The Union Threat *

Abstract This paper studies the impact of labor unions on wage inequality, output and unemployment. To do so, it proposes a search and matching model of union formation in which unions arise endogenously through a voting process within firms. In a union firm, workers bargain their wages collectively. In a nonunion firm, each worker bargains individually with the firm. Because of this wage setting asymmetry, a union lowers the profit of a firm and compresses the wage distribution of the workers. Furthermore, to prevent unionization, nonunion firms distort their hiring decisions in a way that also lowers the dispersion of wages. After being calibrated on the United States, the model shows that, even though a standard empirical estimate would predict a small impact of unions on wage inequality, removing the threat of unionization increases the variance of wages substantially. It also increases output and reduces unemployment. Completely outlawing unions increases wage inequality further while forcing all firms to be unionized lowers inequality considerably. These results suggest that, even with a small membership, unions might have a significant impact on the economy through general equilibrium mechanisms and the way they distort firms' decisions

Assimilation of shrimp farm sediment by Holothuria scabra: a coupled fatty acid and stable isotope approach

Deposit-feeding sea cucumbers are efficient nutrient recyclers and have the potential to contribute to the limitation of organic matter load in polyculture or integrated aquaculture systems. Assessing how they assimilate organic matter originating from other farmed species is therefore important for the development of such multi-species farming systems. Here, a coupled stable isotope − fatty acid approach was used to characterize the assimilation of organic matter from shrimp (Penaeus stylirostris) farming by Holothuria scabra in an experimental culture system. H. scabra were reared in mesocosms on shrimp farming-originating sediment with and without additional food sources (maize and fish meals). Although fatty acid results did indicate that shrimp-farming sediment was assimilated by holothurids, we found no evidence of maize waste and fish meal contribution to H. scabra organic carbon (no effect on δ13C, no accumulation of meal-specific fatty acids). However, a strong effect of fish meal on H. scabra δ15N was observed, suggesting that this additional food source could represent an alternative source of nitrogen for holothurids. Finally, this study supports the culture of H. scabra as a perspective to reduce sedimentary organic matter excess associated with shrimp farms, and suggest that the addition of selected food sources might contribute to increasing the content in some nitrogen organic compounds in holothurid tissues

Rational Expectations Models with Higher Order Beliefs,” mimeo

Abstract This paper develops a general method of solving rational expectations models with higher order beliefs. Higher order beliefs are crucial in an environment with dispersed information and strategic complementarity, and the equilibrium policy depends on infinite higher order beliefs. It is generally believed that solving this type of equilibrium policy requires an infinite number of state variable

Rational Expectations Models with Higher Order Beliefs,” mimeo

Abstract This paper develops a general method of solving rational expectations models with higher order beliefs. Higher order beliefs are crucial in an environment with dispersed information and strategic complementarity, and the equilibrium policy depends on infinite higher order beliefs. It is generally believed that solving this type of equilibrium policy requires an infinite number of state variable

Uncertainty and unemployment

This paper studies the impact of time-varying idiosyncratic risk at the establishment level on aggregate unemployment fluctuations and on the labor market over the period 1972-2009. I build a tractable search-and-matching model of the labor market with firm dynamics and heterogeneity in productivity and sizes, in which I introduce time-varying idiosyncratic volatility. The model features directed search and allows for endogenous separations, entry and exit of establishments, and job-to-job transitions. I show, first, that the model can replicate salient features of the behavior of firms at the microeconomic level. Second, I find that the introduction of time-varying idiosyncratic volatility improves the fit of search-and-matching models for a range of business cycle moments. In a series of counterfactual experiments, I then show that time-varying idiosyncratic risk is important to account for the magnitude of fluctuations in aggregate unemployment for past US recessions, including in particular the recessions of 1990-1991 and 2001. Though the model can account for about 40% of the total increase in unemployment for the 2007-2009 recession, uncertainty alone does not seem sufficient to explain the magnitude and persistence of unemployment observed during that period

Optimal transport networks in spatial equilibrium

Includes supplemental material: online appendix; replication fileWe study optimal transport networks in spatial equilibrium. We develop a framework consisting of a neoclassical trade model with labor mobility in which locations are arranged on a graph. Goods must be shipped through linked locations, and transport costs depend on congestion and on the infrastructure in each link, giving rise to an optimal transport problem in general equilibrium. The optimal transport network is the solution to a social planner’s problem of building infrastructure in each link. We provide conditions such that this problem is globally convex, guaranteeing its numerical tractability. We also study cases with increasing returns to transport technologies in which global convexity fails. We apply the framework to assess optimal investments and inefficiencies in the road networks of European countries.Edouard Schaal acknowledges financial support from the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563), the Barcelona GSE (Grant SG-2017-07), and the European Research Council Starting Grant 804095

Herding cycles

This paper explores whether rational herding can generate endogenous business cycle fluctuations. We embed a tractable model of rational herding into a business-cycle framework. In the model, technological innovations arrive with unknown quality. New innovations are not immediately productive and agents have dispersed information about how productive the technology will be. Investors decide whether to invest in the technology or not based on their private information and the investment behavior of others. Herd-driven boom-bust cycles may arise endogenously in this environment out of a single impulse shock when the technology is unproductive but investors' initial information is optimistic and highly correlated. When the technology appears, investors mistakenly attribute the high observed investment rates to high fundamentals, leading to a pattern of increasing optimism and investment until the economy reaches a peak, followed by a crash as agents ultimately realize their mistake. As such, the theory can shed light on bubble-like episodes in which excessive optimism about uncertain technology fueled general macroeconomic expansions that were followed by sudden recessions. We calibrate the model to the U.S. economy and show that the theory can explain boom-and-bust cycles in line with historical episodes like the Dot-Com Bubble of the late 1990s. Leaning-against-thewind policies can be beneficial in this environment as they improve the diffusion of information over the cycle

Herding through booms and busts

Includes supplementary materials for the online appendix.This paper explores whether rational herding can generate endogenous aggregate fluctuations. We embed a tractable model of rational herding into a business cycle framework. In the model, technological innovations arrive with unknown qualities, and agents have dispersed information about how productive the technology really is. Rational investors decide whether to invest based on their private information and the investment behavior of others. Herd-driven boom-bust cycles arise endogenously in this environment when the technology is unproductive but investors’ initial information is overly optimistic. Their overoptimism leads to high investment rates, which investors mistakenly attribute to good fundamentals, leading to a self-reinforcing pattern of higher optimism and higher investment until the economy reaches a peak, followed by a crash when agents ultimately realize their mistake. We calibrate the model to the U.S. economy and show that it can broadly explain boom-and-bust cycles like the dot-com bubble of the 1990s.Edouard Schaal acknowledges financial support from the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563 and CEX2019-000915-S) and through the program Proyecto I+D Excelencia 2017 (ECO2017-87827-P-AEI/FEDER, UE), and support from the Generalitat de Catalunya, through CERCA and SGR Programme (2017-SGR-1393)