Capacity utilization rates and unemployment rates: are they complements or substitutes in warning about future inflation?

This research examines capacity utilization as a measure of economic slack in the US economy. Many macroeconomists have questioned the use of capacity utilization as a measure of economics slack on several fronts. The first issue revolves around the definition and accuracy of measurement of the capacity utilization rate in the US economy. Since this research use existing Federal Reserve measures of capacity utilization no insights into the definition and measurement issues are offered other than the fact that a consistent role is found for two different Fed measures of capacity utilization in explaining inflation. The second issue effectively involves the concern as to robustness of the link between the capacity utilization rate and inflation. It was found that there is indeed reason for the Federal Reserve to take note of changes in capacity utilization when trying to determine its policy position with regard to inflation. Clearly, the high capacity measure developed in this research offers distinct information about the inflation process. The third issue raises the question as to whether the capacity utilization and unemployment rates are complements or substitutes in the inflation equation. Both rates tend to provide similar information regarding price changes at low levels of aggregate resource usage. However, as resource usage in the economy becomes increasingly close to its maximum potential, the labour market impact on inflation, as capture by unemployment rate measures, is distinctly different from that of capacity constraints. Finally, if the capacity utilization rate is indeed a useful measure of inflationary pressure, is there a threshold level of the capacity utilization rate above which policymakers should become particularly concerned about the potential of accelerating inflation? It was found that across two measures of inflation, the widely discussed capacity threshold level is in the 84-85% range.     

Efficiency Wages and Work Incentives in Urban and Rural China

This paper examines incentive-wage effects for production and for managerial/technical workers in both urban and rural Chinese nonagricultural enterprises. We report strong evidence of productivity-enhancing wage behavior among enterprises in all ownership categories. There is also evidence that firms paying higher efficiency wages experience less shirking among their employees. We find that the profit-maximizing potential of incentive-wage setting is not fully exploited, although there is weak evidence that joint ventures come closer to profit-maximizing behavior at this margin of wage/employment behavior than do collectives or state-owned enterprises. J. Comp. Econ., December 2001, 29(4), pp. 645–662. The Ohio State University, 1945 North High St., Columbus, OH 43210 and University of Hawaii at Manoa, Honolulu, Hawaii 96822. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: P23, J31, O15.     

The evolution of aquatic agricultural systems in Southwest Bangladesh in response to salinity and other drivers of change

Aquatic agricultural systems (AAS) in coastal Southwest Bangladesh have evolved in response to a number of stimuli and constraints including improving market access, technological change, and salinization. Farming systems in the region are highly dynamic, and are characterized by the integration of varying combinations of freshwater prawns, rice, fish, vegetables, and brackish water shrimp. This paper examines the developmental history, productivity, and profitability of three distinct AAS: a low-salinity freshwater prawn-dominated system; an intermediate-salinity-mixed prawn and shrimp system, and a high-salinity shrimp-dominated system. Productivity, cropping intensity, and profitability are found to be highest in the diversified low- and intermediate-salinity systems, and lower in the high-salinity system, where cultivation of rice and vegetables is no longer possible. The paper concludes that more diverse integrated systems reduce risk and vulnerability for farming households. Salinization is found to be a double-edged sword – proving a stimulus to diversification at low levels, but reducing agro-biodiversity at higher salt concentrations. While the adaptation strategies in all systems have been successful in maintaining or improving most, though not all, system functions due to high levels of social resilience, support for effective community-based adaptation strategies will enable continued transformation and adaptation to future drivers of change.