Endogenous qualifications and firms'' agglomeration

This paper analyzes firms' location when workers endogenously choose to qualify for professional skills but when they remain uncertain about the potential match between their personal abilities and/or affinities and the firms' specific production tasks. By qualifying in a region where firms agglomerate, workers benefit from higher prospects of good match. At the equilibrium, we show that firms may locate in a single cluster, symmetric clusters or even asymmetric clusters. Comparative statics with respect to product market demand and labor supply parameters are provided.     

Incentives, learning, task difficulty, and the Peter Principle: Interpreting individual output changes in an Organisational Hierarchy

This paper examines the way in which individuals' output changes as they are promoted within an hierarchical organisation. We suggest a decomposition of the change in output which allows us to see that changes in tournament incentive may in fact disguise part of the observed fall in output. We discuss the role which may be played by learning on the part of line managers, and changes due to the change in grade which a promotion entails. We are unable to distinguish whether the effect of grade itself is due to increased task difficulty or other changes which a higher grade entails such as increased span of control but we show how to work out the contribution which can be attributed directly to the Peter Principle.     

The productivity of transport infrastructure investment: A meta-analysis of empirical evidence

Investments in transport infrastructure have been widely used by decision makers to encourage economic growth, particularly during periods of economic downturn. There has been extensive research on the linkage between transport infrastructure and economic performance since the late 1980s, characterised by widely varying evidence. We conduct a meta-analysis of the empirical evidence on the output elasticity of transport infrastructure, based on a sample of 563 estimates obtained from 33 studies. Previous meta-analyses have focused on total public capital and hence cannot appropriately explain the wide variation in the productivity effect of transport infrastructure nor provide guidance to policymakers on the returns to investment in different types of transport infrastructure. Our results indicate that the existing estimates of the productivity effect of transport infrastructure can vary across main industry groups, tend to be higher for the US economy than for European countries, and are higher for roads compared to other modes of transport. The variation in the estimates of the output elasticity of transport is also explained by differences in the methods and data used in previous studies. Failing to control for unobserved heterogeneity and spurious associations tends to result in higher values, while failing to control for urbanisation and congestion levels leads to omitted variable bias. These findings can be used to inform future research on the choice of model specification and estimation and transport-related policy making.     

Fiscal centralization versus decentralization: Growth and welfare effects of spillovers, Leviathan taxation, and capital mobility

This paper develops an endogenous growth model with spillovers of public goods, Leviathan taxation, and mobile capital to examine the relative merits of centralized and decentralized fiscal systems for economic growth and social welfare. We show that a decentralized system dominates a centralized system in terms of economic growth; however, the difference in social welfare between a decentralized and a centralized system is non-monotonic and displays a hump-shaped relationship with respect to capital mobility. Since higher capital mobility induces stronger tax competition, this finding implies that there is an optimal degree of tax competition; some tax competition is desirable, but fierce tax competition may be harmful. We also show that there is a critical level of spillovers of public goods above which centralization dominates decentralization in terms of social welfare, as in previous studies; however, if spillovers are below this critical level, capital mobility also matters in the welfare comparison between centralized and decentralized systems.     

Incentive effects of unemployment insurance savings accounts: Evidence from Chile

The paper, the first one to empirically examine whether individual accounts internalize the cost of unemployment, estimates the determinants of job finding rates of unemployment benefit recipients under the Chilean program. This is a unique, innovative program that combines social insurance, provided via solidarity funding, with self-insurance in the form of unemployment insurance savings accounts (UISAs). The paper shows that beneficiaries who use solidarity funding are less likely to exit unemployment in early months than those relying on UISAs only. Moreover, job finding rates are found to be positively correlated with pre-separation UISA balances among those that use solidarity funding, but are found to be uncorrelated with balances for those relying on UISAs only. While the findings are consistent with the effects expected under the internalization of unemployment costs via UISAs, they do not pinpoint unambiguously the causal link, as alternative mechanisms may be responsible for the observed correlations, particularly selection into the use of UISAs.     

The political economy of fixed regional public expenditure shares with an illustration for Belgian railway investments

Many local public goods are allocated by federal governments using fixed regional shares: every region is entitled a fixed share of the total budget for a particular type of public good. This paper explores two characteristics of this type of allocation. First, it shows that this type of allocation is relatively efficient as it puts a strict budget constraint on the decisive region. Second, we show that these fixed shares can be an equilibrium of different legislative bargaining processes. The working of the fixed sharing rules is illustrated for the allocation of railway investments in Belgium.     

Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model

This paper introduces collective bargaining at the firm and at the sector level into the heterogeneous firm model of Melitz and Ottaviano (Melitz, M. J., Ottaviano, G. I. P., 2008. Market size, trade, and productivity. Review of Economic Studies 75 (1), 295-316). It then analyses how the two bargaining regimes change aggregate industry productivity and firm performance relative to a competitive labour market. While sector-level bargaining forces the least productive firms to exit and thus increases average productivity relative to the competitive benchmark, firm-level bargaining allows less productive firms to stay in the market and thus reduces average productivity. Sector-level bargaining also results in higher average output and profit levels than either firm-level bargaining or a competitive labour market. The paper also shows that the choice between sector- and firm-level bargaining can involve a trade-off between product variety and product prices: Not only the average price level but also product variety tends to be lower under sector-level bargaining than under firm-level bargaining.     

A cointegration approach to modeling human capital formation,self-employment,and economic growth: evidence from Pakistan

This study aims to empirically investigate the dynamics of relationship among human capital formation, self-employment (SE), and economic growth in Pakistan. Using quarterly data of primary school enrollment, SE, and GDP per capita, we employed ARDL bound testing approach to cointegration covering the time span of 1995–2010. We found that in the long run, primary school enrollment, high school enrollment and SE have significant impact on economic growth. Enrollment in primary schools (EP) has a strong positive and significant impact on economic growth, whereas enrollment in high school has a relatively small positive and significant impact on economic growth in the long run in Pakistan. Further, SE has a small, positive and significant impact on economic growth in the long run. In short run, enrollments in high schools and SE have weak positive impact on economic growth whereas, EP has a strong positive and significant impact on economic growth in Pakistan. Further it is found that that there is unidirectional long run causality from self employment to economic growth followed by the bidirectional short run causality between economic growth and high school enrollment, GDP per capita and primary school enrollment, high school enrollment and primary school enrollment.     

Wage inequality, technology and trade: 21st century evidence

This paper describes and explains some of the principal trends in the wage and skill distribution in recent decades. Increases in wage inequality started in the US and UK at the end of the 1970s, but are now widespread. A good fraction of this inequality trend is due to technology-related increases in the demand for skilled workers outstripping the growth of their supply. Since the early 1990s, labor markets have become more polarized with jobs in the middle third of the wage distribution shrinking and those in the bottom and top third rising. I argue that this is because computerization complements the most skilled tasks, but substitutes for routine tasks performed by middle wage occupations such as clerks, leaving the demand for the lowest skilled service tasks largely unaffected. Finally, I argue that technology is partly endogenous, for example it has been spurred by trade with China. Thus, trade does matter for changes in the labor market, but through a different mechanism than conventionally thought.     

Endogenous growth, the Solow model and human capital

Both endogenous growth theory and the (augmented) Solow model propose a role for human capital in the growth process though each is based on different conceptual arguments. Since both approaches can justify the inclusion of human capitallevels andgrowth rates in an output growth regression the two theories cannot readily be distinguished empirically. This paper argues that the variable most commonly used in empirical studies to proxy human capital (levels or growth) — school enrolment rates (SERs) — may capture bothstock andaccumulation effects, butchanges in SERs can provide useful additional dynamic information on the contribution of human capital to growth. Empirical evidence from samples of developed and less developed countries during 1960–85 suggests important growth effects associated both with initial levels of, and changes in, SERs. The nature of these effects appears to differ between the two country groups.I am grateful to an anonymous referee and to Subrata Ghatak for helpful comments on an earlier draft of this paper, and to Massimo Suardi for research assistance     

The efficiency of training and hiring with intrafirm bargaining

This paper demonstrates that firms hire and train workers efficiently in a matching and intrafirm bargaining economy when the Hosios condition holds and returns to scale are constant. This conclusion stands in contrast to the prevailing view that training costs are a source of inefficiency in imperfect labor markets. The efficiency of the competitive economy relies on the ability of large firms to take into account the negative impact of the training rate on the wages negotiated inside the firm through intrafirm bargaining: untrained workers accept a wage reduction in compensation for potential training that is accessible only following employment. This intrafirm bargaining process solves efficiency problems associated with training costs that would otherwise lead to inefficient hiring and training decisions. This conclusion holds true for both specific and general human capital.     

Measuring productivity growth, technical progress, and efficiency changes of CPA firms prior to, and following the Sarbanes–Oxley Act

This paper investigates productivity growth, technical progress, and efficiency change for a group of the 56 largest CPA firms in the US from the period 1996–1999 through the period 2003–2006, where the former preceded, and the latter followed, enactment of the Sarbanes–Oxley Act (SOX). Data envelopment analysis (DEA) is used to calculate Malmquist indices of three measures of interest: productivity growth, technical progress, and efficiency change. Results indicate that CPA firms, on average, experienced a productivity growth of approx. 17% from the pre- to post-SOX period. Consistent with the finding of Banker et al. [Banker RD, Chang H, Natarajan R. Productivity change, technical progress and relative efficiency change in the public accounting industry. Management Science 2005;51:291–304], this productivity gain can be attributed primarily to technical progress rather than a change in relative efficiency. In addition, results indicate that the “Big 4” firms underperformed their non-Big 4 counterparts in both productivity growth and technical progress.     

On the cyclicality of unemployment: Resurrecting the participation margin

This paper considers a real business cycle model with search frictions in the labor market and labor supply which is elastic along the participation margin. Previous authors have found that such models generate counterfactually procyclical unemployment and a positively sloped Beveridge curve. This paper presents a calibrated model which succeeds at generating countercyclical unemployment and a negatively sloped Beveridge curve, despite the presence of a participation margin.     

The age-productivity gradient: Evidence from a sample of F1 drivers

Estimating the effect of aging on productivity requires clean measures of productivity. Additionally, one needs to control for unobserved heterogeneity at the worker, firm and worker/firm level, to account for the role of experience and to correct for selection bias. We tackle these issues exploiting a panel of Gran Prix Formula One drivers, which provides a unique setting to single out the data requirements needed to credibly estimate the effect of age on productivity. Results robust to the inclusion of worker, firm and match effects show that the age-productivity link has an inverted U-shape profile with a peak at the age of 30-32. The use of repeated cross-sections of individuals also produces consistent results provided that cohort effects are properly accounted for. Relying on team-average measures of productivity makes instead inference harder.     

On the equivalence of location choice models: Conditional logit, nested logit and Poisson

It is well understood that the two most popular empirical models of location choice - conditional logit and Poisson - return identical coefficient estimates when the regressors are not individual specific. We show that these two models differ starkly in terms of their implied predictions. The conditional logit model represents a zero-sum world, in which one region’s gain is the other regions’ loss. In contrast, the Poisson model implies a positive-sum economy, in which one region’s gain is no other region’s loss. We also show that all intermediate cases can be represented as a nested logit model with a single outside option. The nested logit turns out to be a linear combination of the conditional logit and Poisson models. Conditional logit and Poisson elasticities mark the polar cases and can therefore serve as boundary values in applied research.     

The distributive and welfare effects of product and labour market deregulation

This paper studies the effects of product and labour market deregulation on wage inequality and welfare. By constructing an analytically tractable model in which the level of product market competition and the wages are endogenously distributed among sectors, I show that deregulation in goods market has mixed effects on inequality: the wage variance and the Gini index are lower, but the ratio of the highest over the lowest wage paid in the economy increases. Moreover, deregulation in labour markets raises the aggregate level of employment and the average real wage but reduces the welfare of trade unions in sectors with a low level of competition.     

The influence of gay and lesbian coupled households on house prices in conservative and liberal neighborhoods

Gays and lesbians perceive themselves to be targets of discrimination in the housing market. Previous research has found that the presence of gays and lesbians is associated with increased housing values. We reconcile the perceived discrimination and research results by classifying neighborhoods as more conservative or liberal according to voting outcomes of the “Defense Of Marriage Act”. Using a data set comprised of over 20,000 house sale observations, we show that an increase in the number of same-sex coupled households is associated with an increase in house prices in more liberal neighborhoods and a decrease in house prices in more conservative neighborhoods. This suggests that gay and lesbian coupled households do experience prejudice in conservative neighborhoods.     

Primary prevention and health outcomes: Treatment of residential lead-based paint hazards and the prevalence of childhood lead poisoning

In order to gain a better understanding of the effects of an investment in primary prevention on health, I investigate the impact of treatment of lead-based paint hazards in housing units (the preventive action) on childhood lead poisoning (the health outcome) at the census tract level in Chicago, IL. I use the findings from the analysis to simulate and then weigh the costs of lead interventions against the potential benefits of reducing blood lead levels in children. Childhood lead poisoning presents an interesting case study of the potential of preventive care in reducing the prevalence of a disease. There is a clear, well-defined pathway of exposure (deteriorating lead paint in older homes) and no method of secondary care that effectively mitigates the negative health effects. I find that a one-tenth percentage point increase in the proportion of older housing units that have been remediated is associated with a four-tenths percentage point reduction in the prevalence of childhood lead poisoning, an elasticity of roughly 0.5. Citywide, this is roughly 2.5 cases of lead poisoning averted for every housing unit remediated. Furthermore, I find evidence that the effect of remediations in preventing the disease has improved over time. The lower bound estimates of the benefits associated with the reduction in lead poisoning - increased expected lifetime earnings and reduced medical expenditures - are two to twenty times the estimated costs of the remediations.