the theoretical model four household gorups are defined. The labour supply functions estimated for these four groups support the theoretical result of significantly different supply behaviour. The empirical exercise, as expected, indicates that the labour supply decision of the subsistence group is guided by their need to achieve the minimum level of consumption while the middle-income households, who do not have enough non-labour income to meet their minimum subsistence need, tend to work longer hours in market activities than the workers from high-income households. However, market labour supply by high-income households is found to be relatively more sensitive to changes in the wage rate. The behaviour of the household groups differ so significantly that if an aggregate model is estimated ignoring inter-household differences, the predicted hours will grossly over-estimate labour supply to market activities.     

Assessing the impact of Nigeria's naira depreciation on output and inflation

This research examined the impact of the 3 May 1999 tornado on the Oklahoma City labour market. We estimated time series models that allow for time-varying variance in employment growth. The models include intervention variables designed to capture the tornado's effect at initial impact as well as over the post-tornado period. In terms of total employment growth, the Oklahoma City Metropolitan Statistical Area (MSA) experienced an increase in employment growth and a reduction in labour market risk in the sample period following the tornado. The analysis also examined the effect of the weather event on eight industrial sectors. Five of eight sectors experienced significant decreases in labour market risk after the tornado. Our evidence suggests that Oklahoma City and surrounding communities that make up the Metropolitan Statistical Area survived the disaster without suffering any extended adverse labour market effects. Our results indicate that at least in the aggregate, the labour market improved.

“…?what has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war?…?all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.”?–?J.S. Mill (1848 Mill, J. 1848. Principles of Political Economy, Edited by: Ashley, WJ. New York: A M Kelley Publishers. 1965 [Google Scholar])     

A Capital Controversy in Early Twentieth Century: Veblen vs. Clark

This article aims to assess the debate between John Bates Clark and the “old” institutionalist scholars — Thorstein Veblen, above all — with particular reference to the nature of capital and the functioning of the labor market. Although studies on both authors are numerous, relatively little attention has been paid to finding the crucial elements at the heart of their radical disagreement. A.J. Cohen (2014 Cohen, A.J. “Veblen Contra Clark and Fisher: Veblen-Robinson-Harcourt Lineages in Capital Controversy and Beyond.” Cambridge Journal of Economics 38, 6 (2014): 1493-1515.[Crossref], [Web of Science ®] , [Google Scholar]) convincingly argues that Veblen’s attack on Clark is in the center of the capital controversy of the 1960s and 1970s. We propose an extension of this argument, based on the idea that Veblen’s attack on Clark follows three steps. First, Veblen defined capital in money terms and, at the same time, he saw it as the accumulated technological and institutional experience of a community. Second, insofar as capital cannot be reduced to a stock of physical goods, it is logically impossible to derive a function of the marginal labor productivity from the existing stock of capital. Third, insofar as the marginal productivity of labor cannot be measured, it follows that the equality between real wage and marginal labor productivity cannot logically hold. It also follows that, since it does not exist, this equality cannot be used as a basis for establishing that the equilibrium wage is a just wage.