The Taylor principle fights back,Part I

New Keynesian models with limited asset market participation assert that under plausible conditions higher real interest rates increase aggregate demand, the Taylor principle leads to indeterminacy, and passive policy ensures a unique equilibrium. These striking results stem from the assumption that the real wage is highly flexible. Relaxing this assumption slightly brings back the normal world where higher real interest rates reduce aggregate demand and where the Taylor principle is effectively necessary and sufficient for a unique, stable equilibrium.     

Do credit market imperfections justify a central bank׳s response to asset price fluctuations?

Do credit market imperfections justify a central bank׳s response to asset price fluctuations? This study addresses this question from the perspective of equilibrium determinacy. In the model we use, prices are sticky and the working capital of firms is subject to asset values because of a lack of commitment. If credit market imperfections exist to a small degree, the Taylor principle is a necessary and sufficient condition for equilibrium determinacy, and monetary policy response to asset price fluctuations is good from the perspective of equilibrium determinacy. However, if credit market imperfections exist to a large degree such that the collateral constraint is binding, then the Taylor principle no longer guarantees equilibrium determinacy, and monetary policy response to asset price fluctuations becomes a source of equilibrium indeterminacy. We find that the existence of credit market imperfections makes it unsuitable to initiate a monetary policy response to deal with asset price fluctuations. We also find that reductions in credit market imperfections can enlarge the indeterminacy region of the model parameters.     

A New Keynesian model with staggered price and wage setting under learning

This paper provides a study of the implications for economic dynamics when the central bank sets its nominal interest rate target in response to variations in wage inflation. I provide results on the existence, uniqueness, and stability under learning of rational expectations equilibrium for alternative specifications of the manner in which monetary policy responds to economic shocks when nominal rigidities are present. Monopolistically competitive producers set prices via staggered price contracts, and households set nominal wages in the same fashion. In this setting, the conditions for determinacy and learnability of rational expectations equilibrium differ from a model where only prices are sticky. I find that when the central bank responds to wage and price inflation and to the output gap, a Taylor principle for wage and price inflation arises that is related to stability under learning dynamics. In other words, a moderate reaction of the interest rate to wage inflation helps to avoid instability under learning and indeterminacy.     

Capital–labor substitution and equilibrium indeterminacy

This paper examines the quantitative relationship between the elasticity of capital–labor substitution in production and the conditions needed for equilibrium indeterminacy (and belief-driven fluctuations) in a one-sector growth model. With variable capital utilization, the substitution elasticity has little quantitative impact on the minimum degree of increasing returns needed for indeterminacy. However, when capital utilization is constant, a below-unity substitution elasticity sharply raises the minimum degree of increasing returns because it imposes a higher effective adjustment cost on labor hours. Overall, our results show that empirically-plausible departures from the Cobb–Douglas production specification can make indeterminacy more difficult to achieve.     

Structural change accounting with labor market distortions

This paper quantifies the relative importance of sectoral productivity and labor market distortions for structural change in the U.S., India, Mexico and Brazil between 1960 and 2005. I use census data to compute human capital by sector and infer labor market distortions as sectoral gaps in wage per unit of human capital. I incorporate these distortions into a model of structural change, and calibrate the model to reproduce the time paths of sectoral shares of labor and value added for each country. Counterfactuals reveal that (1) TFP growth in agriculture drives most of the decline in its share of labor; (2) the role of labor market distortions is limited.     

市场潜能加剧了性别工资不平等吗？

本文首先构造了我国338个城市包含海外和国内市场的总市场潜能指标,并利用2005年全国人口抽样调查数据和新经济地理学的基准工资方程,通过Heckman样本选择模型和RIF回归分解方法实证分析了市场潜能对性别工资不平等的影响。研究发现：市场潜能虽然对工资水平具有显著的正向拉动作用,并缩小了高技能劳动力的性别工资不平等,但扩大了低技能劳动力的性别工资不平等,从而加剧了整体的性别工资不平等,其中对低收入群体的加剧作用大于中高收入群体。RIF工资分解结果也证实了这一事实,且收入分布上半部分（90-50分位点）和工资结构效应对此贡献较大,尤其是市场潜能的工资结构效应贡献了总工资结构效应的60%以上,表明从城市间市场潜能及其对性别工资的影响入手,将是破解性别工资不平等难题的有效路径。     

Search frictions,real wage rigidities and the optimal design of unemployment insurance

In this paper, we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions. The US unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits. Using DSGE methodology, we investigate how policy instruments should interact with labor market imperfections. It is shown that wage rigidities in a search and matching environment cause welfare costs, especially in the absence of an incentive-based unemployment insurance. This cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations. We show that the optimal unemployment benefits financing scheme – corresponding to the Ramsey policy – offsets labor market imperfections and allows implementation of the Pareto allocation. The second-best allocation brings the economy close to the Ramsey allocation. The implementation of the optimal policies clearly highlights the role of labor market institutions for short-run stabilization.     

TRADE LIBERALIZATION,LABOR DEMAND SHIFTS AND EARNINGS INEQUALITY IN SINGAPORE

This article investigates the relative wage between skilled and low skilled labor in a small open economy with traditionally few labor market rigidities. It looks at the role of relative skills demand and supply in determining skills premium and explores the extent to which trade liberalization affects the skills wage gap. Indications are that greater openness is linked to higher labor demand elasticity and/or technological progress. The evidence also suggests that rapid acceleration in labor demand for skills and trade liberalization has widened the wage gap between skilled and low skilled labor. This result persists regardless of industry type.     

Language and urban labor market segmentation: Theory and evidence

I propose a language theory of labor market segmentation. People of different language origins form separate urban labor submarkets and can switch between submarkets. Two types of wage differentials emerge, namely the Within-Labor-Market Wage Gap and the Within-Language-Group Wage Gap. The average wage in each market and a worker’s choice of the labor market depend on the population sizes of the relevant groups. These implications are tested using the 2001 Census of Canada Public Use Microdata. A unique feature of these data is the reported work language, which helps me to identify labor market segments. The empirical evidence supports my theory.     

NATIONAL AND REGIONAL WAGE CURVES IN JAPAN 1981–2001

There is evidence in many countries of an inverse relationship between the real wages paid to workers and the unemployment rate in their local labor market, a so-called wage curve. However, the evidence to date for Japan has been rather limited. In this paper, we estimate wage curves for Japan using pooled cross-section time-series data from 1981 until 2001. The presence of a wage curve is confirmed. The wage curve has become slightly more elastic after the bubble economy of the 1980s than it was in the pre-bubble and mid-bubble period. The unemployment elasticity of pay is greater for males than for females. We also estimate regional wage curves using time-series data. The male wage curve elasticity is larger in the northern regions of Hokkaido and Tohoku and the western region of Shikoku, while it is smaller in the central regions of Hokuriku, Tokai and Kinki.     

Wage bargaining,productivity growth and long-run industry structure

This paper studies the innovation dynamics of an oligopolistic industry. The firms compete not only in the output market but also by engaging in productivity enhancing innovations to reduce labor costs. Rent sharing may generate productivity dependent wage differentials. Productivity growth creates intertemporal spillover effects, which affect the incentives for innovation at subsequent dates. Over time the industry equilibrium approaches a steady state. The paper characterizes the evolution of the industry's innovation behavior and its market structure on the adjustment path.     

Do labor market institutions matter for business cycles?

Using panel data of 19 OECD countries observed over 40 years and data on specific labor market reform episodes we conclude that labor market institutions matter for business cycle fluctuations. Spearman partial rank correlations reveal that more flexible institutions are associated with lower business cycle volatility. Turning to the analysis of reform episodes, wage bargaining reforms increase the correlation of the real wage with labor productivity and the volatility of unemployment. Employment protection reforms increase the volatility of employment and decrease the correlation of the real wage with labor productivity. Reforms reducing replacement rates make labor productivity more procyclical.     

Accounting for wage and employment changes in the US from 1968–2000: A dynamic model of labor market equilibrium

In this article, we present a unified treatment of and explanation for the evolution of wages and employment in the US over the last 30 years. Specifically, we account for the pattern of changes in wage inequality, for the increased relative wage and employment of women, for the emergence of the college wage premium and for the shift in employment from the goods to the service-producing sector. The underlying theory we adopt is neoclassical, a two-sector competitive labor market economy in which the supply of and demand for labor of heterogeneous skill determines spot market skill rental prices. The empirical approach is structural. The model embeds many of the features that have been posited in the literature to have contributed to the changing US wage and employment structure including skill-biased technical change, capital-skill complementarity, changes in relative product-market prices, changes in the productivity of labor in home production and demographics such as changing cohort size and fertility.     

Wage incentives and wage rigidity: A representative view from within

A recent literature has used surveys of those who set wages to learn about the nature of wage incentives and the sources of wage rigidity. Methodologically, we overcome many of the objections that have been raised against this work. Substantively, we find that: (i) the reasons for real wage rigidity differ significantly between large and small firms, and between the high- and low-end of the labor market; (ii) efficiency wage mechanisms reinforce rigidities due to worker bargaining power; (iii) money illusion is a widespread phenomenon across all segments of the labor market; (iv) unions reinforce nominal wage rigidities due to external pay comparisons; (v) there appears to be gender differences in pay bargaining and work morale.     

Productivity, employment and labor demand in Polish industry in the 1980s: Some preliminary results from enterprise-level data

The paper uses annual data from a panel of 334 Polish industrial enterprises over the period 1983–1988 to test empirically a simple neoclassical approach to the socialist labor market. First, an enterprise production function is estimated. The paper finds that for most enterprises, the resulting estimated marginal product of labor exceeds the wage paid by the enterprise by a considerable margin, suggesting general excess demand for labor. The paper then looks at how the difference between the MPL and the wage is related to the rate of change of employment, and finds that firms where the MPL is higher than the wage — firms which in a neoclassical model would have a large excess demand for labor — do not shed labor any more slowly than other firms.     

Monopoly, Monopsony, and Union Strength and Local Market Wage Differentials

A bstract . The study of the influence of product market monopoly, local labor market monopsony , and union strength on market wage differentials is the purpose of this paper. Accordingly, the related theoretical propositions are examined, synthesized and extended to explain more fully observed variations in local labor market wages. In contrast to previous investigations, this study considers several varied occupations at once, encompasses nineteen different two digit SIC industries , and computes market wage data using observations on individuals from the 1970 census. The results indicate that the extent of unionism and employer monopsony contribute significantly to the explanation of market wage differentials, while the product market concentration , and its interaction with unionism does not.     

Wage premia and skill upgrading in Italy: why didn't the hound bark?

This paper presents firm-level evidence on the change of the employment share and the wage premium of non-manual workers in Italian manufacturing during the nineties. We find that the relative stability of the aggregate wage premium and employment share hides offsetting disaggregate forces: technical progress raises the relative demand for skilled labor within firms, whereas demand changes associated with trade reduce the relative demand for skills. Moreover, it is within the class of non-manual workers that most of the action takes place: the wage premium and employment share of executives rise substantially, while those of clerks fall in a similar proportion. Finally, we find that the export status of firms plays a key role in explaining labor market dynamics: exporters account for most of both demand-related and technology-related shifts. Overall, our results for Italy question the conventional view that the labor market is “rigid” due to labor market institutions.     

Europeanization or globalization? Transnational wage bargaining and the distribution of activity in European labor markets

This paper investigates the impact of globalization on labor markets, in terms of wage inflation and the distribution of activity across regions. Specifically, we study the effects of aggregation in the labor markets on the distribution of employment and inflation pressures, where there are differences in market structures and transmission mechanisms underpinned by relatively immobile labor. To demonstrate these ideas, we take the European experience as a “laboratory” to show what can be expected from globalization in the labor markets in practice. Using models of wage leadership vs. locational competition, we examine the extent and strength of aggregation effects on labor market costs using a sample of data from 1983 to 2007 which covers the period of the creation of the Euro. We find that the aggregation effect has decreased significantly since the start of EMU, improving the trade-off between inflation and unemployment. At the same time, while Germany played an important role in the run-up to EMU in terms of wage leader, its role has now decreased and been replaced by globalization forces. This implies increased locational competition in terms of wage formation. We demonstrate this with the emerging role of the US as the benchmark for wage setting in Europe.     

农民工工资市场决定失灵的原因及解决途径

我国农民工的工资市场决定存在失灵,主要是农民工劳动力供求的变动对其工资水平的影响微弱,农民工劳动力短缺与其工资水平偏低并存。这种失灵直接源于农民工劳动力的供需矛盾性、需求垄断性和信息非对称性所决定的农民工劳动力市场的发育缺陷,根源于农民工劳动力市场所面临的包括以户籍制度为主的制度壁垒、重城轻乡的制度安排和信息传导的制度缺失在内的制度困境。而培育农民工劳动力市场、完善相关制度是解决其工资市场决定失灵的现实出路,其中转变政府职能是关键。     

Dualism in the German Labor Market?A Nonparametric Analysis with Panel Data

A bstract . Orthodoxy in economics gives pride of place to the hypothesis of compensating differentials. Applied to job quality criteria, such as wage levels, job stability, and wage growth, the compensating differentials hypothesis implies that negative or positive job quality characteristics should— ceteris paribus —rarely coincide. Originating in the late 1960s from studies of American inner-city labor markets, dualist labor market theory has raised doubts about this assumption. At its core, dualist analysis proposes that a dualism exists between a primary' labor market where "jobs possess several of the following traits: high wages, good working conditions, employment stability and job security, equity and due process in the administration of work, and chances for advancement" and a secondary market where jobs "tend to involve low wages, poor working conditions, considerable variability in employment, and little opportunity to advance" (Doeringer and Piore 1971). In the 1980s, there were several attempts to apply dual or segmented labor market theory to European economies, including the German labor market. The mixed findings of these analyses have cast doubt upon the transferability of dualist theory to these contexts.