Labor composition and long-run employment in a minimum-wage economy

This article examines the long-run consequences of minimum wage regulation within the framework of a two-labor-sector growth model, where a minimum real wage is effective only in the “unskilled” labor sector. The assumption of heterogeneous labor makes possible a stable steady-state growth equilibrium. Conditions for the stability and existence of steady-state equilibrium are presented. A significant implication of the model is that selective immigration policies that encourage the influx of skilled workers would have the long-run effect of increasing the employment rate of unskilled labor, even in cases where the two labor sectors are nearly perfect substitutes.     

Analysis of information feedback and selfconfirming equilibrium

Recent research emphasizes the importance of information feedback in situations of recurrent decisions and strategic interaction, showing how it affects the uncertainty that underlies selfconfirming equilibrium (e.g., Battigalli et al., 2015, Fudenberg and Kamada, 2015). Here, we discuss in detail several properties of this key feature of recurrent interaction and derive relationships. This allows us to elucidate different notions of selfconfirming equilibrium, showing how they are related to each other given the properties of information feedback. In particular, we focus on Maxmin selfconfirming equilibrium, which assumes extreme ambiguity aversion, and we compare it with the partially-specified-probabilities (PSP) equilibrium of Lehrer (2012). Assuming that players can implement any randomization, symmetric Maxmin selfconfirming equilibrium exists under either “observable payoffs,” or “separable feedback.” The latter assumption makes this equilibrium concept essentially equivalent to PSP-equilibrium. If observability of payoffs holds as well, then these equilibrium concepts collapse to mixed Nash equilibrium.     

Cointegration of U.S. budget and current account deficits: Twins or strangers?

In this paper the authors employ the cointegration approach to explore empirically the existence of a possible long-run equilibrium relationship between the U.S. budget deficits and the current account deficits. This study uses annual nominal data in levels for the postwar period 1946–1988. Both the DW and the ADF tests confirm that the two deficits are not cointegrated. It implies that the two deficits have no possibility of reverting to a long-run equilibrium relation.     

Alternative conceptual frameworks for the analysis of mobility tables and the log-linear models

This article contrasts two alternative conceptual frameworks for the analysis of mobility tables: the “structure vs. circulation” framework that in the past inspired the construction of “pure” mobility indices, and the “absolute vs. relative mobility” one, more recently proposed by Goldthorpe. Contrary to the beliefs of the past, the former cannot conveniently be expressed by the parameters of the saturated log-linear model. The latter, on the contrary, permits (via the language of odds and odds ratios) the coherent application of log-linear models. Moreover, it does not incur those theoretical difficulties which even the most sophisticated attempts to save the old framework incur (e.g. Sobel et al., 1985). In the third section of the article a contribution to the understanding of the analysis of mobility tables through odds ratios is given and the relation between odds ratios and the interaction parameters of the saturated model is shown.     

Strategic shirking in competitive labor markets: A general model of multi‐task promotion tournaments with employer learning

In a multitask, market‐based promotion tournament model, under different environments concerning employer learning about worker ability, it is shown that: (a) asymmetric learning in multitask jobs is a necessary condition for “strategic shirking” (i.e., underperforming on certain tasks to increase the promotion probability); (b) when learning becomes increasingly symmetric on one task, the effort allocated to that task could increase or decrease, but effort on the other task increases; (c) strategic shirking does not occur in equilibrium in single‐task models; and (d) promotions signal worker ability even when there is symmetric learning on one task, if learning is asymmetric on another.     

The new urban economics: An evaluation

This paper reviews and evaluates the branch of urban economic theory labelled the “New Urban Economics.” This sub-field attempts to integrate welfare economics and urban economics within a general equilibrium framework using mathematical methods of analysis. Particular attention is given to the assumptions behind these models (one-dimensional space, monocentricity, homogeneous households, exclusive zoning, long-run equilibrium, etc.) and their implications. Extensions of the basic model—the treatment of utility, road congestion, other externalities, dynamics and optimum geography—are also examined.     

False modesty: When disclosing good news looks bad

Is it always wise to disclose good news? Using a new statistical dominance condition, we show that if the receiver has any private receiver information then the weakest senders with good news gain the most from boasting about it. Hence the act of disclosing good news can paradoxically make the sender look bad. Nondisclosure by some or all senders is an equilibrium if standards for the news are sufficiently easy or if prior expectations without the news are sufficiently favorable. Full disclosure is the unique equilibrium if standards are sufficiently difficult or sufficiently fine, or if prior expectations are sufficiently unfavorable. Since the sender has a legitimate fear of looking overly anxious to reveal good news, mandating that the sender disclose the news can help the sender. The model’s predictions are consistent with when faculty avoid using titles such as “Dr.” or “Professor” in voicemail greetings and course syllabi.     

The re-regulation of working communities and relationships in the context of flexwork: A spacing identity approach

Existing studies on flexwork stress its individualizing inclination by showing how it gives autonomy to employees, boosts individual productivity, or supports personal well-being at the expense of group cohesiveness, social ties and other characteristics of the “collective” in organizations. Obviously, flexwork both continues and contributes to an individualization process of working activities and relationships. But, how exactly does flexwork re-regulate working relationships and communities? Is the “collective” irremediably damaged and doomed to disappear? Building on a case study conducted in an insurance company having implemented flexwork, we observe invisibilized employees working from diverse premises (e.g., home, office, etc.) initiating alternative ways of staying united and close. This article shows the re-regulation of these working relationships and communities' through a collective identity process involving de/re-spacing identity; i.e., the spatial and material aspects of flexible work in relation to identity.     

The Disequilibrium Theory of Changes in Total Economic Activity

Abstract . It is widely taught that national product departs from, but returns toward, an “equilibrium” level. Return from sub-equilibrium, it is believed, involves depleting inventories; return from super-equilibrium involves building them up; in both cases, at a diminishing rate. Observable product and observable aggregate stocks of goods, however, usually rise and fall together; they do not change in opposite directions, as implied. Stocks are not large enough to support the supposed depletion at low income levels. “Intended” changes contrary to the actual changes are not documented. The disequilibrium theory does not promote understanding of historical cycles in product.     

Machine learning in M4: What makes a good unstructured model?

The Makridakis Competitions seek to identify the most accurate forecasting methods for different types of predictions. The M4 competition was the first in which a model of the type commonly described as “machine learning” has outperformed the more traditional statistical approaches, winning the competition. However, many approaches that were self-labeled as “machine learning” failed to produce accurate results, which generated discussion about the respective benefits and drawbacks of “statistical” and “machine learning” approaches. Both terms have remained ill-defined in the context of forecasting. This paper introduces the terms “structured” and “unstructured” models to better define what is intended by the use of the terms “statistical” and “machine learning” in the context of forecasting based on the model’s data generating process. The mechanisms that underlie specific challenges to unstructured modeling are examined in the context of forecasting, along with common solutions. Finally, the innovations in the winning model that allowed it to overcome these challenges and produce highly accurate results are highlighted.     

Does financial integration affect real exchange rate volatility and cross-country equity market returns correlation?

Existing empirical studies show that financial integration affects the behavior of average excess returns, cross-country equity market returns (EMR) correlations and real exchange rate (RER) volatility. We employ a recently developed two-country model with recursive preferences, frictionless and complete markets and highly correlated long-run innovations to examine whether full financial integration (i.e. full risk-sharing) affects the US-Canada EMR correlation and the US RER volatility, consistently with existing empirical findings. First, full risk-sharing gives rise to a relatively high RER volatility. Second, it induces very strong positive cross-country EMR correlations. Both quantities are higher than those observed in the US-Canada asset pricing data, and increase as the risk-sharing incentive increases. In contrast, “international consumption quantities” are weakly sensitive to changes in the level of aversion to consumption and utility risk.     

Does Direct Democracy Increase Voter Turnout? Evidence from the 2004 General Election

Abstract . This empirical study seeks to broaden the interpretation of the “rational voter model” so as to include the potential effects of “direct democracy” on the voter participation rate. Direct democracy is assumed to take two forms: initiatives and popular referenda. This study tests the hypothesis that direct democracy may not on balance significantly affect voter turnout because, although it may elevate the expected gross benefits of voting by “empowering voters,” the transactions/information costs correlative with direct democracy raise the costs of voting. Using cross‐section analysis for the 50 states for the 2004 general election, this study finds that the existence of initiatives and/or referenda does not significantly influence voter turnout.     

Real exchange rate,stationarity, and economic fundamentals

Using monthly data for the US/UK real exchange rate over the period 1921–2002, we find evidence that the mean reverting tendency of the real exchange rate is stochastic, and regime-dependent. There is one regime over which PPP holds as a long-run equilibrium relation, i.e. a stationary PPP regime, and another regime over which PPP does not hold, i.e. a non-stationary PPP regime. The transition from the non-stationary to the stationary regime is found to be affected by the real interest rate differential, and by the volatility of the nominal exchange rate. The real output differential does not appear to affect the transition probability.     

Capitalization of Costs and Expected Earnings Growth

Abstract

This paper offers a model that shows how the capitalization of costs affects contemporaneous earnings and the growth path of expected earnings. It makes three points. First, reported earnings under successful efforts are more price relevant than earnings under full costing or full expensing. Second, whether conditional or unconditional, conservatism always enhances the growth rate of expected earnings. Third, independent of capitalization policy, the long-run expected earnings growth rate converges either to the long-run expected free cash flow growth rate or to the depreciation rate. Therefore, while capitalization policy affects the price relevance of earnings and short-run expected earnings growth, it does not affect long-run expected earnings growth.     

Commitment in the workplace: toward a general model

It is now well recognized that employees can develop multiple work-relevant commitments, and that commitment itself is a multidimensional construct. Unfortunately, there remains considerable disagreement, both within and across work commitment literatures (e.g., organizational, occupational, union), about what commitment is, its dimensionality, how it develops, and how it affects behavior. We argue that commitment should have a “core essence” regardless of the context in which it is studied, and that it should therefore be possible to develop a general model of workplace commitment. We propose such a model based on the propositions that commitment (a) is a force that binds an individual to a course of action of relevance to a target and (b) can be accompanied by different mind-sets that play a role in shaping behavior. We demonstrate how this model helps to explain existing research findings and can serve as a guide for future research and for the management of workplace commitments.     

Testing the forward volatility unbiasedness hypothesis in exchange rates under long-range dependence

This paper analyses the unbiasedness hypothesis between spot and forward volatility, using both the actual and the continuous path of realised volatility, and focusing on long-memory properties. For this purpose, we use daily realised volatility with jumps for the USD/EUR exchange rate negotiated in the FX market and employ fractional integration and cointegration techniques. Both series have long-range dependence, and so does the error correction term of their long-run relationship. Hence, deviations from equilibrium are highly persistent, and the effects of shocks affecting the long-run relationship dissipate very slowly. While for long-term contracts, there is some empirical evidence that the forward volatility unbiasedness hypothesis does not hold – and, thus, that forward implied volatility is a systematically downward-biased predictor of future spot volatility – for short-term contracts, the evidence is mixed.     

Fiscal reform,bank solvency,and the law of unintended consequences: a CGE analysis of Mexico

Whether due to random economic shocks or deliberate policy measures, sudden relative price changes can lower bank solvency. Whereas “winners”—i.e., those sectors experiencing improved net prices for their output—aren’t obliged to share their good fortune with banks, “losers” my share their bad fortune by electing to default on bank loans. This paper presents a disaggregated dynamic computable general equilibrium model, used to analyze specifically how current policy proposals to stimulate savings might affect solvency in different sectors. We find surprising capital losses in pesos for two of the three policies simulated, which would leave domestic currency debtors substantially worse off.     

China's Exchange Rate Reform and Exports

The paper argues that exchange rate reform is a vital supply-side factor in China's export growth. It contributes to China's export expansion by affording a realistic exchange rate and allowing freer access to foreign exchange, thereby leading to the reduction of anti-export bias and strong supply response. In an imperfect substitutes model, China's long-run export supply and demand functions are estimated in a system context. Evidence is found that the exchange rate reform is one of the most influential factors in China's long-run export expansion, inducing significant response of exports supply. In the short-run, the exchange rate reform and the export volume are also cross-linked through the error-correction process. China's exchange rate policy adjusts speedily to ensure the long-run equilibrium of the supply-side relationship and is likely to have played a dominant role in the adjustment. The study confirms, thanks to the exchange rate reform, China's exchange rate policy has benefited China's remarkable growth of exports before 1994.     

The effect of population growth,the pattern of demand and of technology on the process of urbanization

A nonlinear, three-sector, two-region wage and price endogenous dynamic general equilibrium model is used to study the effects of population growth, the pattern of demand, and technological change on urbanization in the context of a low-income developing country starting at a low level of urbanization. The model represents a closed economy and is therefore more suited to a large country. It is validated on Indian data and traces its development path well from 1950 to the present. The sectors modeled are agriculture, industry, and services with the latter two being located exclusively in urban areas. The three sectors are linked with an input-output matrix which subsumes transportation costs incurred between urban and rural areas. The model is designed to investigate long-term changes, e.g., over a 30-year period, and factor mobility is therefore assumed to be “almost perfect.” The model demonstrates that rapid agricultural productivity growth, high rates of investment, and Engel demand effects combine to produce a continuing increase of urbanization as development occurs in an economy. The rate of urbanization is not necessarily dependent on high overall population growth: indeed, under certain conditions, a lowering of overall population growth might speed up the rate of urbanization. The pattern of demand and changes in the pattern can affect the rate of urbanization significantly: in particular, Engel-type demand changes serve to make the process of urbanization logistic. Technological bias effects are not very strong but effective appropriate technology policies might speed up urbanization.     

On the (non-)equivalence of IRR and NPV

The internal rate of return (IRR) is generally considered inferior to the net present value (NPV) as a tool for evaluating and ranking projects, despite its inherently useful comparability to the cost of capital and the return of other investment opportunities. We introduce the “selective IRR”, a return criterion which, as a selection of an extended set of possible IRRs, is NPV-consistent. The selective IRR always exists, is unique, easy to compute, and does not suffer from drawbacks that befall the project investment rate, the only other known NPV-consistent return criterion.