More alike than different: : the Spanish and Irish labour markets before and after the crisis

This paper analyses the labour markets of Spain and Ireland, which have experienced a severe downturn in the recent global crisis as reflected by the largest increases in their unemployment rates among other developed economies. Spain and Ireland might seem at first to feature very different labour markets, which go from very tight to very flexible labour conditions. Our analysis, however, goes beyond this simplistic argument and brings to light the strong commonalities that seem to have been hidden underground. We estimate a dynamic multi-equation structural model for each country, and then offer two sets of dynamic simulations which account for the swings of the unemployment rates before and after the 2007 crisis. Our results suggest looking beyond the degree of flexibility of both labour markets, just to focus instead on other variables usually neglected by more conventional approaches. In particular, such variables as the growth of capital stock, the growth of labour productivity, and demographics, succeed in explaining a great part of the changes in unemployment in both countries.Este documento analiza los mercados laborales de España e Irlanda, que experimentaron una severa desaceleración en la reciente crisis mundial, como lo reflejan los mayores incrementos en sus tasas de desempleo entre otras economías desarrolladas. Al principio, España e Irlanda parecen tener mercados laborales muy diferentes, que van desde condiciones de trabajo muy ajustadas hasta condiciones laborales muy flexibles. Este análisis, sin embargo, va más allá de este argumento simplista y saca a la luz las fuertes similitudes que parecen haberse ocultado bajo tierra. Se estima un modelo estructural dinámico de multi-ecuaciones para cada país, y luego se ofrecen dos conjuntos de simulaciones dinámicas que dan cuenta de las oscilaciones de las tasas de desempleo antes y después de la crisis de 2007. Estos resultados sugieren mirar más allá del grado de flexibilidad de ambos mercados laborales, solo para centrarse en otras variables generalmente descuidadas por los enfoques más convencionales. En particular, variables tales como el crecimiento del stock de capital, el crecimiento de la productividad laboral y la demografía, logran explicar una gran parte de los cambios en el desempleo en ambos países.Fil: Agnese Pablo .Fil: Salvador Pablo F.. CONICET (Consejo Nacional de Investigaciones Científicas y Técnicas) - Universidad Nacional de Cuyo

More Alike than Different: The Spanish and Irish Labour Markets Before and After the Crisis

This paper analyses the labour markets of Spain and Ireland, which have experienced a severe downturn in the recent global crisis as reflected by the largest increases in their unemployment rates among other developed economies. Spain and Ireland might seem at first to feature very different labour markets, which go from very tight to very flexible labour conditions. Our analysis, however, goes beyond this simplistic argument and brings to light the strong commonalities that seem to have been hidden underground. We estimate a dynamic multi-equation structural model for each country, and then offer two sets of dynamic simulations which account for the swings of the unemployment rates before and after the 2007 crisis. Our results suggest looking beyond the degree of flexibility of both labour markets, just to focus instead on other variables usually neglected by more conventional approaches. In particular, such variables as the growth of capital stock, the growth of labour productivity, and demographics, succeed in explaining a great part of the changes in unemployment in both countries.chain reaction theory, structural multi-equation models, unemployment dynamics, simulations, PIGS

Retained Earnings Dynamic, Internal Promotions and Walrasian Equilibrium

In the early stages of the process of industry evolution, firms are financially constrained and might pay different wages to workers according to their expectations about the prospects for advancement offered by each firm’s job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of aWalrasian equilibrium. To some extent, it is not technological efficiency but workers’ self-fulfilling expectations about their prospects for advancement within the firm that explains which firms have lower unit costs, grow more, and dominate the market.Industry Evolution ; Market Selection Hypothesis ; Production under Incomplete Markets ; Retained Earnings Dynamic ; Self-Fulfilling Expectations ; Internal Labor Markets

Market Selection and Payout Policy Under Majority Rule

The purpose of this paper is to explain how the choice between distributing cash through dividends or shares repurchases affects the firm’s ability to raise capital in the financial market. I assume investors have quadratic preferences over wealth but different prior beliefs about the likelihood a distribution takes place. At date zero agents purchase shares given their expectation about the firm’s payout method. At date 1 the firm announces whether the payout takes place that period. As in Brennan and Thakor [3], investors with different shareholdings have different incentives to gather information and, therefore, heterogeneous preferences about payout methods at date 1. I assume the firm adopts the payout method preferred by the majority of shareholders at date 1 under the one share/one vote rule. At date 2 the firm is liquidated and the remaining output is distributed among its shareholders. If at date zero agents disagree but not too much on the probability a distribution takes place, I show that a firm expected to pay dividends raises strictly more financial capital than an otherwise identical firm which is expected to repurchase shares. Therefore, a larger fraction of cash is distributed as dividend than through repurchases. One concludes that even in the presence of a small tax disadvantage financial markets favor dividend paying firms.Market Selection Hypothesis ; Payout Policy ; Production under Incomplete Markets

RETAINED EARNINGS DYNAMIC, INTERNAL PROMOTIONS AND WALRASIAN EQUILIBRIUM

In the early stages of the process of industry evolution, firms are financially constrained and pay different wages because workers have heterogeneous expectations about the prospects for advancement offered by each firm's job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of a Walrasian equilibrium. To some extent, it is not technological efficiency but workers' self-fulfilling expectations about their prospects for advancement within the firm what explains which firms have lower unit costs, grow more and dominate the market.Industry Evolution - Market Selection Hypothesis - Production under Incomplete Markets - Retained Earnings Dynamic - Self-Fulfilling Expectations - Internal Labor Markets