A cross‐country comparison of the cyclicality of real wages

Abstract.  This paper contains the first cross‐country comparison of the cyclical behaviour of real wages using microdata. After controlling for changes in labour quality, I find that real wages are strongly procyclical in Canada, the United Kingdom, and the United States. In contrast, the cyclicality of government‐published real aggregate hourly wages varies substantially across these three countries. The disparity suggests that a direct comparison of the cyclical behaviour of real aggregate wages is misleading. Finally, I show that variations in labour quality also bias the cross‐country correlation of several key labour market variables. JEL classification: J3, E3
Une comparaison transversale entre pays du caractère cyclique des salaires réels.  Ce mémoire présente la première comparaison entre pays du comportement cyclique des salaires réels à l'aide de micro‐données. Après normalisation pour tenir compte des changements dans la qualité du travail, cette étude montre que les salaires réels sont pro‐cycliques au Canada, au Royaume‐Uni et aux Etats Unis. Au contraire, le caractère cyclique des données sur les salaires horaires agrégés varie substantiellement entre ces trois pays. Cette disparité suggère qu'une comparaison directe du comportement cyclique des salaires réels agrégés peut être trompeuse. Finalement, cette étude montre que les variations dans la qualité du travail biaisent aussi les corrélations entre pays de plusieurs variables du marché du travail.     

Demographics and recent productivity performance: insights from cross‐country comparisons

Abstract.  Over the last few decades, countries have experienced quite different patterns of productivity growth. In this paper, we emphasize the role of country level demographics in explaining these differences. In particular, looking over the period 1960–2002, we show that cross‐country data support the notion that, starting in the late 1970s, countries went through a period of technological transition that lasted at least until the mid‐1990s for the fastest adjusting countries and is still proceeding for the slower adjusting countries. The main claim of the paper is that the country‐level rate of labour growth was a key factor driving the speed of adjustment to the new technological paradigm, implying that much of the cross‐country difference in economic performance over recent decades can be explained by demographic differences across countries as opposed to the many other factors emphasized in the literature. JEL classification: O33, O41     

Price stickiness, trend inflation, and output dynamics: a cross‐country analysis

Abstract.  Sticky price models based on menu costs predict that countries with high trend inflation should have (i) smaller impact effects of demand shocks on output and (ii) less persistent output fluctuations, relative to low‐trend inflation countries. These predictions are tested, controlling for changes in trend inflation, using a country‐specific approach. The results do not support the second prediction. That prediction is also not robust to a modified measure of trend inflation that excludes episodes of hyperinflation. These findings suggest that while price stickiness is important for understanding short‐run impact effects, real propagation mechanisms may drive persistence in output fluctuations.     

Tariffs versus quotas in the presence of imperfect competition and cross‐border externalities

Abstract.  We consider trade policies intended to affect the production of a foreign monopolist that generates negative externalities. We derive the optimal tariff and optimal import quota and examine which policy measure should be used to maximize domestic welfare. We find that if the domestic government does not have full information on the foreign firm's production method and if cross‐border externalities exist, import quotas are in some cases preferable to tariffs. Otherwise, however, tariffs are preferable to quotas. JEL Classification: F13, F18     

Food for education versus school quality: a comparison of policy options to reduce child labour

Abstract.  In a model in which credit markets play a crucial role, we examine two policy options for reducing child labour, 'food for education' and 'investment in education quality,' With an imperfectly elastic supply of credit, an increase in food subsidy is more effective in reducing child labour than an 'income‐equivalent' increase in expenditures in education quality. The effectiveness of the latter policy improves, and the optimal share of resources devoted to this policy increases, at the expense of food subsidies, as the supply of credit becomes more elastic. JEL classification: H52, O10     

Fiscal policy, long‐run growth, and welfare in a stock‐flow model of public goods

Abstract.  We introduce public capital and public services as inputs in an endogenous growth model. We show that the growth rate depends on the apportionment of tax revenues between the accumulation of public capital and the provision of public services. When public spending is financed by proportional income taxes, the growth rate, the level of public spending as a proportion of GDP, the level of investment in public capital as a proportion of total public spending, and the level of private investment as a proportion of total private spending all are lower in the equilibrium outcome than in the optimal outcome. JEL classification: E62, O40     

Explaining variation in child labor statistics

Child labor statistics are critical for assessing the extent and nature of child labor activities in developing countries. In practice, widespread variation exists in how child labor is measured. Questionnaire modules vary across countries and within countries over time along several dimensions, including respondent type and the structure of the questionnaire. Little is known about the effect of these differences on child labor statistics. This paper presents the results from a randomized survey experiment in Tanzania focusing on two survey design choices: different questionnaire design to classify children work and proxy response versus self-reporting. Use of a short module compared with a more detailed questionnaire has a statistically significant effect, especially on child labor force participation rates, and, to a lesser extent, on working hours. Proxy reports do not differ significantly from a child's self-report. Further analysis demonstrates that survey design choices affect the coefficient estimates of some determinants of child labor in a child labor supply equation. The results suggest that low-cost changes to questionnaire design will potentially clarify the concept of work for respondents.     

Introducing Time‐to‐Educate in a Job‐Search Model

Transition patterns from school to work differ considerably across OECD countries. Some countries exhibit high youth unemployment rates, which can be considered an indicator of the difficulty facing young people trying to integrate into the labour market. At the same time, education is a time‐consuming process, and enrolment and dropout decisions depend on expected duration of studies as well as on job prospects with and without completed degrees. One way to model entry into the labour market is by means of job‐search models, where the job arrival hazard is a key parameter in capturing the ease or difficulty in finding a job. Standard models of job search and education assume that skills can be upgraded instantaneously (and mostly in the form of on‐the‐job training) at a fixed cost. This paper models education as a time‐consuming process, a concept which we call time‐to‐educate, during which an individual faces the trade‐off between continuing education and taking up a job.     

Foreign capital,return to education and child labour

The paper attempts to identify the different channels through which economic reforms can affect the incidence of child labour in a developing economy using a three-sector general equilibrium framework with child labour. We show that reduction in poverty is not a necessary condition for the problem of child labour to improve in the developing economies. Economic reforms like an inflow of foreign capital can mitigate the incidence of child labour by raising the return to education and lowering the earning opportunities of children.     

Demand complementarities and cross‐country price differences

Empirical studies document that markups vary across destinations. This paper proposes a novel mechanism to explain variation in markups: consumers’ utility from final goods and services depends on their consumption of complementary goods and services. In countries with more complementary goods and services, consumer demand is less elastic, enabling monopolistically competitive firms to charge higher prices. The paper provides empirical evidence documenting a dependence of prices on demand complementarities.     

Active labour market policy in East Germany

We investigate the effects of the most important East German active labour market programmes on the labour market outcomes of their participants. The analysis is based on a large and informative individual database derived from administrative data sources. Using matching methods, we find that over a horizon of 2.5 years after the start of the programmes, they fail to increase the employment chances of their participants in the regular labour market. However, the programmes may have other effects for their participants that may be considered important in the especially difficult situation experienced in the East German labour market.     

Monetary policy in a cash‐in‐advance economy: employment, capital accumulation, and the term structure of interest rates

Abstract.  In this paper we study the effects of monetary policies on employment, capital accumulation, consumption, and the term structure of interest rates in a cash‐in‐advance economy, where money is required for consumption expenditures. Monetary policy involves targeting the inflation rate. The detailed dynamics of the model are fully worked out. As no numerical analysis is involved, we are able to identify very clearly the different channels through which monetary policy will impinge on the important macroeconomic variables. The model is also used to discuss the 'Great Canadian Slump.' JEL Classification: E52 and E43     

Partial Communication in a Voluntary‐Contribution‐Mechanism Experiment

This paper presents results of a voluntary‐contribution‐mechanism experiment with partial communication. It was found that the trend of mean investments depended on whether a communication network was connected and on how fast all subjects could share information. When each subject could communicate with two other subjects and the network was connected, the mean investment increased from 33 percent to 58 percent of the optimal investment. On the other hand, when each subject could communicate with only one other subject and the network was not connected, the mean investment decreased from 34 percent to 19 percent of the optimal investment.     

The CES‐‐Translog Production Function, Returns to Scale and AES

The translog functional form imposes no a priori restrictions on the substitution possibilities between the factor inputs, by relaxing the assumption of strong separability, and the CES–translog cost function specification allows for testing homothetic technology with Hicks‐neutral technical change. In this paper an n ‐factor CES–translog production function is presented which develops the parameters to directly assess scale effects from those due to technology in the production structure. In addition, by applying Shephard's lemma it was possible to derive the input demand functions, as well as the partial elasticities of substitution and the cross‐partial price elasticities of demand for a generalized CES–translog production structure.     

Explaining Export Performance through Inputs: Evidence from Aggregated Cross‐country Firm‐level Data

Which trade barrier related to intermediate inputs forms a greater burden on the export performance of firms in developing countries? Using aggregated cross‐country firm‐level data covering 43 mostly developing economies, this paper estimates the marginal importance of the impact of various intermediate input trade cost barriers, namely tariffs, non‐tariff barriers (NTBs) and services barriers, on firms' export behavior. In a cross‐sectoral setting, this paper takes the firm's export performance in goods as a central focus to study the effects of these different trade barriers through the exporting firm's choice of use of intermediate inputs. The results show that the most significant trade barriers on inputs that impede export performance in developing countries are mainly NTBs and restrictions of services.     

Consumer response to child tax credit

This article uses micro-level data from the Consumer Expenditure Survey (CEX) to study consumers?? spending responses to the child tax credit. The article provides one test of the permanent-income hypothesis (PIH) that infers that temporary changes in income have little effect on consumer spending, at the initiation of the child tax credit in 1997, and a second PIH test when the credit was increased in 2003. The evidence supports the PIH in both 1997 and 2003, even using three different proxies for liquidity-constrained households. Separate from any PIH implications, our findings suggest the child tax credit did not provide a short-term consumption stimulus in either of the time periods studied. Our results therefore cast some doubt on whether this type of tax credit should be considered sound fiscal policy.     

The role of birth order in child labour and schooling

Does when a child was born relative to his or her siblings affect whether the child attends school or participates in child labour? We investigate this question by estimating the causal effect of birth order on the probabilities of school attendance and child labour participation. To address the potential endogeneity of family size, we use instrumental variable approach where the proportion of boys in the family is used to instrument family size. Using a longitudinal household survey data from Ethiopia, we estimate unobserved effects bivariate probit instrumental variable model of school attendance and child labour choices. The results suggest that the probability of child labour participation decreases with birth order, but we find no evidence that suggests birth order affects the probability of school attendance. However, among children who are going to school, hours spent studying increases with birth order. Results from complementary time-use analysis reveal that there is no birth order effect on hours spent on household chore. However, hours spent on school increases with birth order, where the increase in hours spent on school seems to come from a decrease in hours spent on market work.     

Cross-country differences in monetary policy execution and money market rates’ volatility

Volatility patterns in overnight interest rates display differences across industrial countries that existing models—designed to replicate the features of individual countries’ markets—cannot account for. This paper presents an equilibrium model of the overnight interbank market that matches cross-country differences in patterns in interest volatility by incorporating differences in how central banks manage liquidity in response to shocks. Our model is consistent with central banks’ practice of rationing access to marginal facilities when the objective of stabilizing short-term interest rates conflicts with another high-frequency objective, such as an exchange rate target.     

The adjustment of external tariffs in the Kemp‐Wan‐Grinols compensation scheme

Abstract.  This paper considers the adjustment of external tariffs when two countries integrate and implement the Kemp‐Wan‐Grinols compensation scheme. Attention is also paid to the restrictions set by Article XXIV of GATT. This paper shows how the external tariffs would change in a three‐good, three‐country model under the assumption of gross substitutability. The results are sensitive to the initial trade pattern. In particular, they depend on the number of goods initially traded between the member countries. The analysis can be extended to a multi‐commodity model if the preferences of the countries have identical CES representation. JEL classification: F11, F15