Evaluating Employer Sanctions: Farm Labor Contractor Experience

This article examines two decades of experience enforcing a federal employer sanctions law on farm labor contractors (FLCs) who knowingly hire illegal aliens. Enforcement experience indicates that employer sanctions laws have had little effect on the number of illegal aliens hired by FLCs; indeed, FLC activity has expanded and the proportion of illegal alien workers hired appears to have increased.     

Managed Exchange Rates*

Managed exchange rates have become a tool of macroeconomic stabilization policy. Much of the previous emphasis on parametrically chosen exchange rate regimes has missed the advantages of a strategy of a variable target exchange rate when the central bank tries to maintain equilibrium output in the face of various shocks to the economy. Based on a standard IS-LM-AS macromodel, optimal combinations of exchange rate and money supply changes are found that insulate the economy against all stipulated shocks. However, these combinations vary from one shock to another; therefore recognition signals are necessary. Continuous information on some variables allows the central bank to identify shocks if they can be guaranteed to occur individually, but not otherwise. As a second-best strategy, ‘defensively managed exchange rates’ appear suitable. The paper also discusses some side effects and other practical difficulties of a managed exchange rate as an automatic stabilizer.     

The Structure of Spot Rates and Immunization

Empirical studies of the modern theories of bond pricing typically choose proxies for the state variables in a rather arbitrary fashion. This paper empirically analyzes the question of the optimal spot rates to use as state variables. Our findings indicate that the four-year spot rate serves as the best proxy in the one-state-variable model. In the case of the two-state-variables model, the six-year rate and eight-month rate are identified as best. Tests of the out-of-sample prediction ability indicate that our model is superior to Macaulay's duration model and alternative proxies for state variables.     

Arbitraging Arbitrageurs

This paper develops a theory of strategic trading in markets with large arbitrageurs. If arbitrageurs are not well capitalized, capital constraints make their trades predictable. Other market participants can exploit this by trading against them. Competitors may find it optimal to lend to arbitrageurs that are financially fragile; additional capital makes the arbitrageurs more viable, and lenders can reap profits from trading against them for a longer time. The strategic behavior of these market participants has implications for the functioning of financial markets. Strategic trading may produce significant price distortions, increase price manipulation, and trigger forced liquidations of large traders.     

Modernization of Tax Administrations and Optimal Fiscal Policies

Since Sandmo (1981) , many articles have analyzed optimal fiscal policies in economies with tax evasion. All share a feature: they assume that the cost of enforcing the tax law is exogenous. However, governments often invest resources to reduce these enforcement costs. In a very simple model, we incorporate such investments in the analysis of an optimal fiscal policy. We characterize their optimal level and we show numerically how they interact with the other dimensions of the optimal fiscal policy. Finally, we highlight the differences between our results and those obtained in a model without investment in the tax administration.     

Strategic Jobs and Wage Structure in the Steel Industry: 1910–1930

The concept of strategic occupations is used to explain individualistic bargaining power during the nonunion era of the U.S. steel industry. It is hypothesized that integrative technical change homogenized the wage structure, but job categories associated with strategic work resisted this pattern. The results show that the degree of wage homogenization corresponded to the degree of technical diffusion in given steel industry departments. Moreover, strategic job categories did resist the pattern of wage homogenization.     

Spanning with Short-Selling Restrictions

In principle, the set of attainable payoff vectors is reduced if assets cannot be sold short. However, we show that the original space of payoff vectors is spanned despite short sale restrictions if there is one additional asset whose payoff is a positively weighted sum of the payoffs of the original assets. For example, this condition is automatically fulfilled if the original assets are stocks and the additional asset is an index future consisting of these stocks.     

Pension Funding,Share Prices,and National Savings

This paper examines empirically the effect of unfunded pension obligations on corporate share prices and discusses the implications of these estimates for national saving, the decline of the stock market in recent years, and the rationality of corporate financial behavior. The analysis uses the information on inflation-adjusted income and assets which large firms were required to provide for 1976 and subsequent years. The evidence for a sample of nearly 200 manufacturing firms is consistent with the conclusion that share prices fully reflect the value of unfunded pension obligations. Since the conventional accounting measure of the unfunded pension liability has a number of problems (which we examine in the paper), it would be more accurate to say that the data are consistent with the conclusion that shareholders accept the conventional measure as the best available information and reduce share prices by a corresponding amount. The most important implication of the share price response is that the existence of unfunded private pension liabilities does not necessarily entail a reduction in total private saving. Because the pension liability reduces the equity value of the firm, shareholders are given notice of its existence and an incentive to save more themselves. For this reason, unfunded private pensions differ fundamentally from the unfunded Social Security pension and the other unfunded federal government civilian and military pensions.