Linking wages to changing output prices : an empirical study of 13 industrial countries

A shock that lowers profits depresses employment less when wages are flexible in terms of the value-added output price. This kind of flexibility allows a country to remain competitive in world markets when a shock to profits lowers its value-added output price. In many countries, wages are indexed to consumer prices, thus protecting the real income of workers in the short run. Some industrial countries link wages more closely to the value-added output price. Estimates of the elasticity of wages in terms of the value-added output price are high, significant, and of a theoretically plausible magnitude in three industrial countries that perform well in world markets: Japan, Germany, and Switzerland. The ouput price elasticity of wages also appears high in two industrial countries that produce primary products: Canada and Australia. This may reflect the difficulty of passing wage increases on to higher commodity prices. Wage flexibility may be particularly important for developing countries exporting primary products.Economic Theory&Research,Environmental Economics&Policies,Access to Markets,Markets and Market Access,Banks&Banking Reform

Risk facing U.S. commercial banks

The study examines the financial state of the U.S. commercial banks and of the main private borrowing sectors: corporate non-financial business and households. The study finds that the condition of the banks'loan portfolios exposes them to high losses. This risk together with the forthcoming increase of the required ratio of capital to assets suggests that banks will respond by slowing the growth of credit. One consequence would be weaker U.S. investment and consumption. Moreover, credit would probably be directed away from higher risk borrowers such as the highly indebted countries.Financial Crisis Management&Restructuring,Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,International Terrorism&Counterterrorism

Costs of projects for orphans and other vulnerable children : case studies in Eritrea and Benin

Very little information is available on the ex-post cost of delivering services to orphans, and other vulnerable children (OVC). This hinders large scale planning of interventions for OVC. This study responds by estimating the costs of some recent projects for OVC in Benin, and in Eritrea. The study shows that the cost of institutional solutions is high relative to family-based solutions. The average annual economic cost per child, of a group home for orphans in Eritrea averaged about $1,900; that for an orphanage in Benin was about$1,300. The corresponding cost of orphans'integration into families in Eritrea was about $100. The cost of assisting street children in Benin was almost$650, and, the cost of assisting children in abusive labor in Benin was almost $570.Economic Theory&Research,Health Monitoring&Evaluation,Children and Youth,Street Children,Youth and Governance

Production Functions for Climate Policy Modeling: An Empirical Analysis

Quantitative models for climate policy modeling differ in the production structure used and in the sizes of the elasticities of substitution. The empirical foundation for both is generally lacking. This paper estimates the parameters of two-level CES production functions with capital, labour and energy as inputs, and is the first to systematically compare all nesting structures. Using industry-level data from 12 OECD countries, we find that the nesting structure where capital and labour are combined first, fits the data best, but for most countries and industries we cannot reject that all three inputs can be put into one single nest. These two nesting structures are used by most climate models. However, while several climate policy models use a Cobb-Douglas function for (part of the) production function, we reject elasticities equal to one, in favour of considerably smaller values. Finally we find evidence for factor-specific technological change. With lower elasticities and with factor-specific technological change, some climate policy models may find a bigger effect of endogenous technological change on mitigating the costs of climate policy