CHAPTER 3. UNEMPLOYMENT INSURANCE WITH SINGLE AND MARRIED 63 males, married females, and married males). Second, I do not assume that the government has perfect information about agents’ opportunities to work. This feature generates a distor- tionary eﬀect of UI over participation decisions. Finally, the UI considered here incorporates a past-employment requirement resembling one of the eligibility conditions existing in the US system. This element plays an important role in the employment decisions of the agents. Some other authors have also analyzed unemployment insurance in multi-agent envi- ronments. Ek and Holmlund (2010) study optimal unemployment insurance of couples in a Diamond-Mortensen-Pissarides framework. I depart from their work in two dimensions. First, I do not consider unemployment benefits as the outside option of a worker in a bargain- ing process and, second, the model used here is able to account for multiple moments of the data associated with the diﬀerence in labormarketdynamics between singles and married individuals in the US economy. Di Tella and MacCulloch (2002) study the provision of un- employment insurance in a context where agents form networks to share risk (these networks are what they consider families). Diﬀerently, I consider the family as the union generated by the contract of marriage and I abstract from commitment issues between spouses. Moreover, instead of a theoretical approach, I propose a quantitative exercise to test the eﬀect of public intervention.
One issue that has received a great deal of attention in the context of inter- market competition is the design of best execution policies. Under MiFID, intermediaries such as banks and brokers bear the entire responsibility for obtaining “the best possible result” for their clients’ orders. Importantly, best execution is not only based on prices but rather permits the consideration of a wide array of additional execution characteristics such as liquidity, order size, and the likelihood of execution, among others (see e.g. Petrella (2009) and Gomber and Gsell (2006) for details). Consequently, MiFID does not formally enforce inter-market price priority, and orders are permitted to execute at a price that is inferior to the best available price across venues (“trade-throughs”). This differs considerably from the rules that are in place in the United States under Reg NMS, which mandates exchanges to re-route orders to other market centers if those are offering a better price (“trade- through rule”).
The variables I use from this data set are described hereafter. Labor is a full time-equivalent measure that accounts for part-time workers and refers to the end of the year. Value added is defined as the difference between production and materi- als, added to production subsidies minus value added tax and other accrued taxes or credits for production. It is divided by the industry value added price index at the two-digit level of the French industrial classification taken by the national accounts. Labor cost (wages) is equal to the total labor compensation costs. Real capital stock is measured as the inflation-adjusted gross book value of fixed assets including con- struction and other fixed assets. Total sales and total sales to export are the balance sheet voices for domestic and shipped total sales (to any single country). I take all firms in manufacturing industries reported in BRN data set after eliminating the ones with negative or null value added, number of workers and capital. For each firm I then take total export sales and Turkey export sales in different years from DOUANE data set, also available at INSEE, which provides information about sales and export destination for each exporter. In some cases DOUANE and BRN have different infor- mation about the export status of a single firm; I thus eliminate these observations through all the years.
without shocks overestimates the expected value of entering plants. As a result, in order to keep the same entry level, entry costs must be higher in the model without shocks. Hence, given that distortions on TFP are proportional to the value of plants, a calibrated model without shocks and endogenous entry will overestimate the effect of policy distortions on TFP if the data reflects shocks and endogenous entry decisions. There is a large, growing body of literature that analyzes the impact that policy distortions have on TFP in models with idiosyncratic shocks, which is carefully re- viewed in Hopenhayn (2011). Two papers in that literature that are especially related to ours are Fattal (2011) and Buera et al. (2011). Fattal (2011) uses a calibrated model with idiosyncratic shocks to show that misallocation carries big welfare losses when transitional dynamics are taken into account. Buera et al. (2011) also use firm dynamicsand shocks at plant level. Unlike us, they consider policy configurations that are plant-specific. They show that misallocation in less-developed countries may be due to well-intended policies that were initially chosen to subsidize productive entrepreneurs in order to relax their credit constraints.
misallocation due to financial frictions, abstracting from labormarket distortions. However, some papers do address the theoretical and empirical interplay between labormarket institutions and aggregate productivity. Hopenhayn and Rogerson (1993) provide a general equilibrium model with heterogeneous firms and use it to evaluate the consequences of labor adjustment costs. They find that a tax on job destruction lowers employment andlabor productivity. Lagos (2006) ob- tains a theoretical aggregation result by deriving an aggregate production func- tion from fixed-proportions micro-level production technologies combined with a search and matching model of Mortensen and Pissarides (1994). His model pre- dicts that employment subsidies and firing taxes reduce TFP, whereas hiring subsi- dies and unemployment benefits increase TFP. More relatedly, Kambourov (2009) studies the sectoral reallocation of labor for the case of trade reforms. He argues that firing costs hinder the intersectoral reallocation of labor after trade liberaliza- tion reforms. His island-economy model `a la Lucas and Prescott (1974) shows that the foregone benefits of not liberalizing the labormarket are quantitatively substantial. His focus is on firing costs exclusively and his empirical motivation comes from the episodes of Latin American countries (case studies for Chile and Mexico). Our contribution here is to emphasize an additional channel working through obsolescence and the entry/exit decision. Foster et al. (2006) find that in the US retail trade sector most of the productivity gains in the 1990s occurred pre- cisely due to high-productivity entering establishments replacing low-productivity exiting establishments.
The policy maker faces four sources of inefficiency: price stickiness, mo- nopolistic competition, the congestion externality following from labormarket frictions and the composition externality which arises because of skill erosion during unemployment. Given that the policy maker has only one instrument, it will in general not be possible to eliminate all four dis- tortions. Thus the policy maker faces a trade-off between them. Below I discuss each of those frictions and their policy implications in more detail. Price stickiness distorts the economy in the following way. If all firms could reset their price in response to shocks they would all set their price such as to achieve their constant desired markup. As a result, the econ- omy’s average markup in the absence of price stickiness would be con- stant over time. However, when prices are sticky, and hence not all firms can reset their prices, the economy’s average markup will vary over time in response to shocks, making it deviate from the constant frictionless markup. Therefore, aggregate demand, and hence output and employ- ment will either by too high or too low. Moreover, price stickiness also leads to price dispersion, which in turn leads to dispersion in demand.
In the second chapter,”Technical Efficiency, Product Value and Trade”, Olley and Pakes (1996) method, for estimating the parameters of the production function, is extended to include other endogenous variables that impact on productivity like firms’ R&D expenses. Estimation of the process for productivity evolution is important for investigating the firm’s dynamic and the status of a firm in the market as domestic, exporter or foreign-owned firm. Firm level productivity is an important source of firm heterogeneity that is relevant in both domestic and export markets. In the last two decades, productivity has been used to identify the impact of trade on firm’s growth within industries. There is a significant literature showing that liberalizing trade by either tariff or quota reductions increases TFP. These studies also show that international firms (exporters and foreign-owned firms) have higher productivity. 2 Our results show that both exporters and MNEs (multinational enterprises) have higher productivity and product values. The role of product value is, however, more important for accessing to foreign markets. Using Physical and Revenue TFPs to evaluate trade openness on firms’ performance shows that previous literature exaggerates the role of trade in firms’ productivity, and distorts its effect on demand side.
It is interesting that, if we interpret the agricultural sector as being part of the nal goods sector, our ndings provide a rationale for the observations made in Restuccia et. at. (2003). These authors nd that the low agricultural productivity in poor countries is explained by low use of intermediate goods (such as pesticides, chemical fertilizers, fuel, among others). They also document that prices of intermediate goods are relatively high in poor countries. They calibrate a two sector growth model with an explicit agricultural sector and nd that cross-country differences in relative price play an important role in understanding cross-country differences in the use of intermediate goods and, thus, in agri- cultural productivity. Interestingly, they nd that "barriers to labor mobility" are needed in order to explain the high employment share of agriculture in poor countries. Our nd- ings points that capital market imperfections may well be at the origin of these barriers. We nd that the share of the nal goods industry in employment is relatively high in the presence of low levels of enforcement, despite that this industry has the lowest labor pro- ductivity across sectors in the economy (see Table 1). Capital market imperfections do not allow resources to be shifted to the intermediate goods sector.
Previous papers have modeled the informal sector embedded in a search and match- ing framework. The goal of these studies was to understand the impact of government policies, such as taxation and the capability of enforcing compliance, on the size of the informal sector. Papers have modeled the way in which informal jobs are created in two different ways. First, a series of models focus on the worker’s decision to participate in the informal labormarket. In these papers it is usually assumed the exogenous exis- tence of both formal and informal firms posting vacancies. Then, heterogeneous workers direct their search towards one of the two sectors according to the worker’s education (Kolm and Larsen (2004)), their moral costs of operating in the informal sector (Fugazza and Jacques (2004)), or productivity differences (Boeri and Garibaldi (2006)). Albrecht et al. (2009) argue that worker’s productivity is the major determinant of participation in the informal sector. In a model with heterogeneous workers, they show that the appear- ance of informal jobs is rooted in the decision of low productivity workers to become informal self-employed. The authors treat the informal sector as exogenous, where op- portunities to work in that sector arise exogenously. Zenou (2008) considers a model where the formal sector is subject to search frictions, whereas the informal market is competitive. The paper shows that informality is the result of matching frictions in the formal sector. As in Albrecht et al. (2009) the author distinguishes three labor markets: formal sector, informal sector and formal “unemployment”.
The main strength of the model we propose is its tractability. It pro- vides a simple way of modeling behavioral inertia that can be easily used in standard economic analysis without the need to change the methods usu- ally adopted or depart too much from the standard framework of ratio- nal choice. The implications of the model are many and can be potentially important not only for discussions on early life opportunities but also to have a better understanding of the structure of dynamic competition among firms. If consumers are described by our model, then the pioneering advan- tage or first-mover advantage emerge with clarity and the model might help to design better policies to void dominant market position. Nevertheless, the model is not able to incorporate some ideas that might be sensible in some context, like the idea of satiation. In some circumstances, it is sensi- ble to assume that the DM becomes satiated with an alternative the more he chooses it. That is, the probability of choosing an alternative should de- crease the more the DM is exposed to it. This is exactly the opposite model with respect to the one we are proposing here. Nonetheless, it should be possible to accommodate such ideas just by changing the properties we propose in this chapter. In particular EB would need to be changed and also some more technical assumptions would be needed to make sure that the model would be correctly specified, i.e. to avoid probabilities becoming negative. This a route we leave to future research.
(2008). There is a finite number of firms that produce differentiated goods in a regime of monopolistic competition. Firms set their price by taking as given the conditional demand of their own good and the prices set by the other competitors in the market. The nominal rigidities are modeled as in Rotemberg (1982); thus firms must pay a cost when they want to change their price. The log-linear solution of the model entails an inflation dynamics equation that has the same reduced form as the forward-looking NKPC derived from a model with Calvo price stickiness but it features an additional term on the number of firms in the market, the proxy for the desired markup. Recently several contributions in the real business cycle literature emphasized the importance of taking into account endogenous firm entry. Bilbiie et al. (2007) are among the first to introduce nominal rigidities into this kind of mod- els. They also obtain a NKPC that depends on the real marginal costs and an extra term on the number of producers (varieties, in their interpretation).
In developing economies, there is a pattern that seems to dominate the private sector activity: Business Groups. The definition of business group varies between researchers and countries. Leff (1978) refers to them as “a group of companies doing business in different markets under a common administrative or financial control”, and states that its members are "bound by relations of interpersonal trust”. Strachan (1976) defines a business group as a long-term partnership of firms. Encarnation (1989) refers to the Indian business houses, emphasizing the social ties between members of the Group: "In each of these houses, strong social ties of family, caste, religion, language, and ethnicity; strengthen the financial and organizational ties between the member companies”. There is a voluminous literature on Japanese corporate groups, or "Keiretsu", which share some of the characteristics of the business groups in less developed economies. For example, Gerlach (1992) mentions that the Keiretsu is characterized by long term relationships between companies in a broad spectrum of markets. Business groups are characterized by a system of internal networks composed of companies from different areas of economic activity. A characteristic feature is that the ownership and control of the group is concentrated, and in most cases, families have a decisive influence on the board of directors, and therefore in financing and investment decisions of each company of the group. In economies with a poor legal system, such groups can be seen as a form of organization that helps companies cope with market failures and malfunction (or absence) of certain institutions. To Ghemawat and Khanna (1998), the problems of asymmetric information (especially in the laborand capital markets) and entrepreneurial talent shortages are the cause for different companies join under one organization. To Khanna and Palepu (2000), affiliation of a company to a group allows them to better manage market risks. For this reason, business groups are integrated by firms operating in diverse sectors of economic activity. Khanna and Yafeh (2000) stated that being a member of a business group helps to minimize revenue fluctuations and reallocate money from one subsidiary to another in difficult times.
if β differs from the Hosios value and workers are heterogeneous like in this paper unemployment benefits and/or a minimum wage do not necessary lead to an improvement in job composition and they never lead to an increase in the number of high-wage jobs. a higher unemployment benefit increases workers’ outside options and wages and reduces firms profits. Workers in both sectors find it better to stay unemployed for longer spells and enjoy the higher unemployment benefits and as a result unemployment in both sectors increases. then and contrary to acemoglu (2001) there cannot be an increase in job creation in either sector. Job composition can either increase or decrease depending on the different effect of the higher unemployment benefit onlabormarket tightness in both sectors. Welfare may increase not because of an improvement in job composition but due to a reduction in the standard search frictions externalities if there is too much job creation. a binding minimum wage in the low-wage sector can improve job composition. the reason is that it hits directly that sector, reducing profits and the number of jobs there, and indirectly through a negative price effect in the high-wage sector. Since the reduction in employment is stronger in the low-wage sector than in the other, job composition improves. in this case, the improvement in job composition is due only to a reduction in the number of low-wage jobs. again, welfare can increase but only because of the reduced social cost of vacancies associated with lower labormarket tightness in both sectors 1 .
structural unemployment. This research has attracted increased interest in recent times due to high and persistent unemployment rates during and after the Great Recession of 2008 and because of claims that “structural factors” are behind this development (Kocherlakota, 2010). Sahin et al. (2014) combine unemployment records with data on posted vacancies to calculate mismatch unemployment in the U.S. labormarket. They find that mismatch across industries and occupations ex- plains at most one-third of the increase of unemployment in the Great Recession while geographic mismatch does not play a role. Barnichon and Figura (2011b) use CPS data to explore the effect of mismatch on matching efficiency. They find that lower matching efficiency due to mismatch can have significant detrimental effect for unemployment in recessions. In Chapter 2 of this thesis, my co-author Thijs van Rens and me push the analysis a step further by identifying several potential driv- ing forces of mismatch unemployment and estimate their relative importance. This paper is complementary to this literature since I show evidence of how a specific channel – workers “waiting” for reemployment since they made specific invest- ments ex-ante – contributes to mismatch unemployment. Shedding light on such a concrete mechanism is important since it makes the problem more approachable from a policy perspective.
Chapter 1, “The Slowdown in Business Employment Dynamics: The Role of Changing Skill Demands”, studies the observed decline in U.S. business em- ployment dynamics over recent decades. I propose and quantitatively evaluate the hypothesis that on-the-job human capital accumulation has become increasingly important over time. Indirect empirical support for this hypothesis relates to sec- ular trends of rising educational attainment and changing skill demands due to technical advances. The chapter also provides more direct and novel empirical evidence, showing that job training requirements have risen over time. I con- struct a multi-worker search and matching model with endogenous separations, where training investments act as adjustment costs. The model can explain how the increase in training requirements accounts for the decline in job turnover, the increase in inaction, and the evolution towards a more compressed employment growth distribution, all consistent with the data. Quantitatively, the observed in- crease in training costs can explain almost one-third of the decline in the job re- allocation rate over the last few decades. The key mechanism is that higher job training requirements make firms reluctant to hire and fire workers when economic conditions change, resulting in lower labor turnover.
There are many kind people I would like to thank for their support at di¤erent steps of my PhD. I could not a¤ord to go through all these steps without their attention. Especially I would like to thank Sekyu Choi, for all his patience, support and encourage. I also would like to sincerely thank Javier Fernández-Blanco for the plenty of time he devoted to my job market paper. I also appreciate advices, attentions and considerations of Nezih Guner, Jordi Caballé, and Francesc Obiols-Holmes. I de…nitely thank Susanna Esteban and Caterina Calsamiglia for their kind attention and for sharing their valuable time in the last stages of my study. Àngels López García and Mercè Vicente always have been quite helpful. At di¤erent steps of my study I also bene…ted from comments and/or supports of Miguel Ángel Ballester, Carmen Beviá, Michael Creel, Juan Carlos Conesa, Angela Fiedler, Luca Gambetti (who has been indeed in‡uential to me), Johannes Gierlinger, José Ignacio Silva, Tim Kehoe, Joan Lull, Albert Marcet, Juan Enrique Martínez-Legaz, Pedro Rey, Antonio Miralles, David Pérez-Castrillo, Joachim Jungherr, Omar Licandro, Julien Prat, Ana Rute Cardoso, Hugo Rodríguez Mendizábal, Hector Sala, and Jan Zápal. Abhay Abhyankar as my Master thesis advisor have been very kind and encouraging. I laso appreciate the hospitality of the Macroeconomi research group at Banco Sabadell, in particular Josep M Vilarrubia Tapia, Sofía Rodríguez, Patrick and Jose Igancio. Matt Delventhal kindly spent his valuable time to correct my English.
Education is known to be an excellent social lift (Restuccia and Urrutia (2004), Cau- cutt and Lochner (2012), Lee and Seshadri (2014)). On the other hand, we know almost nothing about how medical policies affect intergenerational mobility and inequality. To the best of my knowledge there are only few empirical papers devoted to this question. Mayer and Lopoo (2008) analyze association of total government spending and intergen- erational mobility, using variation in the amount of government spending in different US states. They find that higher government spending reduce the importance of parental income for the economic success of children. Furthermore, Aizer (2014) analyzes empiri- cally the relation between intergenerational mobility and different welfare policies, such as foster care, family planning, income transfer programs, residential mobility interventions, educational interventions and public health. Among all welfare policies she considers, increases in spending on health are most strongly associated with reductions in the im- portance of family background and declines in inequality in the production of child human capital (measured as PISA test scores among 15 year-olds). Case, Lubotsky and Paxton (2002) study health-income gradient, i.e. that children born to low-income parents tend to be in worse health status than children born to high-income parents. They find that neither health at birth, nor access to health insurance affects estimates of health-income gradient, and conclude that health affects intergenerational mobility through other chan- nels, such as parental investments into health. Finally, O’Brien and Robertson (2015), study how Medicaid expansion of 1980s and 1990s affected intergenerational mobility using geographical variation in policy changes and find a positive, but not very large, effect of Medicaid on mobility. They find that increasing the proportion of women aged 15-44 eligible for Medicaid is associated with reduction in rank correlation of incomes of parents and children. They also find that children born to low-income parents after Medicaid expansions are more likely to move upwards. Brown, Kowalski and Lurie (2015) also show that Medicaid expansion affected child’s income significantly positively, how- ever they were not studying implications of this for intergenerational mobility. Cohodes, Kleiner, Lovenheim and Grossman (2014) explore the same Medicaid expansion of 1980s and 1990s and find that it had a substantial positive effect on child’s schooling outcomes. Hence, while there is some evidence that suggests that health is important for intergener- ational mobility, there has not been any attempts to understand the mechanisms through which health and health policies affect intergenerational mobility.
The academic literature (among others, Afonso et al., 2010; Doerrenberg and Peichl, 2014; Wolff and Zacharias, 2007) generally views fiscal policy as a measure to address growing income inequality, which is a widespread concern nowadays (e.g., discussed in the popular book by Piketty (2014)). Although the income distribution could also be affected by monetary policy, the distributive effects of monetary policy have not broadly been discussed in the literature (Coibion et al., 2012; Saiki and Frost, 2014; Villarreal, 2014). Taking this into account, the objective of Chapter 3 is to contribute to the discussion in this research area by evaluating the effect of monetary policy on income inequality. The distributional effect of monetary policy is estimated in the case of the USA, where the dynamics in income inequality has mainly been driven by the variation in the upper end of distribution since early 1980’s (Congressional Budget Office, 2011). The chapter uses an inequality measure that represents the whole distribution of income, and in this respect, it complements the work by Coibion et al. (2012) who use economic inequality measures that do not cover the top one percent. To identify a monetary policy shock, the chapter employs contemporaneous identification with ex-ante identified monetary policy shocks as well as log run identification. In particular, a cointegration relation has been determined among the considered variables and the vector error correction methodology has been applied for the identification of the monetary policy shock. The obtained results indicate that contractionary monetary policy decreases the overall income inequality in the country. These results could have important implications for the design of policies to reduce income inequality by giving more weight to monetary policy.
It is analytically diﬃcult to solve models with sequential voting and growth since the voters’ policy preferences should be in general formed on the prediction of the equilibrium eﬀects of a change in the current policy on the future path of both the economic state variable and the policies. This diﬃculty originated several shortcuts in the literature. First, we could restrict the voting at time zero only, as in Bertola  and Alesina and Rodrik . Second, we could assume an equilibrium law of motion for policies consistent with individual maximization andmarket clearing which is used by the agents to form preferences over alternative policies, as in Krusell and R´ıos-Rull  and Krusell, Quadrini, and R´ıos-Rull . Third, we could focus on Markov-perfect equilibria ´a la Meltzer and Richard  under aggregation, for which the policies result as a function of the pay-oﬀ relevant state and nothing else, as in Krusell and R´ıos-Rull  and Azzimonti, de Francisco, and Krusell  and . Fourth, we could restrict the ability of the agents to predict the policy outcome, as in Boldrin , Cukierman and Meltzer , and Huﬀman . Fifth, we could restrict the ability of agents to predict the economic outcome, or at least to make it not necessary for the median voter to be forward looking, as in Persson and Tabellini , Saint-Paul and Verdier  and , Glomm and Ravikumar , Perotti , Fernandez and Rogerson . The latter stream of literature is closer to our approach, in the sense that the overlapping generations framework helps in cutting the ties to the future. In order to solve the problem of sequential voting without commitment on the government side, we make the following key assumptions. First, voters vote only once. Second, agents have a joy-of-giving bequest motive. Third, they vote only when they are old. Fourth, leisure does not enter the utility function. In this way, we obtain that voters do not care about the next vote, neither through the equilibrium eﬀects on the stocks nor on the prices.
This paper studies short-run individual earnings mobility in urban Mexico from 1987 to 2002. It analyzes whether initially advantaged individuals experience more positive earnings mobility than the initially disadvantaged ones. It also studies whether earnings converge over time to their conditional mean, and what is the impact of socioeconomic characteristics on earnings mobility. The results show that while there is a great amount of convergence in the earnings of rich and poor over a year, this convergence is mostly due to transitory adjustments in earnings, i.e. it is due to earnings converging to their own conditional mean. Individuals with characteristics that give them a more permanent advantage in the labor markets (like high levels of education, being a male, etc.) usually keep their high earnings over a year. The main exception to this finding occurred in the aftermath of the 1994 Peso crisis when everybody experienced proportional earnings losses, and hence the permanently advantaged individuals experienced greater losses in absolute terms. Holding everything else constant, having high levels of education, being a male, becoming a formal sector self- employed, and living in cities in the US Border and in the North of the country is usually associated positive mobility. On the contrary, transitions into informal wage work and living in the Center and South of the country brings more negative conditional mobility.