Trade and industrial location with heterogeneous labor

It is shown in the context of a new economic geography model that when labor is heterogeneous trade liberalization may lead to industrial agglomeration and inter-regional trade. Labor heterogeneity gives local monopsony power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force which can offset the forces against, trade costs and the erosion of monopsony power. A robust agglomeration equilibrium is derived analytically and its properties illustrated with numerical simulations.     

Is lack of funds the main obstacle to growth? ebrd's experience with small- and medium-sized businesses in central and eastern europe

Small- and medium-sized enterprises (SMEs) potentially constitute the most dynamic firms in an emerging economy. They are the ones most likely to move into areas of comparative advantage and high value added, though they often face economic, institutional, and legal obstacles. Obstacles include limited access to working capital and long-term credit, legal and regulatory restrictions, inadequate infrastructure, high transaction costs, and limited managerial and technical expertise. Despite the presence of multiple and often interrelated constraints, however, the widespread belief, on which policies to support SMEs are based, is that the lack of finance constitutes the main obstacle to the growth of SMEs.Enterprise survey work is the tool generally used to deepen our understanding of constraints affecting SMEs formation and growth. The European Bank for Reconstruction and Development (EBRD) is no exception in this respect: during its early years it drew substantially on a set of enterprise surveys conducted by the World Bank between 1991 and 1993 in Hungary, the Czech and Slovak Federal Republic (CSFR), Poland, and Russia investigating the obstacles faced by SMEs. As the volume and geographical spread of its operations increased, the EBRD felt the need to design and run its own surveys, effectively addressing specific issues encountered in the context of its increasing lending and investment activity in central and eastern Europe (CEE). The findings of this analysis confirmed the belief that credit constraints constitute one of the main obstacles to growth of SMEs and encouraged the EBRD to tailor its financing instruments to the stage of transition of the country in question and the ability of the local financial system to assume key responsibilities.This paper analyzes the way in which the EBRD strives to correct this capital market failure in the region in which it operates. The fundamental principles on which EBRD policy is based are: a preference for reaching the SMEs via local financial intermediaries, a commercial approach to the provision of finance, and finally a focus on development of the local financial system as a whole. It is still too early to draw conclusions on EBRD activity in the field of SMEs financing based on other types of indicators than data on volume of signed commitments. A large part of the loans is still in the grace period, therefore investments are in an early phase and operation performance evaluation reports on this type of operations are still too few. Aggregate data on volume of EBRD financing through financial intermediaries paint an encouraging picture. A 250% increase in the volume of such operations between 1994 and 1997, a nine-fold increase in the number of subprojects between 1995 and 1997, and an ever-widening geographical spread of activities and decreasing size of subprojects indicate that the experience of the EBRD in financing through financial intermediaries is on the whole positive. Financing provided to intermediaries is not necessarily always intended, nor guaranteed to reach SMEs. It is, however, guaranteed to create the appropriate financing channels which are necessary to ease the SMEs' liquidity constraint.This paper discusses the shortcomings of the financial system in the CEE countries. It outlines the EBRD policy to support SMEs and the various instruments employed so far and presents selected case studies to throw light on how good project design can help overcome difficult environments and lower the perception of risk connected to indigenous SMEs. A summary of the findings of the survey work conducted by the EBRD in the region is also presented.     

UNEMPLOYMENT AND HOURS OF WORK: THE NORTH ATLANTIC DIVIDE REVISITED*

I examine the dynamic evolutions of unemployment, hours of work, and the service share since the war in the United States and Europe. The theoretical model brings together all three and emphasizes technological growth. Computations show that the very low unemployment in Europe in the 1960s was due to the high productivity growth associated with technological catch‐up. Productivity also played a role in the dynamics of hours, but a full explanation for the fast rise of service employment and the big fall in aggregate hours needs further research. Taxation has played a role but results are mixed.     

Policy Influences on Unemployment: the European Experience

This paper considers the implications of four kinds of labour market policies for the 1980s rise in European unemployment: unemployment compensation, active labour market policies, employment protection legislation and taxation. It finds evidence that all have played a role in the determination of unemployment and discusses the mechanisms involved, the extent of the influence of each and the lessons learned from this experience. One of the main findings is that there is a trade‐off between wage inequality and unemployment. Policy has played a role in determining how a country responded to the negative macroeconomic shocks of the 1980s but policy alone cannot explain the full rise in European unemployment and North American wage inequality.     

THE IMPACT OF TFP GROWTH ON STEADY‐STATE UNEMPLOYMENT*

Theoretical predictions of the impact of total factor productivity (TFP) growth on unemployment are ambiguous, and depend on the extent to which new technology is embodied in new jobs. We evaluate a model with embodied and disembodied technology, capitalization, and creative destruction effects. In econometric estimates with a panel of industrial countries we find a large negative impact of TFP growth on unemployment, which implies that embodied technology and creative destruction play no role in the steady‐state dynamics of unemployment. Capitalization effects explain some of the estimated impact but a part remains unexplained.     

Macroeconomic Adjustment and Poverty in Selected Industrial Countries

The business cycle affects the incidence of poverty, as shownby evidence from Australia, Sweden, the United Kingdom, andthe United States. Many of the poor in these countries are outsidethe labor market, and transfers are a major source of incomefor many others, but the unemployment and wage reductions thatoccur in recession increase the incidence of poverty. Majorcauses of poverty are unemployment in Australia and the UnitedKingdom and low wages in the United States. Similar cyclicaleffects are observed in Sweden, but a vast transfer programvirtually eliminates poverty. There are several policy optionsfor combating poverty caused by recession. A combination ofunemployment insurance for a limited period followed by a jobguarantee is the most effective policy toward unemployment,whereas poverty caused by low earnings can be remedied by redistributionthrough the tax system.     

Social security and the choice between full-time work,part-time work and retirement

This paper investigates the determinants of retirement decisions in the UK. To deal with the endogeneity bias introduced by the piecemeal linear budget constraint generated by the social security system, it specifies a utility function in income–leisure space and assumes that individuals maximise it over three discrete regimes: full-time work, part-time work, and retirement. Using maximum likelihood techniques, it estimates the utility function and quantifies the influence of pensions, wages and personal characteristics (age, health, status, etc.) on the probability of partial and complete withdrawal from the labour market.     

Unemployment Responses to 'Skill-biased' Technology Shocks: the Role of Labour Market Policy

Do skill-biased shocks that increase the spread of labour productivities, interacting with different policy regimes, explain the rise in unemployment in Europe relative to the United States in the 1980s and 1990s? The hypothesis is an implication of a version of the Mortensen and Pissarides (1994) model of equilibrium unemployment which allows for worker heterogeneity. A calibrated version of the model implies that a similar unemployment increase would have occurred in the United States over this period, given changes in relative productivity by education implied by observed wage changes, had unemployment compensation and employment protection policies been at European levels.