Worker separations in a nonstationary corporate environment

Assessing ten years of unique personnel data from a large firm, this paper investigates how determinants of worker turnover differ between periods of corporate expansion and decline. Performance and career progress considerably reduce the hazard of job separation during downsizing for blue-collar workers, but are less important for white-collar workers. Effects of firm-tenure, occupation, education, training, part-time status, and gender are largely in accordance with the implications from existing models. But no model generates all patterns observed in the data. Age effects are sensitive to retirement options and discontinuous, dropping in response to the anticipation of becoming eligible for early retirement during downsizing and jumping at the actual retirement age.     

Forecasting Emerging Market Exchange Rates from Foreign Equity Options

The use of derivatives to infer future exchange rates has long been a subject of interest in the international finance literature. With the recent currency crises in Mexico, Southeast Asia, and Brazil, work on exchange rate expectations in emerging markets is of particular interest. For some emerging markets, foreign equity options are the only liquid exchange‐traded derivatives with currency information embedded in their prices. Given that emerging markets sometimes undergo currency realignment with discrete jumps in their exchange rate, estimation of risk‐neutral probability density functions from foreign equity option data provides valuable evidence concerning market expectations. To illustrate the use of foreign equity options in estimating market beliefs, we consider Telmex options around the 1994 peso devaluation and find evidence that markets anticipated the change in the Mexican government's foreign exchange policy.     

Changing composition of human capital The Czech Republic,Hungary and Poland1

We show that business education/occupations have expanded and that technical education/occupations have contracted in the Czech Republic and Poland since 1990. We interpret these changes as an adjustment necessary for their transition to a market economy. We do not find the same pattern in Hungary, which we attribute to the earlier timing of its transition. We construct an aggregate model in which labour reallocates in response to changing demand structure. When calibrated with the Czech and Polish data, the model generates a large movement of workers with technical education and experience into business occupations in the early 1990s. The discounted sum of output loss due to the gap between the demand structure and the composition of existing human capital amounts to between 8 and 40 percent of 1990 GDP.     

A note on the existence of unique equivalent martingale measures in a Markovian setting

Simple sufficient conditions for the existence of a unique equivalent martingale measure are provided. Furthermore, these conditions give us a handle on situations where an equivalent martingale measure cannot exist. The existence of a unique equivalent martingale measure is of relevance to problems in mathematical finance. Two examples of models for which the question of existence was unresolved are studied. By means of our results existence of a unique equivalent measure up to an explosion time is proved.     

On the Role of Futures Trading in Spot Market Fluctuations: Perpetrator of Volatility or Victim of Regret?

We examine the role of index futures trading in spot market volatility. We use the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) approach to measure volatility, analyze causality and feedback relations between volatilities in the spot and futures markets, and test various hypotheses in the context of a multivariate model that incorporates other macrostate variables. Our empirical results suggest index futures trading may not be blamed for the observed volatility in the spot market. Rather, we find stronger and more consistent support for the alternative posture that volatility in the futures market is an outgrowth of a turbulent cash market. We use the regret (cognitive dissonance) theory to explain our results.     

Skill Loss, Ranking of Job Applicants and the Dynamics of Unemployment

Abstract. This paper investigates the consequences of skill loss as a result of unemployment in an efficiency wage model with turnover costs and on-the-job search. Firms are unable to differentiate wages and therefore prefer to hire employed searchers or unemployed workers who have not lost human capital. It is shown that if some fundamental factor in the economy changes, this will result in a lengthy adjustment process with substantial long-run unemployment effects. Moreover, the model is capable of generating persistence, but the amount depends on the duration of the shock itself.     

Golden cages for showy birds: Optimal switching costs in labor contracts

Under what circumstances do workers sign contracts with high quitting penalties? Our answer points to market transparency. When the worker's performance is privately observed by the incumbent firm, alternative employers face an adverse selection problem. As a result, efficient separations can only take place through involuntary layoffs and there is no role for quitting fees. In contrast, when performance is public, quitting fees are useful devices to appropriate the surplus from workers’ reallocation. Separations are amicable and take the form of quitting after downwardly renegotiating the fees. Qualitative features of contracts are independent of the distribution of ex-post bargaining power. The impact of switching costs on total welfare and its distribution depends on the degree of market transparency and the ex-ante distribution of market power.     

Equity‐Based Compensation for Employees: Firm Performance and Determinants

I examine the effect of employee equity‐based compensation (EBC) on firm performance and the determinants of EBC. Using two samples, I find that firms have come to rely more heavily on EBC than in the past. For both samples, I document a significant, positive relation between Tobin's q and the percentage of employee compensation that is equity based. For accounting returns, I find a positive relation with the earlier sample. However, for the later sample I find that greater use of EBC leads to lower levels of future accounting returns. I also find that the determinants of the proportion of EBC are different between the two samples.     

Demographic and Economic Pressure on Emigration out of Africa*

Two of the main forces driving European emigration in the late nineteenth century were real wage gaps between sending and receiving regions and demographic booms in the low‐wage sending regions. Our new estimates of net migration for the countries of sub‐Saharan Africa show that exactly the same forces driving African across‐border migration are at work today. The results suggest that rapid growth in the cohort of potential young emigrants, population pressure on the resource base, and slow economic growth are likely to intensify the pressure for migration out of Africa and into high‐wage OECD countries over the next two decades.     

Demand fluctuations and capacity utilization under duopoly

Summary.  This paper studies the impact of uncertain demand on firms’ capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game. Received: May 17, 1996; revised version July 31, 1996