Human Capital Externalities with Monopsonistic Competition

This paper provides a novel microeconomic foundation for pecuniary human capital externalities in a labor market model of monopsonistic competition. Multiple equilibria arise because of a strategic complementarity in investment decisions.externalities, human capital, multiple equilibria

Cournot-Walras equilibrium without profit feedback

In this note we consider a general equilibrium model with oligopolistic competition between firms who ignore the feedback effect of their dividend payments on demand. The outcome of this competition coincides with the perfectly competitive equilibrium solution, provided that firms have identical production technologies.General equilibrium

Capital Misallocation and Aggregate Factor Productivity

TFP, misallocation, sectoral shocks, collateral, reputation

Minimum Wages and Welfare in a Hotelling Duopsony

Two firms choose locations (non-wage job characteristics) on the interval [0,1] prior to announcing wages at which they employ workers who are uniformly distributed; the (constant) marginal revenue products of workers may differ. Subgame perfect equilibria of the two-stage location-wage game are studied under laissez-faire and under a minimum wage regime. Up to a restriction for the existence of pure strategy equilibria, the imposition of a minimum wage is always welfare-improving because of its effect on non-wage job characteristics.duopsony, minimum wages, hotelling

Ethnic Discrimination in Germany's Labour Market: A Field Experiment

This paper studies ethnic discrimination in Germany's labour market with a correspondence test. To each of 528 advertisements for student internships we send two similar applications, one with a Turkish-sounding and one with a German-sounding name. A German name raises the average probability of a callback by about 14 percent. Differential treatment is particularly strong and significant at smaller firms at which the applicant with the German name receives 24 percent more callbacks. Discrimination disappears when we restrict our sample to applications including reference letters which contain favourable information about the candidate’s personality. We interpret this finding as evidence for statistical discrimination.correspondence test, hiring discrimination, ethnic discrimination

Capital misallocation and aggregate factor productivity

We propose a sectoral–shift theory of aggregate factor productivity for a class of economies with AK technologies, limited loan enforcement, a constant production possibilities frontier, and finitely many sectors producing the same good. Both the growth rate and total factor productivity in these economies respond to random and persistent endogenous fluctuations in the sectoral distribution of physical capital which, in turn, responds to persistent and reversible exogenous shifts in relative sector productivities. Surplus capital from less productive sectors is lent to more productive ones in the form of secured collateral loans, as in Kiyotaki–Moore (1997), and also as unsecured reputational loans suggested in Bulow–Rogoff (1989). Endogenous debt limits slow down capital reallocation, preventing the equalization of risk– adjusted equity yields across sectors. Economy–wide factor productivity and the aggregate growth rate are both negatively correlated with the dispersion of sectoral rates of return, sectoral TFP and sectoral growth rates. If sector productivities follow a symmetric two–state Markov process, many of our economies converge to a limit cycle alternating between mild expansions and abrupt contractions. We also find highly periodic and volatile limit cycles in economies with small amounts of collateral.Industrial productivity

Efficient Firm Dynamics in a Frictional Labor Market

The introduction of firm size into labor search models raises the question how wages are set when average and marginal product differ. We develop and analyze an alternative to the existing bargaining framework: Firms compete for labor by publicly posting long–term contracts. In such a competitive search setting, firms achieve faster growth not only by posting more vacancies, but also by offering higher lifetime wages that attract more workers which allows to fill vacancies with higher probability, consistent with empirical regularities. The model also captures several other observations about firm size, job flows, and pay. In contrast to bargaining models, efficiency obtains on all margins of job creation and destruction, both with idiosyncratic and aggregate shocks. The planner solution allows a tractable characterization which is useful for computational applications.labor market search, multi-worker firms, job creation and job destruction

Human Capital Investment with Competitive Labor Search

We study human capital accumulation in an environment of competitive search. Given that unemployed workers can default on their education loans, skilled individuals with a larger debt burden prefer riskier but better paid careers than is socially desirable. A higher level of employment risk in turn depresses the skill premium and the incentives to invest in education. The equilibrium allocation is characterized by too much unemployment, underinvestment by the poor, and too little investment in skill-intensive technologies. A public education system funded by graduate taxes can restore efficiency. More generally, differences in education funding can account for cross-country variations in wage inequality.directed search, investment, education finance

Firm volatility and credit: a macroeconomic analysis

This paper examines a tractable real business cycle model with idiosyncratic productivity shocks and binding credit constraints on entrepreneurs. The model shows how firm volatility increases in combination with credit market development. It further generates the observed comovement of credit and firm volatility with output at business cycle frequencies in response to aggregate productivity shocks.Business cycles

Budgetary Policy and Unemployment Dynamics

We consider a dynamic general equilibrium model with collective wage bargaining and investigate how unemployment dynamics are affected by two types of budgetary policies. In line with traditional reasoning, a balanced-budget rule amplifies fluctuations in the short run, whereas an unbalanced-budget policy dampens them. However, the latter policy strengthens unemployment persistence by its adverse impact on growth, and may even destabilize the adjustment path. If this is the case, a future fiscal consolidation is needed which further raises unemployment. These results are consistent with empirical evidence on a positive cross-country relationship between government borrowing and unemployment persistence. -- Wir betrachten ein dynamisches allgemeines Gleichgewichtsmodell mit kollektiven Lohnverhandlungen am Arbeitsmarkt und untersuchen die Entwicklung von Arbeitslosigkeit in Abhängigkeit von zwei verschiedenen staatlichen Budgetpolitiken. In Übereinstimmung mit der traditionellen Literatur werden Schwankungen in der Arbeitslosigkeit kurzfristig durch eine ausgeglichene Budgetpolitik verstärkt, während sie durch eine unausgeglichene Budgetpolitik abgeschwächt werden. Eine Politik unausgeglichener Budgets erhöht jedoch über die Zeit die Persistenz der Arbeitslosigkeit durch adverse Wachstumseffekte und führt eventuell zu instabilen Anpassungsprozessen. In diesem Fall müssen zu einem späteren Zeitpunkt fiskalische Konsolidierungsmaßnahmen ergriffen werden, die wiederum die Arbeitslosigkeit erhöhen. Diese Modellergebnisse stehen in Einklang mit empirischen Ergebnissen, die auf einen positiven Zusammenhang zwischen der Höhe öffentlicher Budgetdefizite und der Persistenz von Arbeitslosigkeit im Ländervergleich hindeuten.Unemployment,Overlapping generations,Public debt