892 research outputs found
Behavioral Macroeconomics and Macroeconomic Behavior
Nobel Prize lecture.Behavioral economics;
Workers' Trust Funds and the Logic of Wage Profiles
This paper defines a concept, a worker's trust fund, which is useful in analyzing optimal age-earnings profiles. The trust fund represents what a worker loses if dismissed from a job for shirking. In considering whether to work or shirk, a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort. This concept is used to show that the implicit bonding in upward sloping age-earnings profiles is not a perfect substitute for an explicit upfront performance bond (or employment fee). It is also shown that the second-best optimal earnings profile in the absence of an upfront employment fee pays total compensation in excess of market clearing in a variety of stylized cases.
Do Deferred Wages Dominate Involuntary Unemployment as a Worker Discipline Device?
In the most widely analyzed type of efficiency wage model of involuntary unemployment, firms pay wages in excess of market clearing to give workers an incentive not to shirk. Such payments in excess of market clearing and the resultant equilibrium unemployment act as a worker discipline device. This paper concerns what is usually considered the most important theoretical criticism of such models: the so-called bonding argument. The essence of the bonding critique is that contracts whereby workers pay a bond to the firm upon taking a job (or pay an employment fee to gain employment) can eliminate involuntary unemployment. Explicit upfront bonds are only quite rarely observed. A more subtle form of the bonding critique argues that implicit bonding through upward sloping wage profiles and other deferred payment schemes can perfectly substitute for upfront bonds in providing incentives not to shirk and thereby allow the labor market to clear. This paper shows that upward sloping wage profiles do not act as a perfect substitute for explicit bonds in a natural extension of the shirking model in which workers are finite lived, the monitoring of worker behaviors on the job is costly, and firms have reputations for honesty as employers. In the absence of direct upfront bonding, optimal payment schedules will be in excess of market clearing. The reason why upward sloping wage profiles that are market clearing will not generally be the optimal labor contract is simple: delayed payment may provide sufficient incentive to prevent shirking late in the life of the contract, but in the beginning of the contract it does not prevent shirking. And it turns out in a variety of stylized cases, it is cheaper for the firm to pay a wage premium rather than to accept worker shirking early in the contract. The implications of potential worker malfeasance in the absence of explicit bonds for compensation schedules, job assignments, and firm monitoring strategies over the course of a worker's career are also analyzed.
Looting: The Economic Underworld of Bankruptcy for Profit
macroeconomics, economic underworld, bankruptcy, profit
Near-Rational Wage and Price Setting and the Long-Run Phillips Curve
macroeconomics, Near-Rational Wage, Price Setting, Long-Run Phillips Curve
Inflation and Unemployment in the U.S. and Canada: A Common Framework
This paper summarizes the results of our efforts to broaden the theory of the Phillips curve and to explain the joint evolution of inflation and unemployment in the United States and Canada since 1930.Phillips curve, unemployment, inflation
Bread and Bullets
Standard economics omits the role of narratives (the stories that people tell themselves and others) when they make all kinds of decisions. Narratives play a role in understanding the environment; focusing attention; predicting events; motivating action; assigning social roles and identities; defining power relations; and establishing and conveying social norms. This paper describes the role narratives play in decision making, as it also juxtaposes this description against the backdrop of the Bolshevik-spawned narrative that played a critical role in the history of Russia and the Soviet Union in the 20th Century
East Germany in from the Cold: The Economic Aftermath of Currency Union
macroeconomics, East Germany, currency union
Unfinished Business in the Macroeconomics of Low Inflation: A Tribute to George and Bill by Bill and George
macroeconomics, low inflation, George Perry, William Brainard, BPEA, Brookings Papers on Economic Activity, Brookings Panel on Economic Activity
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