Low-Skill Offshoring: Labor Market Policies and Welfare Effects

We analyze the effect of low-skill workers offshoring on the welfare of the economy. In the context of a matching model with different possible equilibria, we discuss two policies that could potentially outweigh the negative welfare effects of offshoring, namely, an increase of the unemployment benefits and the flexibilization of the labor market. Our results suggest that, while both policy instruments can theoretically bring the economy back to previous welfare levels, careful thought should be given to the practicability of either measure. In particular, while it would require a significant increase in the unemployment benefits to compensate for the negative welfare effects of offshoring, it would only take a small reduction in the vacancy cost to achieve the same outcome. Not only will this last measure be more financially advantageous, but it will avoid the strong disincentives to work that come with the adoption of the alternative

ON THE INCOME VELOCITY OF MONEY IN A CASH-IN-ADVANCE ECONOMY WITH CAPITAL

A stochastic growth model with money introduced via a cash-in-advance constraint is used to analyze the behaviour of the income velocity of real monetary balances. Agents can purchase consumption goods only using government issued money and capital is a credit good. The cash-in-advance constraint may become nonbinding because of the uncertainty about the realization of the state of the economy. Changes in the income velocity of money due to a precautionary money demand are studied. We find that despite the precautionary money demand does not introduce significant changes into the volatility of the income velocity, its presence can alter the relationship between the growth rate of money supply and the income velocity.Cash-in-advance; Income velocity; Precautionary money demand.

Low-skill offshoring: Labor market policies and welfare effects

We analyze the effects of low-skill workers offshoring on the welfare of the economy. In the context of a matching model with different possible equilibria, we discuss two policies that could potentially outweigh the negative welfare efffects of offshoring, namely, an increase of the unemployment benefits and the exibilization of the labor market. Our results suggest that, while both policy instruments can theoretically bring the economy back to previous welfare levels, careful thought should be given to the practicability of either measure. In particular, it would take a major increase of the unemployment benefits but only a small reduction in the vacancy cost to compensate for the negative welfare effects of offshoring. In addition, we also find that the compensation can be achieved by an upgrading of the low-skill workers that varies with the equilibria.Die Autoren analysieren die Wirkungen von internationaler Verlagerung (Offshoring) niedrig qualifizierter Beschäftigung auf die Wohlfahrt der betroffenen Volkswirtschaft. Mit Hilfe eines Matching-Modells mit unterschiedlichen möglichen Gleichgewichten untersuchen die Verfasser zwei Politikmaßnahmen, die potenziell die negativen Wohlfahrtseffekte des Offshorings überkompensieren können. Im Einzelnen umfassen die Maßnahmen einen Anstieg der Lohnersatzleistungen für Arbeitslose sowie eine Flexibilisierung des Arbeitsmarktes. Die Ergebnisse lassen sich folgendermaßen zusammenfassen: Während beide Politikmaßnahmen zwar theoretisch die Volkswirtschaft zurück auf ihr Wohlfahrtsniveau vor Offshoring bringen können, so ist doch die Praktikabilität beider wirtschaftspolitischen Instrumente eher zweifelhaft. So würde insbesondere ein großer Anstieg der Arbeitslosengeldleistungen erforderlich sein, aber nur eine kleine Verringerung der Kosten einer offenen Stelle, um die negativen Wohlfahrtseffekte des Offshoring auszugleichen. Zusätzlich arbeitet das Papier heraus, dass eine Kompensierung der Effekte ebenfalls möglich ist durch eine Höherqualifizierung der niedrig qualifizierten Arbeitnehmer, die abhängig ist von dem spezifischen Gleichgewicht ist, das sich einstellt

Offshoring, Endogenous Skill Decision, and Labor Market Outcomes

We discuss the effects of low-skill offshoring on the endogenous schooling decision of workers along with the potential changes in the labor market. The analysis is performed in the context of a matching model with different possible equilibria. Our exercise suggests that the endogenous adjustment of low-skill workers can only partially offset the welfare-deteriorating effects of offshoring. As a result, we aim at restoring welfare by increasing the opportunity cost of staying low-skill. In addition to this, we also consider labor flexibility as an effective policy to deal with the adverse welfare effects of offshoring that befall those in the lowest end of the skill ladder

Bubble Economics and Structural Change: The Cases of Spain and France Compared

This paper delves into the recent events that led to the formation of the housing bubble in Spain and the resulting structural change that is arguably needed to put the economy back into the right track. For this purpose we calibrate a model with different equilibria descriptive of the labor markets in Spain and France, where the unemployment rates went from the same initial spot to very different levels. In addition to this, we run two counterfactual analyses that throw some more light on the performance of the Spanish labor market and the Spanish housing bubble. Our results suggest that the unemployment rate in Spain has jumped to much higher levels while switching between equilibria or, what is the same, because of structural change. Moreover, our counterfactuals indicate that, first, the Spanish flexibilization reform has fallen short of its own goals and, second, there has been an important misdirection of resources into the construction industry mainly fueled by excessively low real interest rates

Can buying weapons from your friends make you better off? Evidence from NATO

[EN] In this paper we analyse the effect of multilateral defence alliances and arms trade on economic growth of allies. Previous literature shows that military alliances may improve institutional development and efficiency in defence budget allocation, with consequent enhancement of economic performance. We postulate that importing advanced weapons from allies can bring about technology diffusion. This conjecture is developed theoretically assessing the effect of arms imports on domestic military technology and output. The model is tested for the countries that have a partnership relationship with the North Atlantic Treaty Organization for years 1990 to 2019. We confirm empirically the theoretical suggestion of military technology spillovers, namely, that imports of frontier technology arms from allies, have positive effects on output and productivity through a diffusion of foreign knowledge. Our findings imply that policy makers should have in mind that foreign policy issues, security matters in this case, can interact with economic goals.We are grateful to the editor, the associate editor and two anonymous referees for helpful comments and suggestions. We also thank the participants at the 2021 Conference on Economics and Security for their suggestions and comments. Financial support from the Spanish Ministry of Education and Science through grants PID2019-106642GB-I00 and PID2020-115018RB-C32.Callado-Muñoz, FJ.; Hromcová, J.; Utrero-González, N. (2023). Can buying weapons from your friends make you better off? Evidence from NATO. Economic Modelling. 118. https://doi.org/10.1016/j.econmod.2022.10608411

Defence Spending, Institutional Environment and Economic Growth: Case of NATO

[EN] This paper analyses the impact of participating in a military alliance on the nexus between defence spending and economic growth. In particular, we study how the process of gradual association to a military organization influences the defence spending of newcomers, and consequently their economic growth. Conclusions from the theoretical model are tested empirically for countries in the North Atlantic Treaty Organization. Results show that the prospect of intensified military alliance partnership and membership has a positive effect on economic growth. In addition, increased security and stability gained by closer military cooperation reinforces the positive link with economic growth. Empirical evidence supports theoretical priors.Financial support from the Ministry of Education and Science through [grant number ECO2013-45395-R], [grant number ECO2013-48496-C4-4-R], [grant number ECO2015-67999-R] (MINECO/FEDER), [grant number ECO2016-76255-P]; the Regional Government of Aragón and the European Social Fund (S125 project: Compete), and the Centro Universitario de la Defensa Zaragoza through the 2016-06 project is gratefully acknowledged.Utrero-González, NM.; Hromcová, J.; Callado-Muñoz, FJ. (2019). Defence Spending, Institutional Environment and Economic Growth: Case of NATO. Defence and Peace Economics. 30(5):525-548. https://doi.org/10.1080/10242694.2017.140029252554830

Optimal taxation in the Uzawa-Lucas Model with externality in human capital

We show that in the Uzawa-Lucas model with externality in human capital with agents that value both consumption and leisure, the government pursuing the first best can achieve its goal by subsidizing the foregone earnings while studying. The subsidy should be financed by a schooling fee. We obtain that countries with similar initial conditions may issue different fees because multiple equilibria can arise for empirically plausible values of parameters. This result differs from the one obtained in ananalogous economy where agents only value consumption.optimal policy, two-sector model, endogenous growth, indeterminacy.

Transformation of payment systems: The case of European Union enlargement

In this paper we present a general equilibrium model on payment choice at retail level. We analyze how the accession to an economic and monetary union, and the influence of new institutions may shape the evolution of consumers’ payments in newly acceded countries. The model suggests that accessing countries approach accepting group attitudes towards payment choices as a consequence of institutional pressure and technology development. We apply the results of the model to 2004 European Union enlargement process. Results confirm the relevance of institutional environment and technology development in retail payment system decisions of newly acceded countries.cash; payments; European Union enlargement.

Openness and technology diffusion in payment : the case of NAFTA

We study the relationship between openness and payment system development. In particular, we analyze how the existence of technology diffusion from a more developed country fosters a transformation of payment choice in a less developed country. We apply our analysis to Mexico. Economic growth in Mexico was not high enough to cause a transformation of payment choice observed in the data after 2001. We argue that the switch towards electronic payments can be attributed to openness and related payment technology spillovers from the US in the context of NAFTA