The effects of total factor productivity and export shocks on a small open economy with unemployment

The paper analyzes the dynamic effects of a supply side shock and a demand side shock, which hit an open economy with unemployment. The supply side shock is modeled as a reduction in total factor productivity, whereas the demand side shock is caused by a drop in exports. The model builds upon the small one-sector two-good open economy framework described in Turnovsky (2000, chapter 11.3). In contrast to this standard framework, in which Walrasian labor markets are assumed, search unemployment and wage bargaining are introduced, and unemployment results from time consuming and costly matching of vacancies with searching agents. Using a plausible calibration of the model, the dynamic adjustments of unemployment, output, and other economic key variables are analyzed. We find that a negative export shock primarily has effects on consumption and welfare, but not on unemployment and output, whereas the supply side shock leads to considerable responses of unemployment, output, consumption and welfare. If both shocks together hit the economy, the changes in consumption and welfare almost double.     

Unemployment in East and West Europe

We use new 1991–2005 panel data to address the issue of unemployment in Central-East Europe. We compare the evolution of unemployment, its dynamics and related phenomena in five former communist economies in the Central Europe and use the geographically close West Germany as a benchmark for a mature market economy. We identify the differences and similarities in the evolution of the key labor market variables and contrast different outcomes with the diverse initial conditions and subsequent paths. All countries have experienced aggregate demand shocks, structural shocks and hysteresis. Despite diverse initial conditions and subsequent paths, the patterns observed are surprisingly similar. The eastern part of Germany appears to be a special case with extraordinary high unemployment inflows. Contrary to the theoretical models, in the transition economies we do not observe an initially rapid rise in the inflow rate, followed by a convergence of this rate to the levels of market economies. Rather, there is a relatively gradual rise in the inflow rate towards the level of market economies. The differences in unemployment rates turn out to be attributable to a considerable extent to the actual differences in the inflow rates. The trajectories in the unemployment-vacancy space observed in the Central-East European countries increasingly resemble those observed in the developed market economies. Interestingly, these similarities arise despite differences in the institutional setting across these economies.     

The dynamics of structural change: a model of economic development and urbanization

A system model is constructed for stimulating the development dynamics of a class of developing countries. The interrelations among socio-economic variables, feedback relations and the recursive relationship of intertemporal solutions are emphasized. For some plausible values of parameters and initial conditions, the model generates results generally consistent with the experience of many developing economies. Emerging from the dynamics are rapid urbanization accompanied by little industrial growth, increasingly unbalanced spatial distribution of population, ever-worsening distribution of income, unemployment and under-employment in both rural and urban areas, and other familiar features of the developing world unexplained by comparative-static equilibrium models.     

New methods for analyzing structural models of labor force dynamics

The economic theory of decision-making under uncertainty is used to produce three econometric models of dynamic discrete choice: (1) for a single spell of unemployment; (2) for an equilibrium two-state model of employment and non-employment; (3) for a general three-state model with a non-market sector. The paper provides a structural economic motivation for the continuous time Markov (or more generally ‘competing risks’) model widely used in longitudinal analysis in biostatistics and sociology, and it extends previous work on dynamic discrete choice to a continuous time setting. An important feature of identification analysis is separation of economic parameters that can only be identified by assuming arbitrary functional forms from economic parameters that can be identified by non-parametric procedures. The paper demonstrates that most econometric models for the analysis of truncated data are non-parametrically under-identified. It also demonstrates that structural estimators frequently violate standard regularity conditions. The standard asymptotic theory is modified to account for this essential feature of many structural models of labor force dynamics. Empirical estimates of an equilibrium two-state model of employment and non-employment are presented.     

Regional unemployment in Spain: Disparities,business cycle and wage setting

The existence and persistence of regional disparities in the unemployment rate is a common problem of many European economies. However, in Spain, this situation exhibits a characteristic feature: a strong positive relationship with the business cycle. The analysis in this paper investigates the relationship between this distinguishing feature of the Spanish economy and changes in the regional wage-setting mechanism, and how this relationship has influenced the aggregate Spanish labour market performance in the recent past. The empirical finding of an important regional imitation effect in wage bargaining may explain both the persistence of disparities, and the positive relationship between regional unemployment dispersion and the business cycle. This result has a direct implication for employment policies, which must take into account the regional dimension of the unemployment problem.     

Economic development and resource degradation: Conflicts and policies

The paper develops a model that shares common features with computable general equilibrium (CGE) models. It is used to address two questions. First, what are the future prospects of a green gross domestic product (GDP); should we be concerned with resource degradation or not; and, to what extent, and under which conditions? Secondly, which policies are more effective than others? Model closures are simulated using different specifications of exogenous variables. Further, alternative policies are treated: human capital, price incentives, property rights and poverty reduction. In the African context, we show that while the prospects of environment-friendly economic development, i.e. a rising green GDP, are weak in the medium-run, under certain structural conditions there is a range of effective policies that resolves the conflict between economic growth and resource degradation, thus contributing to a rising green GDP.     

A small linear model of wage- and price-inflation in the Norwegian economy

This paper presents a model of inflation in a small open economy which features both wage-wage linkages and a wage-price spiral. Hence we have a simultaneous structure which contains the conventional Scandinavian model of inflation as a special case. Full system estimation results are reported. Great emphasis is placed on data coherency and on parameter stability. One interesting finding is that both wage growth and the wage level in the exposed (E)-sector are strongly influenced by the outside wage. This contradicts the predictions of the Scandinavian model, which defines the wage-leading role of the E-sector by the absence of outside wage effects in E-sector wage formation. Another result is that the speed of adjustment to exogenous shocks is greater for prices than for wages. This finding may be important in explaining real wage flexibility, which is often seen as the hallmark of low unemployment economies such as the Norwegian.     

Growth,unemployment and heterogeneity

The paper analyzes unemployment in a medium-run growth model, where aggregate demand and supply interact, using a top-down approach. The aim of the essay is the study of a nonlinear system where both aggregate demand and supply are endogenous and generate bounded unemployment, followed by a methodological effort direct to identify possible lines of convergence with the agent based models (ABM) approach. This is a by-product of the presence of heterogeneity in the model. Heterogeneity acts through two different channels and operates among class of agents: it comes into the aggregate consumption function where households are assumed employed or unemployed; it changes the learning process of pessimists and optimists. The analysis is carried on through simulations. The resulting system is fairly stable to changes in main structural parameters. On one hand, autonomous demand drives the dynamics of the system, while heterogeneity in the consumption function, due to the presence of unemployment, strengthens the links with supply aspects. On the other hand, both the rate of growth of labor productivity and labor supply are endogenous. Two major results are obtained. First, unemployment allows the so called Harrodian reconciliation between aggregate demand and supply. Second, unemployment remains bounded meaning that the interaction between aggregate demand and supply thwarts instability. These results are in keeping with those obtained by means of a bottom-up approach, typical of ABM. Possible explanations and implications of this convergence are put forward and open the venue to further deepening of complementarities among the two modeling strategies.

     

GDP trend deviations and the yield spread: the case of eight E.U. countries

Several studies have established the predictive power of the yield curve in terms of real economic activity. In this paper we use data for a variety of E.U. countries: both EMU (Germany, France, Italy, Portugal and Spain) and non-EMU members (Norway, Sweden and the U.K.). The data used range from 1991:Q1 to 2009:Q3. For each country, we extract the long run trend and the cyclical component of real economic activity, while the corresponding ECB euro area government benchmark bond interest rates of long and short term maturities are used for the calculation of the yield spreads. We also augment the models tested with non monetary policy variables: the respective unemployment rates and stock indices. The methodology employed in the effort to forecast real output, is a probit model of the inverse cumulative distribution function of the standard distribution, using several formal forecasting and goodness of fit evaluation criteria. The results show that the yield curve augmented with the non-monetary variables has significant forecasting power in terms of real economic activity but the results differ qualitatively between the individual economies examined raising non-trivial policy implications.     

Okun's Law Revisited*

In the light of modern theoretical studies, the negative relationship between output and unemployment may take a nonlinear form, in the sense that changes in output can cause asymmetric changes in the unemployment rate. A regime‐dependent specification of Okun's law, where the inverse relationship between cyclical unemployment and cyclical GDP is allowed to differ across recessions and expansions, is estimated for the US economy. Using both the Hodrick–Prescott filter and a bivariate structural time series model to isolate the cyclical component of the variables of interest, the nonlinear specification is highly significant when tested against the linear alternative independently of the method used for extracting the cycle of unemployment and GDP. The estimation results imply that the contemporaneous effect of growth on unemployment is asymmetric and significantly higher in recessions than in expansions, and shocks to unemployment tend to be more persistent in the expansionary regime.     

Economy and Race: Interactive Determinants of Property Crime in the United States, 1958-1995

ABSTRACT Drawing upon rational choice, routine activity, and social disorganization theories, this study investigates changes in rates of property crime known (reported) to police in the United States from 1958 to 1995. Predictor variables include changes in rates of inflation; technological, cyclical, and frictional unemployment; arrest rates for property crimes disaggregated by race (ARPCDR); the interaction of ARPCDR and technological unemployment (to test effects of rising unemployment on whites versus blacks); and a measure of police provisioning. A Beach-MacKinnon Full Maximum-Likelihood FGLS AR1 Method (accompanied by residual analysis) is employed. Significant positive effects are established for (a) inflation, (b) cyclical unemployment, (c) frictional unemployment, and (d) the interaction of white arrest rates and technological unemployment. Police provisioning is not found to be significant. Policy implications are explored along with future policy considerations.     

A simultaneous-equations analysis of urban development: migration and industrial growth in Israel's new towns

A simultaneous-equations econometric model is used to analyze the recent development of new towns in Israel. The focus is on the relationships among migration, industrial investment, employment, and other structural and policy variables affecting urban development. "Our results affirm the importance of economic opportunity, agglomeration effects, population socioeconomic and ethnic composition, and access in determining migration flows. At the same time, unemployment and investment indices are affected by local labor-market conditions, government incentives, and regional development effects as well as by population composition and migration flows. Policy implications of the analysis are considered."     

Youth unemployment and terrorism in the MENAP (Middle East,North Africa,Afghanistan, and Pakistan) region

This paper builds on existing research investigating the root causes of terrorism by considering youth unemployment as a measure of economic deprivation. In particular, the study focuses on terrorism in Middle Eastern and North African (MENAP) countries and features terrorism incident count data for the period 1998–2012 using negative binomial regression models. In our exogenous model, we find that while youth unemployment tends to increase domestic terrorism, it does not have any significant effect on transnational terrorism. Given concerns about endogeneity of youth unemployment in these models, we use two kinds of corrections-instrumental variables and lagged variables. We control for endogeneity by using military expenditure, under-five mortality rate and foreign direct investment as instruments. We are not able to reject the null hypothesis that youth unemployment is exogenous. Using lagged variables, we find a similar result as noted in the exogenous specifications with regard to the effect of youth unemployment on domestic and transnational terrorism. We also find evidence that domestic terrorism tends to have a positive relationship with press freedom, religious and linguistic fractionalization, and area of the country. Transnational terrorism has a positive association with the quality of democracy and a negative association with political stability and regulatory quality. The amount of natural resources tends to be negatively associated with domestic terrorism and positively associated with transnational terrorism.     

Semi-Nonparametric Estimation of an Equilibrium Search Model

We specify and estimate an equilibrium job search model with productivity differences across labour market segments. The model allows for two types of unemployment: frictional unemployment due to search frictions and structural unemployment due to wage floors. Wage floors exist because of high unemployment benefits or binding minimum wages. The productivity distribution is estimated semi-nonparametrically along the lines of Gallant-Nychka, using Hermite series approximation. We decompose the total unemployment rate and we examine the effects of changes in the minimum wage.     

Demographic and education effects on unemployment in Europe

We analyse the effects of demographic and education changes on unemployment rates in Europe. Using a panel of European countries for the 1975–2002 period - disaggregated by cohort and education - we empirically test the economic effects of the “baby bust” and the “education boom”. We find that structural shifts in the population age structure play an important role and that a significant share of variation in unemployment rates is also attributable to educational changes, the latter being usually neglected in aggregate studies. Results show that demographic and education shocks are qualitatively different for young (adult) workers as well as for more (less) educated people. Changes in the population age structure are positively related to the unemployment rate of young workers, while have no effect on adults. Conversely, changes in the education structure show a negative effect on the unemployment of the more educated. Labour market institutions also influence unemployment rates in different ways. Employment protection for regular workers increases unemployment rates, while temporary employment provisions reduce it. Unemployment benefits are found to have a displacement effect on unemployment, while corporatism of wage bargaining improves employment performance.     

Ethnic Fractionalization,Governance and Loan Defaults in Africa

We present a theoretical model of an imperfectly competitive loans market that is suitable for emerging economies in Africa. The model allows for variation in both the level of contract enforcement (the quality of governance) and the degree of market segmentation (the level of ethnic fractionalization). The model predicts a specific form of nonlinearity in the effects of these variables on loan default. Empirical analysis using African panel data for 110 individual banks in 28 countries over 2000–08 provides strong evidence for these predictions. Our results have important implications for the conditions under which policy reform will enhance financial development.     

Policy intervention and forecasting: An application to minimum wages

This paper examines the forecasting implications of incorporating policy effects into the structure of unconditional time series models. The forecasting model is applied to the Puerto Rican experience with minimum wages from 1953 to 1982. The empirical results suggest that significant disemployment and unemployment followed the imposition of economy-wide minimum wages in 1974. The growth of employment suffered and the aggregate unemployment rate reached an unprecedented level. Multivariate time-series models for the employment-population ratio and the unemployment rate capture these effects well. They also forecast more accurately than unvariate and intervention models over the ex post period, 1983–1984. It is argued that models that combine subject matter-specific structure within a dynamic time-series framework greatly help to satisfy demands for theoretical consistency and forecast accuracy. Multivariate time-series models play an important complementary role in the structural modelling of economic policy analysis. This is particularly so when limitations of either data or theory preclude complete specification of structural equations.     

我国失业保险保险制度存在的主要问题及相关对策

失业不仅是一个重要的经济问题,而且是一个十分敏感的社会问题,它直接关系一个国家的经济发展和社会稳定。目前我国的失业保险制度还处于发展阶段,有许多的不完善。文中就我国失业保险的现状进行分析,并给出相关对策。     

Desired and actual labour supply of unmarried men and women in the Netherlands

Desired and actual working hours of unmarried adults are analyzed. A discrete structural neoclassical model is used to explain desired hours, which depend on gross wage rates, tax and benefit rules, other income, and some background variables. The model takes account of fixed costs of working and of prediction errors in wage rates of nonworkers. Actual hours are explained from desired hours and hours restrictions. Deviations between actual and desired hours are used to identify equations for involuntary unemployment and the lack of part-time jobs. The model is estimated using cross-section data from the Dutch Socio-Economic Panel. We find larger wage elasticities of desired hours of work for women than for men. Involuntary unemployment and a lack of part-time jobs appear to be important sources of hours restrictions. Individuals with (potential) wages below the minimum wage have a significantly larger probability of involuntary unemployment than others.     

Regional unemployment disparities in China

China has larger regional unemployment disparities than any other economy of comparable size. The persistence of the unemployment disparity in China has prevented the aggregate unemployment rate from decreasing even when the country’s GDP was growing at 10 percent per year. Unemployment rates rose and unemployment disparities widened in other transition economies too, but what made China’s disparities wider than those in other transition economies is the existence of a large subsistence sector, where unemployment exists only in a disguised form. This study explains the wide unemployment disparity in China with the geographically uneven distribution of the three sectors: the state sector, which suffers from a steep rise of unemployment during transition; the capitalist sector, which absorbs labor from the subsistence sector and grows rapidly; and the subsistence sector, which supplies its redundant labor to the capitalist sector. The study also presents a case study of Fuxin City, which has experienced an extremely high unemployment rate due to the reform of its main industry. Fuxin’s case is presented as a microcosm of the problems that give rise to unemployment disparities, such as massive layoffs in the state sector, lack of labor mobility in the unemployment-stricken regions, and inadequate development of the capitalist sector.