The employment of nations — a primer

This paper examines low-frequency movements in employment in a cross-section of industrialized countries for the period 1960–95, using both aggregate and disaggregated data. It documents nine stylized facts about cross-country variations in employment.Employment (Economic theory)

Taxation and Market Work: Is Scandinavia an Outlier?

This paper argues that it is essential to explicitly consider how the government spends tax revenues when assessing the effects of tax rates on aggregate hours of market work. Different forms of government spending imply different elasticities of hours of work with regard to tax rates. I illustrate the empirical importance of this point by addressing the issue of hours worked and tax rates in three sets of economies: the US, Continental Europe and Scandinavia. While tax rates are highest in Scandinavia, hours worked in Scandinavia are significantly higher than they are in Continental Europe. I argue that differences in the form of government spending can potentially account for this pattern.

Structural Transformation and the Deterioration of European Labor Market Outcomes

This paper examines the evolution of hours worked in France, Germany, Italy and the US from 1956-2003 and assesses the role of taxes and technology to account for the differences. The empirical work establishes three results. First, hours worked in Europe decline by almost 45% compared to the US over this period. This change is almost an order of magnitude larger than the effects associated with the increase in unemployment over this time period. Second, the decline occurs at a steady pace from 1956 until the mid 1990s, in contrast to the fact that the relative increase in unemployment occurs in the mid 1970s. Third, the decline in hours worked in Europe is almost entirely accounted for by the fact that Europe develops a much smaller service sector than the US. I build a simple model of time allocation to understand the evolution of total hours worked and their distribution across sectors, and calibrate it to match the US between 1956 and 2000. I find that relative increases in taxes and technological catch-up can account for most of the differences between the European and American time allocations over this period.

Farm Work, Home Work and International Productivity Differences

Agriculture's share of economic activity is known to vary inversely with a country's level of development. This paper examines whether extensions of the neoclassical growth model can account for some important sectoral patterns observed in a current cross-section of countries and in the time series data for currently rich countries. We find that a straightforward agricultural extension of the neoclassical growth model restricted to match U.S. observations fails to account for important aspects of the cross-country data. We then introduce a version of the growth model with home production, and we show that this model performs much better.agriculture, home work, productivity differences, two-sector model

Policy Distortions and Aggregate Productivity with Heterogeneous Plants

We formulate a version of the growth model in which production is carried out by heterogeneous plants and calibrate it to US data. In the context of this model we argue that differences in the allocation of resources across heterogeneous plants may be an important factor in accounting for cross-country differences in output per capita. In particular, we show that policies which create heterogeneity in the prices faced by individual producers can lead to sizeable decreases in output and measured TFP in the range of 30 to 50 percent. We show that these effects can result from policies that do not rely on aggregate capital accumulation or aggregate relative price differences. More generally, the model can be used to generate differences in capital accumulation, relative prices, and measured TFP.Plant heterogeneity, productivity, policy

Income Distribution and Public Education: A Dynamic Quantitative Evaluation of School Finance Reform

Many states have or are considering implementing school finance reforms aimed at lessening inequality in the provision of public education across communities. These reforms will tend to have complicated aggregate effects on income distribution, intergenerational income mobility, and welfare. In order to analyze the potential effects of such reforms, this paper constructs a dynamic general equilibrium model of public education provision, calibrates it using US data, and examines the quantitative effects of a major school finance reform. The policy reform examined is a change from a system of pure local finance to one in which all funding is done at the federal level and expenditures per student are equal across communities. We find that this policy increases average income and total spending on education as a fraction of income. Moreover, there are large welfare gains associated with this policy; steady-state welfare increases by 3.2% of steady-state income.

Product Market Regulation and Market Work: A Benchmark Analysis

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation. We find that product market regulations affect time devoted to market work in effectively the same fashion as do taxes on labor income or consumption. In particular, if product market regulations are to affect aggregate market work in this model the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two sector model that industry level analysis is of little help in assessing the aggregate effects of product market regulation.

Keeping People Out: Income Distribution, Zoning and the Quality of Public Education

This paper examines the effect of community zoning regulations on allocations and welfare in a two-community model. Each community uses a local property tax to finance public education. Tax rates are determined by majority vote within each community, and individuals choose in which community to reside. We study exogenously imposed zoning regulations as well as the case where the regulator is endogenously determined by majority vote. Our analysis indicates that a number of outcomes are theoretically possible. Several interesting results emerge from simulations of the model. Although zoning tends to make the rich community more exclusive, this need not increase the quality of education in the rich community relative to the poor community. Welfare effects are not monotone in income; some lower income individuals benefit and some higher income individuals are made worse off when zoning is introduced.

Human Capital Accumulation and Income Distribution

The non-existence of credit markets implies that initial income is a determinant of who actually obtains an education. We consider the outcome of a process in which income is taxed to provide subsidies for education. and taxes are chosen by majority voting. We characterize the outcome as a function of both the level and the distribution of income in the economy. In particular we derive conditions under which middle income individuals ally themselves with upper income individuals at the expense of lower income individuals, and vice versa. The analysis determines the relationship between human capital accumulation and distribution of income.