SHORT‐RUN AND LONG‐RUN IMPLICATIONS OF ENVIRONMENTAL REGULATION ON FINANCIAL PERFORMANCE

Opposing theoretical arguments exist regarding the effect of environmental regulation on financial performance. Some studies argue that environmental regulation constrains firms' abilities to exploit revenue‐enhancing or cost‐reducing opportunities. Other studies, representing the Porter hypothesis, argue that environmental regulation motivates firms to innovate, which ultimately improves financial performance. Although much of the debate focuses on long‐run effects, there are also important short‐run effects. This study provides empirical evidence regarding the short‐run and long‐run effects of Clean Water Act regulation on financial performance. To generate this evidence, we examine the effect of permitted wastewater discharge limits, on the return on sales, using panel data on publicly owned firms in the chemical manufacturing industries. We find that Clean Water Act regulation improves financial performance in both the short run and the long run with a stronger effect in the long run. These results suggest that some net benefits may be realized during a short‐run transition to comply with a tighter permitted discharge limit, with additional benefits accruing to the firm in the long run because the firm has more time to innovate. (JEL K23, L25, L51, L65, Q52)     

THE GROWTH OF FAMILY EARNINGS INEQUALITY IN CANADA, 1980–2005

In this study we document recent trends in family earnings inequality using data from the Canadian Census and provide insight into the various factors that drive changes in the family earnings distribution. Over the period 1980–95 we observe substantial increases in family earnings inequality. In contrast, we find that some decrease in inequality occurred over the period 1995–2005 although the earnings of the richest 1 percent of families increased substantially. We use semi‐parametric decomposition methods to show that increases in the employment rates of men and women, increases in their educational attainment, and decreases in assortative mating tended to have equalizing effects on the family earnings distribution. We also show that increases in the returns to higher education and increases in the proportion of single individuals as well as lone‐parent families drove increases in family earnings inequality.     

LONG‐TERM AND SHORT‐TERM CONTRACT IN A MIXED MARKET*

With a two‐period mixed oligopolistic framework, this paper analyses the interaction between the length of incentive contracts and market behaviour. Assuming an environment in which firms choose either a long‐term or short‐term contract, we examine how contracts differ between public and private firms. The results show that the contracts would differ completely among firms; public firm prefers to make a short‐term contract while private firm makes a long‐term contract.     

LONG‐RUN GROWTH AND WELFARE EFFECTS OF TAX REFORM

This paper introduces an endogenously‐determined fertility rate into a Romer‐type endogenous growth model and, accordingly, investigates the effects on fertility, economic growth and social welfare of a revenue‐neutral tax reform that involves switching from an income tax to a consumption tax. We show that, in a departure from the existing literature, tax reform could be harmful, rather than favourable, to both growth and welfare, due to an endogenous fertility rate. We also conduct a simple numerical analysis to investigate under what conditions the negative effect on growth and welfare occurs.     

OUTPUT–EMPLOYMENT RELATIONSHIP ACROSS SECTORS: A LONG‐ VERSUS SHORT‐RUN PERSPECTIVE

This paper investigates the nature of the output–employment relationship by using the Turkish quarterly data for the period 1988–2008. Even if we fail to find a long‐run relationship between aggregate output and total employment, there are long‐run relationships for the aggregate output with non‐agricultural employment and sectoral employment levels for seven of nine sectors that we consider. However, a further investigation for the output and employment relationship within a short‐run perspective does not reveal statistically significant relationships for either total employment or non‐agriculture employment, or eight of the nine sectors that we consider. Although there are various long‐run relationships between output and employment, the short‐run links between demand and employment are weak. The various implications of this for the economy and the labour market are discussed. As a result, maintaining high levels of output in the long‐run creating demand is essential for employment generation.     

UNDERSTANDING THE LONG‐RUN DECLINE IN INTERSTATE MIGRATION

We analyze the secular decline in gross interstate migration in the United States from 1991 to 2011. We argue that migration fell because of a decline in the geographic specificity of returns to occupations, together with an increase in workers' ability to learn about other locations before moving. Micro data on earnings and occupations across space provide evidence for lower geographic specificity. Other explanations do not fit the data. A calibrated model formalizes the geographic specificity and information mechanisms and is consistent with cross‐sectional and time‐series evidence. Our mechanisms can explain at least half of the decline in migration.     

SECULAR MEAN REVERSION AND LONG‐RUN PREDICTABILITY OF THE STOCK MARKET

The empirical financial literature reports evidence of mean reversion in stock prices and the absence of out‐of‐sample return predictability over horizons shorter than 10 years. Anecdotal evidence suggests the presence of mean reversion in stock prices and return predictability over horizons longer than 10 years, but thus far, there is no empirical evidence confirming such anecdotal evidence. The goal of this paper is to fill this gap in the literature. Specifically, using 141 years of data, this paper begins by performing formal tests of the random walk hypothesis in the prices of the real S&P Composite Index over increasing time horizons of up to 40 years. Although our results cannot support the conventional wisdom that the stock market is safer for long‐term investors, our findings speak in favor of the mean reversion hypothesis. In particular, we find statistically significant in‐sample evidence that past 15‐17 year returns are able to predict the future 15‐17 year returns. This finding is robust to the choice of data source, deflator, and test statistic. The paper continues by investigating the out‐of‐sample performance of long‐horizon return forecasting based on the mean‐reverting model. These latter tests demonstrate that the forecast accuracy provided by the mean‐reverting model is statistically significantly better than the forecast accuracy provided by the naive historical‐mean model. Moreover, we show that the predictive ability of the mean‐reverting model is economically significant and translates into substantial performance gains.     

LONG‐RUN VERSUS SHORT‐RUN PERSPECTIVES ON CONSUMER SCHEDULING: EVIDENCE FROM A REVEALED‐PREFERENCE EXPERIMENT AMONG PEAK‐HOUR ROAD COMMUTERS

Earlier studies on scheduling behavior have mostly ignored that consumers have more flexibility to adjust their schedule in the long run than in the short run. We introduce the distinction between long‐run choices of travel routines and short‐run choices of departure times, using data from a real‐life peak avoidance experiment. We find that participants value travel time higher in the long‐run context, supposedly because changes in travel time can be exploited better through the adjustment of routines. Schedule delays are valued higher in the short run, reflecting that scheduling restrictions are typically more binding in the short run.     

CROSS‐SECTIONAL VARIATION IN INDIVIDUALS' EARNINGS INSTABILITY

There has been considerable recent interest in earnings instability—the variability of workers' earnings around their expected earnings paths. While previous work has measured trends in instability, often to illuminate trends in inequality, this paper investigates the variation across workers. Data from the Panel Study of Income Dynamics reveal considerable differences in earnings instability across demographic and occupational characteristics, generally in accordance with prior expectations. These results can also be used to develop a person‐specific measure of instability for use in behavioral studies, and it is shown that the resulting metric correlates strongly with several decisions that are plausibly influenced by earnings risk.     

EARNINGS INEQUALITY IN USA, 1969–99: COMPARING INEQUALITY USING EARNINGS EQUATIONS

A simple decomposition method using an earnings equation is proposed by synthesizing two decomposition methodologies, those of Juhn, Murphy, and Pierce (1993) and Fields (2003), in order to study changes in earnings inequality in America during the last three decades in the 20th century. The proposed method enables us to compute both aggregate and detailed decompositions of changes in earnings inequality. The decomposition of earnings inequality change during the last three decades in 20th century shows that the increase in earnings inequality in America was caused by changes in the wage structure and the distribution of unobservables. The premium to education contributes substantially to the widening of earnings inequality during the 1980s and 1990s. A decreasing male wage premium contributes to leveling earnings inequality.     

OCCUPATIONAL EARNINGS BEHAVIOR AND THE INEQUALITY OF EARNINGS BY SEX AND RACE IN THE UNITED STATES*

This paper examines differences in earnings by occupations, and within occupations by sex and by race, on the basis of the 1/100 Public Use Samples of the 1960 and 1970 U.S. Population Censuses. It employs interval analysis to establish 32 categories of occupations with similar characteristics. Little relation was found between mean earnings of occupational groups and the degree of earnings inequality within them. When the figures are examined by sex, it was found that men, on average, earned over twice as much as women in both years, but women's earnings were more unequally distributed (as measured by the Gini coefficient). Women are concentrated in the traditional “female” occupations, which tend to be those at the bottom of the earnings scale, and men have a monopoly of the higher paid occupations. But mean earnings for men exceeded those for women in all occupational groups except one, even in the primarily female occupations. Standardizing first for occupational distribution and then for earnings by occupation, it was found that earnings differences between males and females within occupation had a greater impact on the overall male-female earnings ratio than did differences in occupational distribution by sex. In contrast, when the figures are examined by race, the change in occupational distribution (primarily the movement of blacks out of farming and of blacks and Spanish speakers out of personal services) was the major factor. There was also a considerable degree of earnings inequality within demographic groups. The degree of inequality was in the main reduced when the demographic groups were subdivided into occupations, but it was still substantial. Additional factors like time worked, schooling, and experience must be taken into consideration in understanding this phenomenon.     

THE POTENTIAL FOR SHORT‐RUN SHIFTING OF A CORPORATE PROFITS TAX

Can the owners of a firm shift a corporate profits tax to consumers? Not in the short run if the tax is stated as a proportion of profits and the firm is a profit maximizer. But what if the firm wishes to pursue a strategy other than profit maximization, say revenue maximization subject to a profit constraint? Under such a condition the firm's reaction to a tax or tax increase might be a price rise that captures part of the foregone profits. We show that firms which operate at a point on their demand curve that differs from profit maximization have an incentive to raise price in response to the tax – and that high cost firms have a greater incentive to raise price than do low cost firms. Our empirical analysis of the US beer industry confirms this finding, and sheds light on the Krzyzaniak–Musgrave analysis of the 1960s which suggested that the corporation income tax produced significant short‐run shifting.     

LONG‐TERM AND SHORT‐TERM EQUITY MARKET PRICE INTERACTIONS BETWEEN AUSTRALIA AND THE CHINESE STATES*

This study investigates the extent and manner of long‐term and short‐term price interaction between the equity market of Australia and those of China, Hong Kong, Singapore and Taiwan taking into account the effect of the Asian financial crisis. It uses cointegration and generalised forecast variance and impulse response analyses. The study finds no long‐term price relationship between the equity markets of Australia and the Chinese states. The short‐term evidence indicates that Australia was only significantly interdependent with Hong Kong during the pre‐Asian crisis period and with Hong Kong and Singapore during the post‐crisis period. Australia and these markets react to a shock from each other immediately during the first day and complete this reaction by day two. These findings are useful for investors and policy makers, especially in light of the economic importance of these nations and China's recent admittance to the World Trade Organisation.     

EARNINGS INEQUALITY, LABOUR SUPPLY AND SCHOOLING IN HUSBAND–WIFE FAMILIES

This paper describes the association between market work and earnings inequality across families over the life cycle and over calendar time with special attention to the different experiences of college‐educated and high‐school‐educated people. A concise and effective accounting framework is developed that allows for an assessment of the effect of the growing market employment of married women on family earnings inequality. Applying this framework to pseudo‐panel data from successive Current Population Surveys indicates that the increase in wives' employment has diminished the growth in family earnings inequality especially for well‐educated couples. Inferences about the level and change in earnings inequality depend on the degree of labor market attachment of the people studied especially in the case of wives.     

INEQUALITY OF OPPORTUNITY IN EARNINGS AND CONSUMPTION EXPENDITURE: THE CASE OF INDIAN MEN

The paper associates inequality of opportunities with outcome differences that can be accounted by predetermined circumstances which lie beyond the control of an individual, such as parental education, parental occupation, caste, religion, and place of birth. The non‐parametric estimates using parental education as a measure of circumstances reveal that the opportunity share of earnings inequality in 2004–05 was 11–19 percent for urban India and 5–8 percent for rural India. The same figures for consumption expenditure inequality are 10–19 percent for urban India and 5–9 percent for rural India. The overall opportunity share estimates (parametric) of earnings inequality due to circumstances, including caste, religion, region, parental education, and parental occupation, vary from 18 to 26 percent for urban India, and from 16 to 21 percent for rural India. The overall opportunity share estimates for consumption expenditure inequality are close to the earnings inequality figures for both urban and rural areas. The analysis further finds evidence that the parental education specific opportunity share of overall earnings (and consumption expenditure) inequality is largest in urban India, but caste and geographical region also play an equally important role when rural India is considered.     

ADDICTIVE DRUG USE MANAGEMENT POLICIES IN A LONG‐RUN ECONOMIC MODEL*

A model of illicit, addictive drug use is proposed when users have foresight. Impacts of drug use penalties, penalties on drug use‐related crime, support for drug user rehabilitation as well as the effects of health‐related, harm‐minimisation policies are analysed. In the short run, government policies impact only on the drug use intensities of existing addicted and casual users. Longer term policy‐induced user‐cost changes impact on new user and addict numbers through their effect on recruitment into addiction and quit dynamics. Effects of policies on user numbers, usage intensities and impacts on long‐run social costs are analysed over this long‐term horizon. The model provides a setting for analysing the long‐run effects of illicit drug management policies on the social costs of illicit drug use and allows assessment of drug use abstinence and harm minimisation policy tradeoffs.     

LABOR MARKET CONDITIONS AT SCHOOL‐LEAVING: LONG‐RUN EFFECTS ON MARRIAGE AND FERTILITY

In this study, we assess the long‐run impact of labor market conditions at the time of school‐leaving on marriage and fertility outcomes. We draw data from the National Longitudinal Survey of Youth 1979. Our sample left school between 1976 and 1989, and we use variation in the state unemployment rate at the time of school‐leaving to identify persistent effects. We find that men who left school when the state unemployment rate was high are less likely to be married and have children at age 45, but are more likely to be divorced. Women, however, are more likely to have children. (JEL J1, J2)     

LONG‐RUN DETERMINANTS OF JAPANESE EXPORTS TO CHINA AND THE UNITED STATES: A SECTORAL ANALYSIS

During the period 1971–2007, Japanese sectoral exports to China and the United States depended on real exchange rate fluctuations and external demand (GDP of the country of destination). This result holds for both geographical destinations and for all six sectors under investigation in this study: foods, textiles, metal products, chemicals, non‐metal products, and machinery and equipment. For both China and the United States and for almost all sectors, the real exchange rate fluctuations and GDP have had the expected effects. Real appreciation of the yen and greater uncertainty derived from increased exchange rate volatility have reduced Japanese exports.     

IMMIGRATION, POPULATION HETEROGENEITY, AND EARNINGS INEQUALITY IN HONG KONG

This paper analyzes the heterogeneity effect of immigration on earnings in-equality by decomposing the aggregate measure of total inequality. The analysis shows that a substantial portion of an increase in measured inequality could be due to shifts in shares of heterogeneous population groups caused by immigration policy rather than by widening earnings dispersion within these groups. The analysis is illustrated with census data of Hong Kong from 1981 to 1991. Income redistribution policy based on measured total inequality when there are shifts in population shares could be misguided.