Unemployment disparities and regional wage flexibility: comparing EU members and EU-accession countries

This paper provides empirical evidence on regional labor market flexibility in Europe and, in particular, in the EU-accession countries in Central and Eastern Europe. Whereas substantial regional disparities in unemployment are found for pre-accession EU member countries as well as for accession countries, an empirical analysis taking account of spatial effects shows that regional wage flexibility is significantly higher for accession countries. Moreover, unemployment disparities are found to be less persistent in the accession countries.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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The macroeconomics of the labor market: three fundamental views

We distinguish and assess three fundamental views of the labor market regarding the movements in unemployment: (1) the frictionless equilibrium view; (2) the chain reaction theory, or prolonged adjustment view; and (3) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short- and long-run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long-runs are interrelated, merging with one another along an intertemporal continuum.

Can labour market institutions explain high unemployment rates in the new EU member states?

This article studies the question whether labour market institutions can explain the large differences in unemployment rates in the new member states. It investigates several labour market institutions and concludes that they are on average no more rigid in the new member states than in the old ones. However, there is a lot of heterogeneity both in terms of institutions and unemployment rates. The impact of labour market institutions on performance is empirically examined for a panel of European countries. These results are used to assess to what extent labour market institutions are responsible for the diverse unemployment experiences in the new member states. Labour market institutions can explain only a small part of these differences. Other causes of unemployment seem to be more important.

Freedom,barriers to entry,entrepreneurship, and economic progress

While entrepreneurs benefit from unrestricted free entry into markets, they have a time-inconsistent incentive to lobby for government entry restrictions once they become successful. Bad political institutions yield to these demands, and growing barriers are placed on domestic and international competition. Good institutions do not, and this effort is instead channeled toward further wealth creation. We find that productive entrepreneurship depends on both the freedom to succeed and discipline of failure that free markets provide. Trade barriers result in fewer combinations of goods and inputs attempted, and less productive entrepreneurial resource use. We also provide evidence on the value of business failure.

Tariffs,trade and unemployment in a disequilibrium model: issues and policies

This paper studies the disequilibrium transition process engaged by increased openness to trade, and the effect of institutions, market behaviors and economic policies on that transition. The issue is analyzed with a simple two country (north and south), two goods model, amended in order to take into account the time dimension of both the production and the decision processes. Investigating the consequences of a tariff decrease by means of numerical simulations, we show to what extent wage and price setting, and the degree of tightness of monetary policy affect the outcome of the disequilibrium process. The main result is that capturing the gains associated with international trade requires market behaviors and economic policies, which are rather different from what is usually prescribed.

Locational choice and price competition: some empirical results for the austrian retail gasoline market

Using data from the Austrian retail gasoline market we find that a higher station density reduces average prices. Market (i.e. ownership) concentration does not significantly affect average price, however is negatively related to the density of stations. Estimation of the pricing and entry equations as simultaneous equations does not alter our conclusions, and suggests causality running from station density to price. We argue that the spatial dimension of markets allows the identification of market conduct, which is particularly relevant for competition policy.

Demand by product characteristics: measuring solar cell quality over time

The purpose of this paper is to investigate the impact of innovation quality as a success factor of companies that satisfy demand in government-subsidized science-based markets. This paper focuses on the Photovoltaic market in Germany as a case study. It carries out the analysis in three stages. First, the efficiency of photovoltaic product characteristics is examined using data envelopment analysis (DEA). Second, by means of a metric re-scaling approach, the technical improvement of solar modules offered on the German market is analyzed over time. Next, the results of the second stage are compared to demand growth (evolution of market shares). In conclusion, it can be shown that innovation quality in science-based markets is often an explanation of long-term growth, but occasionally a reduction of performance characteristics meets demand.

Use of borrowed start-up capital and micro enterprises in Mexico: existence of liquidity constraints

Using the National Survey of Micro enterprises (ENAMIN, Encuesta Nacional de Micronegocios) data I test for the presence of liquidity constraints for obtaining start-up capital in Mexico’s credit markets (formal and informal). I use the bivariate probit model with partial observability to recognize two important decisions in the credit allocation process: first, whether an owner of a micro enterprise wants to apply start-up loan and, second, whether financial institutions decide to provide or not to provide the loan. Finally, I compare the results from this model to those of a simple probit model that looks at whether a micro enterprise owner gets funding or not (i.e. the probit model implicitly assumes that no liquidity constraints exist). The findings of this study show that there is substantial heterogeneity in the socioeconomic background of borrowers, as well as in the sources for start-up capital employed by micro enterprises in Mexico. Moreover, there is clear evidence of liquidity constraints in the market for start-up capital that could hinder the creation and growth of small enterprises. Applying the findings of the study, policy makers could fundamentally increase the effectiveness in establishing an economic environment that fosters growth.

The Effects of Immigration on Regional Unemployment Rates in The Netherlands

The impact of immigration on the change in the unemployment rate in the Netherlands is analyzed using panel data from 26 labor market regions from 1996 through 2003. This study measures immigration through the year-to-year change in the foreign population, paying particular attention to immigrants of non-Western origin. Other variables controlling the composition of the local labor market include: occupation shares, the fractions of workers employed in high- and low-skilled jobs, the fractions of female workers, part-time employees, labor force participants over the age of 55, educational attainment shares, and population density. The ordinary least squares (OLS) results indicate a change in the foreign population in the labor force led to a statistically significant increase in the upward volatility of Dutch unemployment rates while the change in the non-Western share had no significant effect.

Deliberation,learning, and institutional change: the evolution of institutions in judicial settings

Institutional change entails institutional design, assessment, and modification, which necessarily take place within the constraints and opportunities afforded by existing institutional arrangements. Viktor Vanberg has made major contributions to our understanding of how institutions evolve. We wish to contribute to this symposium in honor of Vanberg by analyzing how institutions for the management of water institutions in Southern California evolved primarily through the use of the courts as settings for deliberation, learning and institutional change.

Testing efficiency of the ruble-sterling foreign-exchange market under the gold standard

This paper tests an efficient market hypothesis for the Russian ruble–UK sterling exchange rates in the gold standard period 1897–1913. Using Bayesian Markov Chain Monte Carlo methods it is shown how to test a weak-form market efficiency in a doubly truncated regression model with ARMA-GARCH error. The suggested model accounts for time series characteristics of the data and bounds of exchange rates caused by the gold points and government intervention. We find that the weak-form efficiency hypothesis can not be rejected for the gold standard ruble exchange rates in both St.Petersburg and London markets.

How large is liquidity risk in an automated auction market?

We introduce a new empirical methodology that models liquidity risk over short time periods for impatient traders who submit market orders. Using Value-at-Risk type measures, we quantify the liquidity risk premia for portfolios and individual stocks traded on the automated auction market Xetra. The specificity of our approach relies on the adequate econometric modelling of the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and traders' time horizon, and interpret its diurnal variation in the light of market microstructure theory.

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On local indeterminacy and endogenous cycles in Ramsey models with heterogeneous households

It is well-known that endogenous cycles can occur in Ramsey models with heterogeneous households and borrowing constraints. In this note, we address the issue of robustness in the more general case of endogenous labor supply and we explain the occurrence of local indeterminacy under progressive taxation.

Defying the ‘Juncker curse’: can reformist governments be re-elected?

European policy makers, notably in the euro area, seem to take for granted that the electorate will punish them for bold reform in product and labour markets. This may explain why progress in the euro area has been comparatively limited. This paper posits and, using a dataset for 21 OECD countries, shows that this fear of electoral backlashes is unfounded, provided that financial markets work well. The mechanisms involved are relatively straightforward: well functioning financial markets “bring forward” future yields of structural reform to the present, thus permitting to overcome possible short-run costs. As a result, the electorate tend to reward, not punish, reformist governments. This has important implications for the design of structural reform packages, with financial market reforms being an essential ingredient beside product and labour market reforms.

The State,Public Policy and Heterodox Economics: An Introduction

While most heterodox economists endorse some amount of policy activism, there is no unified conception of the state and public policy in heterodox economics. To help clarify the similarities and differences within heterodoxy – and between heterodox and mainstream economics – a panel addressing this subject was convened in 2007 at the Annual Meeting of the Association for Institutional Thought. This article introduces the essays prepared for that symposium. They include an examination of the position of Marx and Engels, a clarification of the institutionalist views of Veblen and Commons, an outline of the perspective of Post Keynesian Institutionalism, and an account of some essential contributions of Classical Pragmatism (a major school of thought within the philosophy of science). The collection advances what Robert Heilbroner called “the worldly philosophy” by seeking to understand the role of the state in a world where institutions, defined broadly as social habits, adjust to other institutions.

Does population density matter in the process of matching heterogeneous job seekers and vacancies?

This paper studies the matching of job seekers and vacant jobs using data on local labour markets. We estimate differences in the ability of the local markets to form new matches and trace whether these differences can be explained by the differing population densities across markets or by the heterogeneity of job seekers measured by the distribution of their education level. We find that high-density areas are more efficient in forming matches than other areas despite frictions caused by the wider heterogeneity of job seekers in those areas than elsewhere.

The Austrian roots of the economics of institutions

This paper presents an analysis of the way the Austrian theory of institutions evolved from Menger’s main works. It also tries to advance the idea that the economics of institutions, when it deals with the emergence and evolution of rules and norms from interacting individuals, is inspired by Menger’s work and more generally by the Austrian analysis of the emergence and evolution of institutions. Recent works in the economics of institutions build on this earlier Austrian work to make it more formalized and testable.

The role of the financial sector in economic development: the Malaysian case

In this paper, we empirically examine the finance-economic development relations for the case of Malaysia. Using a battery of time series econometric techniques, we document robust evidence suggesting favorable output effects of financial market development. Likewise, there are consistent results showing the adverse real effects of financial volatility. The results of the development of financial intermediaries, however, are fragile. Moreover, the development of the financial markets hinges crucially on macro-economic performance and financial stability of the country. However, the process of financial market development is likely to be accompanied by financial volatility, leaving Malaysia with the trade-off between financial development and financial volatility. Lastly, we obtain limited evidence indicating the complementarity between financial market and banking sector developments.

Austrian themes,data, and sports economics

This paper uses data from Major League Baseball and themes from Moneyball by Michael Lewis to empirically illustrate Kirznerian entrepreneurship. While Kirzner envisioned competition in markets for profit, the sports economics literature shows that sporting competition has things in common with market competition. This is important because a strength of sports economics, namely, the abundant data, can help overcome a perceived weakness of Austrian economics, namely, the lack of empirical content. This paper describes and empirically confirms how certain front office decision makers of the Oakland Athletics were alert to opportunities that were being overlooked by other baseball executives.