Search, mismatch and unemployment

This paper explores the efficiency of the equilibrium allocation in a matching model with heterogeneous workers and jobs. In the basic setup there are two types of workers with different skill levels. Both types can perform the simple tasks of unskilled jobs, while the complex tasks of skilled jobs require a high-ability worker. We demonstrate that the equilibrium outcome with random search and ex-post bargaining is never efficient. Under the Hosios condition, the average wage is correct, but bargaining compresses the wage distribution relative to workers’ shadow values. This feature distorts the relative profits of jobs, making it too attractive for firms to create skilled jobs. Furthermore, due to the low-skill premium, the high-ability workers may accept too many jobs. Finally, in an extension, we show that the introduction of separate markets for the two types of jobs is not sufficient to guarantee efficiency.     

Union wage setting and unemployment in the Netherlands (1965–1987)

This paper presents an empirical model of union wage setting and employment. The (Stackelberg) equilibrium unemployment rate is shown to be a function of taxes, the replacement ratio, the gap between consumer and producer prices, productivity effects, and the rate of long-term unemployment. The model is estimated with aggregate data from the private sector in the Netherlands (1965–1987). The results suggest that the equilibrium unemployment rate is pushed upwards by taxes, the replacement ratio and by the gap between consumer and producer prices, and is reduced by productivity effects. Insider-outsider effects appear insignificant.     

The role of demography in the long-run Yen/USD real exchange rate appreciation

This paper aims to measure the contribution of an aging population to explain the real appreciation experienced by the Yen–US Dollar since 1980s. We develop a two-good overlapping-generation model of a semi-small open economy to highlight the link between the birth rate and the real exchange rate. In a creditor (debtor) country, an aging population causes a real exchange rate appreciation (depreciation) due to a positive (negative) wealth effect. Structural parameters are estimated by GMM using quarterly data between 1960 and 2001. Then, numerical simulations show that the long-run relationship between population growth and real exchange rate is negative between 1960 and 1971 and positive between 1971 and 2000. The decrease in population growth may account for a large part of the real appreciation experienced by the Yen/USD between 1971 and 2000.     

Job auctions and hold-ups

We consider a labor market with search frictions in which firms need to invest in capital before they can post a vacancy. This assumption creates a natural scope for hold-up problems, but the innovation of our study is that we allow for competition among the applicants who apply for the same job. In our economy all applicants are paid their actual marginal product. Nonetheless, with random search there exists a hold-up problem, leading to underinvestment in capital. On the contrary, if workers can direct their search towards firms with different capital levels, the equilibrium is efficient. This result contrasts sharply with the predictions of models with ex-post bargaining that never yield an efficient allocation. Moreover, our results extend the efficiency of auction mechanisms to an environment with non-contractible investments.     

Equilibrium opacity in ultimatum‐offer bargaining

We consider ultimatum bargaining between a seller and a buyer of an asset. They know each other's valuation of the asset. Both can defer their decisions to delegates. These delegates have opaque preferences. Seller and buyer choose the opacity of their delegate. For the seller's delegate this choice is restricted to a random reservation price drawn from the set of symmetric two‐point distributions around the seller's true reservation price. The opacity choice of the buyer's delegate is restricted to a random willingness‐to‐pay drawn from the set of symmetric two‐point distribution around the buyer's true willingness‐to‐pay. We characterize the set of pure‐strategy equilibria in their delegation choices. Multiple equilibria arise. Except for two corner solutions, both players will exploit the strategy of opacity. A large set of efficient equilibria exist. For these, opacity choices do not reduce the probability of transacting, but benefit the buyer compared with the no‐delegation equilibrium. We also study the robustness of the results with respect to the player's ability to also resort to a tougher delegate in addition to the opacity choice.     

The economics of politically-connected firms

Political connections between firms and autocratic regimes are not secret and often even publicly displayed in many developing economies. We argue that tying a firm’s available rent to a regime’s survival acts as a credible commitment forcing entrepreneurs to support the government and to exert effort in its stabilization. In return, politically-connected firms get access to profitable markets and are exempted from the regime’s extortion. We show that such a gift exchange between government and politically-connected firms can only exist if certain institutional conditions are met. In particular, the stability of the regime has to be sufficiently low and the regime needs the power to exploit independent firms. We also show that building up a network of politically-connected firms acts as a substitute for investments in autonomous stability (such as spending on military and police force). The indirect strategy of stabilizing a regime via politically-connected firms gradually becomes inferior when a regime’s exploitative power rises.     

Identification and estimation of a class of household production models

We consider a class of household production models characterized by a dichotomy property. In these models the amount of time spent on household production does not depend on the household utility function, conditional on household members having a paid job. We analyse the (non‐parametric) identifiability of the production function and the so‐called jointness function (a function describing which part of household production time is counted as pure leisure). It is shown that the models are identified in the two‐adult case, but not in the single‐adult case. We present an empirical application to Swedish time‐allocation data. The estimates satisfy regularity conditions that were violated in previous studies and pass various specification tests. For this data set we find that male and female home production time are q‐substitutes. Copyright © 2003 John Wiley & Sons, Ltd.     

A new relative skill measure for games with chance elements

An interesting aspect of games is the relative extent to which a player can positively influence his results by making appropriate strategic choices. This question is closely related to the issue of how to distinguish between games of skill and games of chance. The distinction between these two types of games is definitely interesting from a juridical point of view. In this paper we present a modification of an existing measure of the skill level of a game, which has served as a juridical tool for the classification of games. The main difference is that this new definition does not automatically classify incomplete information games without chance moves as games of skill. Copyright © 2004 John Wiley & Sons, Ltd.     

Heteroscedasticity and the use of Box–Cox transformations

Direct and inverse power Box–Cox transformations are used to characterize the form of heteroscedasticity in models where the variables themselves are subjected to direct Box–Cox transformations. Resulting formulations are extended to take serial correlation simultaneousy into account.     

Union coverage and sectoral wages: Evidence from the Netherlands

This paper investigates the impact of union coverage on sectoral wages in the Netherlands. The semi-elasticity of the wage rate with respect to union coverage appears to be around 0.05; it is higher in the industrial than in the other sectors. The impact of union coverage on wages appears to be lower in the Netherlands than in the US and the UK. Union coverage increases the weight of internal (sector-specific) factors in wage determination and decreases the weight of external (labour market) factors. Apparently, unions increase the role of rent sharing in wage formation and stabilize employment.