Currency substitution, portfolio diversification, and money demand

Abstract .  We extend the Thomas (1985) dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile.     

Worker Turnover, Job Turnover and Collective Bargaining in Spain

This paper analyses the relationship between the presence of organized labour in firms (approximated by the scope of collective bargaining) and the extent of gross worker and job flows. According to the voice theory of Freeman, those firms having a union presence will have lower worker mobility. However, there is no analysis of the effects of the presence of organized labour on gross job flows. Using a Spanish data base, we find evidence of the existence of a voice effect on gross worker flows but not clear support for a voice effect on gross job flows.     

Competent jerks, lovable fools, and the formation of social networks

When looking for help with a task at work, people turn to those best able to do the job. Right? Wrong. New research shows that work partners tend to be chosen not for ability but for likability. Drawing from their study encompassing 10,000 work relationships in five organizations, the authors have classified work partners into four archetypes: the competent jerk, who knows a lot but is unpleasant; the lovable fool, who doesn't know much but is a delight; the lovable star, who's both smart and likable; and the incompetent jerk, who.. .well, that's self-explanatory. Of course, everybody wants to work with the lovable star, and nobody wants to work with the incompetent jerk. More interesting is that people prefer the lovable fool over the competent jerk. That has big implications for every organization, as both of these types often represent missed opportunities. Because they are liked by a disproportionate number of people, lovable fools can bridge gaps between diverse groups that might not otherwise interact. But their networking skills are often developed at the expense of job performance, which can make these employees underappreciated and vulnerable to downsizing. To get the most out of them, managers need to protect them and put them in positions that don't waste their bridge-building talents. As for the competent jerks, too often their expertise goes untapped by people who just can't put up with them. But many can be socialized through coaching or by being made accountable for bad behavior. Others may need to display their competence in more isolated settings. Intriguingly, managers aren't limited to leveraging people that others like and changing those that others loathe. They also can create situations in which people are more apt to like one another, whatever their individual qualities.     

The contribution of minimum wage valorization policy to the decline in household income inequality in Brazil: A decomposition approach

There is a vast literature that estimates the effect of the minimum wage on wage inequality in various countries. However, as the minimum wage directly affects nonlabor income of families in some countries (in the Brazilian case via the benefits of the pension system and of certain social programs), this article extends the empirical analysis by studying the effects of the minimum wage on the level of inequality of household income as a whole. To accomplish that we employ a decomposition method that gauges the contribution of the increases in the minimum wage that occurred in recent decades in Brazil through the labor and nonlabor sources of household income. The results show that the minimum wage had a contribution of 64 percent to the observed fall in income inequality between 1995 and 2014 and that pensions were the most relevant channel over this period.     

UNEMPLOYMENT, HYSTERESIS AND TRANSITION

In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear ‘Hysteresis’ as described by the presence of unit roots in unemployment as in most empirical research on this area. Given that this is potentially a narrow definition, we also take into account the existence of structural breaks and nonlinear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria, that is, if it remains locked into a new level whenever some structural change or sufficiently large shock occurs. Our findings show that, in general, we can reject the unit‐root hypothesis after controlling for structural changes and business‐cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria.     

Severance Payment Programs in Latin America

Latin America stands out among different regions in the world for her high employment termination costs. To this contribute both a high level of severance payments and the existence of overlapping benefits. The effectiveness of these protective measures, however, is limited by the size of the informal sector, which, in turn, may be related to employment protection levels. Another important limitation on the effectiveness of employment protection regulation is the often large transaction costs associated with making good of law provisions for the worker. Equilibrium severance pay levels may thus be well below what law mandates as evidence of low coverage rates and undesirable side effects is mounting, reform seems a critical policy issue. However, this reform cannot focus exclusively on severance pay, but it has to incorporate other overlapping benefits, such as UISAs, and advance notice. It also has to contend with a problematic political economy. Jaramillo is a Senior Researcher at the Group for Analysis of Development, GRADE. Saavedra is with the World Bank. Authors are grateful to Eduardo Nakasone for superb research assistance. They also wish to thank participants at the World Bank’s International Workshop on Severance Payments Reform (Laxenberg/Vienna, 2003) for valuable comments.     

Merger policy in innovative industries

We analyze optimal merger policy in R&D-intensive industries with product innovation aiming to improve the quality of products. Our results suggest that a permissive merger policy is rarely optimal in high-tech industries when the antitrust authority considers a welfare standard that balances the impact of mergers on consumers’ surplus and firms’ profits. In particular, relative to a benchmark where the effects from R&D are absent, we show that the optimal merger policy should not be substantially more permissive in the presence of those effects from R&D.     

On firm-level,industry-level,and aggregate employment fluctuations

Employment fluctuations are examined, at different levels of aggregation, in a model with firm-specific hiring decisions due to search frictions and sticky pricing. The results indicate that firm-level employment dispersion rises with higher price stickiness and higher demand elasticity, whereas it falls with more convexity of search costs and with a higher labor supply elasticity. Industry-level employment is more volatile and less procyclical than aggregate employment, and a larger industry size reduces volatility and raises co-movement with output. The calibrated model is able to match the volatility, autocorrelation and cyclical correlation of US industry-level employment when incorporating firm-specific technology shocks.