Estimating the U.S. output gap with state‐level data

This paper develops a method to estimate the U.S. output gap by exploiting the cross‐sectional variation of state‐level output and unemployment rate data. The model assumes that there are common output and unemployment rate trend and cycle components, and that each state's output and unemployment rate are subject to idiosyncratic trend and cycle perturbations. I estimate the model with Bayesian methods using quarterly data from 2005:Q1 to 2018:Q2 for the 50 states and the District of Columbia. Results show that the U.S. output gap reached about negative 4.6% around the years of the Great Recession and was about 0.9% in 2018:Q2.     

Convergence-divergence of U.S. State unemployment rates

The dispersion of U.S. state unemployment rates and those of many industrialized countries has been observed to maintain persistent dispersion. This paper, by using a model of conditional expectation, investigates the question wheter there was a tendency toward convergence or divergence of the U.S. state unemployment rates. The paper identifies the states that persistently performed above or below unemployment expectations on average for the period 1978–1999. Data were provided by the U.S. Bureau of Labor Statistics.(JELR10)     

The interrelated dynamics of unemployment and low‐wage employment

This paper examines the extent of state dependence in unemployment and the role played in this by intervening low‐wage employment. A range of dynamic random and fixed‐effects estimators are compared. Low‐wage employment is found to have almost as large an adverse effect as unemployment on future prospects and the difference in their effects is found to be insignificant. Evidence is presented that low‐wage jobs act as the main conduit for repeat unemployment and considerably increases its probability. Obtaining a higher‐wage job reduces the increased risk of repeat unemployment to insignificance. Copyright © 2007 John Wiley & Sons, Ltd.     

The geographic distribution of unemployment rates in the U.S.: A spatial-time series analysis

This paper presents estimates of the time series and spatial pattern of unemployment rate fluctuations in the U.S. over the period 1977.I–1983.IV. Spatial and time series autocorrelations over a regular lattice are estimated using both simultaneous (SAR) and conditional (CAR) autoregressive models of spatial series. The empirical results indicate that a temporary unemployment rate shock has a significant effect on unemployment rates in adjacent areas contemporaneously, but virtually no impact on neighboring unemployment rates after six quarters. A permanent change in an area's unemployment rate has a strong and persistent impact on unemployment rates in labor markets within 250 miles of the initial shock.     

The J-curve dynamics of U.S. bilateral trade

Three earlier studies examined the impact of dollar depreciation on bilateral trade between the United States and her six largest trading partners. They used different methodologies that resulted in different outcomes. In this paper we consider 18 major trading partners of the United States and employ a relatively new method to investigate the short-run as well as the long-run response of the bilateral trade balance to currency depreciation. While as with previous research we are unable to discover any J-curve pattern in the short run, in the long run real depreciation of the dollar has favorable effects on the U.S. trade balance in most cases. Valuable comments of an anonymous referee are greatly appreciated. Any remaining errors, however, are the authors'.     

The existence of gender‐specific promotion standards in the U.S.

This paper is motivated by the claim that promotion probabilities are lower for women than men. Using data from the 1984 and 1989 National Longitudinal Youth Surveys, this paper tests this claim and two related hypotheses concerning training and ability. It is found that females are less likely to be promoted than males, and females receive less training than males. The relationship between promotion and gender varies across occupations, however, suggesting that the alleged glass ceiling faced by women and other minorities in the workplace is not uniform across all labor markets. Copyright © 2002 John Wiley & Sons, Ltd.     

The nonlinear price dynamics of U.S. equity ETFs

We investigate the price dynamics of large market-capitalization U.S. equity exchange-traded funds (ETFs) in order to uncover trader motivations and strategy. We show that prices of highly liquid ETFs can deviate significantly from their daily net asset values. By adjusting for changes in valuations, we report the impact of non-classical variables including price trend and volatility using data from 2008 to 2011. We find a cubic nonlinearity in the trend suggesting that traders are not only aware of the underreaction of others, but also self-optimize by anticipating others’ reactions, and sell when the uptrend is stronger than usual.     

The dynamics of efficiency and productivity growth in U.S. electric utilities

This study recognizes explicitly the efficiency gain or loss as a source in explaining the growth. A theoretically consistent method to estimate the decomposition of dynamic total factor productivity growth (TFP) in the presence of inefficiency is developed which is constructed from an extension of the dynamic TFP growth, adjusted for deviations from the long-run equilibrium within an adjustment-cost framework. The empirical case study is to U.S. electric utilities, which provides a measure to evaluate how different electric utilities participate in the deregulation of electricity generation. TFP grew by 2.26% per annum with growth attributed to the combined scale effects of 0.34%, the combined efficiency effects of 0.69%, and the technical change effect of 1.22%. The dynamic TFP grew by 1.66% per annum for electric utilities located within states with the deregulation plan and 3.30% per annum for those located outside. Electric utilities located within states with the deregulation plan increased the outputs by improving technical and input allocative efficiencies more than those located outside of states with deregulation plans.

On solving bias‐corrected non‐linear estimation equations with an application to the dynamic linear model

In a seminal paper, Mak, Journal of the Royal Statistical Society B, 55, 1993, 945, derived an efficient algorithm for solving non‐linear unbiased estimation equations. In this paper, we show that when Mak's algorithm is applied to biased estimation equations, it results in the estimates that would come from solving a bias‐corrected estimation equation, making it a consistent estimator if regularity conditions hold. In addition, the properties that Mak established for his algorithm also apply in the case of biased estimation equations but for estimates from the bias‐corrected equations. The marginal likelihood estimator is obtained when the approach is applied to both maximum likelihood and least squares estimation of the covariance matrix parameters in the general linear regression model. The new approach results in two new estimators when applied to the profile and marginal likelihood functions for estimating the lagged dependent variable coefficient in the dynamic linear regression model. Monte Carlo simulation results show the new approach leads to a better estimator when applied to the standard profile likelihood. It is therefore recommended for situations in which standard estimators are known to be biased.     

Performance pay and changes in U.S. labor market dynamics

A shift in the design of labor compensation occurred at around the mid-1980s in the U.S. and deals with an increased role of performance pay in driving the cyclical movements of wages. Using a DSGE model we show that this structural change accounts at least qualitatively for many observed changes in the U.S. labor market dynamics. It generates the disappearance of the procyclical response of labor productivity to non-technology shocks and the reduction of the contractionary effects of technology shocks on hours. Moreover, it is conducive to a drop in the volatility of output, a parallel increase in the volatility of wages and to changes in unconditional correlations consistent with what documented in the U.S. between the pre- and post-1984 periods.     

Payroll tax incidence when the tax varies by jurisdiction: The case of the U.S. unemployment insurance tax

Standard treatment of payroll tax incidence suggests that labor, both because of inelastic supply and because workers value the benefit financed by the tax, bears most of the tax. This note considers the special case of the U.S. unemployment insurance tax, which is a payroll tax that varies by jurisdiction (states). The model set forth in this paper allows for differing degrees of both labor mobility and substitutability between types of labor and capital. Contrary to the standard treatment, this paper predicts that some types of labor will avoid this particular type of payroll tax completely. I thank Daniel Hamermesh and seminar participants at the Upjohn Institute for Employment Research and at Oakland University for helpful comments on an earlier draft. I also gratefully acknowledge sabbatical support provided by Oakland University during the initial conceptualization of the ideas presented in this paper.     

Temporary layoffs in the U.S. unemployment insurance system: A comparison of two experience rating methods

This study presents a comparison of temporary layoff behavior caused by the two most common methods of experience rating in the U.S. unemployment insurance system, the reserve ratio and the benefit ratio methods. Differences in layoff paths arise from different adjustment processes. Under the former, layoff rates adjust gradually to their optimal levels whereas under the latter, layoff rates adjust instantaneously. This leads to important differences in average layoff rates. However, neither method is judged to be superior in all circumstances.     

Entrepreneurship and survival dynamics of immigrants to the U.S. and their descendants

Many studies have explored the determinants of entering into entrepreneurship and the differences in self-employment rates across racial and ethnic groups. However, very little is known about the survival in entrepreneurship of immigrants to the U.S. and their descendants.We adopt a modeling framework based on duration analysis, which takes into account both the fact that the stock of entrepreneurs initially observed represents a selected sample and the inability of observing in the data the exit time for some spells. Unlike previous studies, we find a lower survival probability in entrepreneurship for Mexican and other Hispanic immigrants, which does not carry on to their U.S.-born descendants. We also find that these two immigrant groups tend to enter entrepreneurship from unemployment or inactivity and they are more likely to exit towards employment in the wage sector, suggesting that entrepreneurship represents for them an intermediate step from non-employment to paid employment.     

Output and unemployment dynamics in the United States: 1950–1985

For US data over 1950–1985 the stochastic components of GNP growth and the unemployment rate appear to be stationary, and there is substantial feedback between these variables. The unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the ‘business cycle’. A bivariate VAR model is used to describe output–unemployment dynamics, to estimate the degree of persistence of output innovations, and to decompose output into trend and cycle. The bivariate results are interpreted using a restricted VAR and it is shown that a closely related cyclical measure can be obtained directly from the Okun's Law equation.     

Estimation of output loss from allocative inefficiency: A comparison of the Soviet Union and the U.S.

This paper presents two different estimates of the output loss resulting from allocative inefficiency in the Soviet Union and the United States. Surprisingly, the evidence from our examination of nine industrial sectors during the period 1960–1984 shows only small differences in measured allocative inefficiency between the United States and Soviet economies. Instead of immediately rejecting this result as the product of unreliable data and insurmountable methodological difficulties, we present a plausible explanation for the unexpectedly strong performance of Soviet-type economies in the allocation of labor and capital across sectors. If true, the finding of relatively low levels of resource misallocation implies that the source of poor economic performance in Soviet-type economies must be due to technical inefficiency, slow technological change, and/or production of the wrong mix of outputs.     

Job separation in a non‐stationary search model: a structural estimation to evaluate alternative unemployment insurance systems

This paper considers a job search model in which the environment is not constant throughout the unemployment spell and where jobs do not last for ever. In this situation, reservation wages can be lower than they would be in a model without consideration of such separations, but they can initially be higher precisely because of the non‐constant environment. The model is estimated structurally by using Spanish data for the period 1985–1996. The main finding is that, after controlling for unobserved heterogeneity, the unemployment hazard rate is almost flat during the first six months. However, after this duration, the highly decreasing job offer arrival rate comes to be the only significant factor, given that acceptance probabilities become equal to one. The estimated parameters are used to evaluate different unemployment insurance designs. We conclude that a non‐monotonic pattern in unemployment benefits, joint with a tax paid by workers and based on unemployment duration, makes this duration 13.2% lower than it currently is in Spain. Copyright © 2006 John Wiley & Sons, Ltd.     

Executive compensation and firm performance: adjustment dynamics,non‐linearity and asymmetry

The relationship between executive compensation and firm performance is a field of intense theoretical and empirical research. The purpose of this study is to gain additional insights into the nature of this relationship by examining empirically the relatively unexplored areas of its dynamics of adjustment, as well as its non‐linearity. The findings of this study show strong evidence in support of the view that (a) executive compensation is characterized by a dynamic process of adjustment, and (b) the relationship between executive compensation and firm performance is non‐linear and asymmetric. Additionally, the structure of asymmetry is found to be dependent on the measure of performance. Convexity characterizes the asymmetry of the relationship between executive compensation and market returns, while concavity distinguishes the asymmetry of the relationship between executive compensation and accounting returns. Copyright © 2008 John Wiley & Sons, Ltd.