The diverging effects of the business cycle on the expected duration of job search

Economics;Wages

Evaluating election platforms: a task for fiscal councils? Scope and rules of the game in view of 25 years of Dutch practice

In some countries - the Netherlands, UK and USA - the expected economic implications of election platforms of political parties are evaluated by independent economic institutions prior to the election. This paper analyzes the merits and limitations of this process, taking 25 years of Dutch experience as a point of reference. In particular in times of financial crisis and unsustainable public finance, evaluation of election platforms can serve as a disciplining device for unrealistic or (time) inconsistent promises by politicians. More in general, it can help political parties to credibly inform voters about the implications of their platforms, to design more efficient policies and to reach consensus on them. It can also create a level playing field for political parties not represented in the government, in particular those with limited resources for economic information and expertise. However, there may be adverse effects, in particular when trade-offs are presented in an unbalanced way or when the rules of the evaluation provide too much room for gaming and free lunches.Evaluation of election platforms, Fiscal watchdogs

CPB and Dutch fiscal policy in view of the financial crisis and ageing

Independent national fiscal institutions can play a major role in fiscal policy and in maintaining and restoring sustainability of a country's public finance. This paper describes the role of CPB in Dutch fiscal policy and discusses its merits and risks. And to what extent can it provide lessons for improving decision-making on fiscal policy in other countries? In the second part, the Dutch fiscal targets and rules are discussed in view of the rising costs of ageing, the depletion of natural gas resources and the financial crisis. In the Netherlands, for already 65 years, CPB serves as the official expert institute for fiscal and economic policy. It does not only serve the government, but meets also requests from opposition parties, trade unions and employers' organizations. The reputation of quality and independence had to be earned and defended again and again. Its eminent founder and first director, Jan Tinbergen, was responsible for a very good start. CPB has a more comprehensive role than comparable institutions in other countries. This includes e.g. providing the official estimates on economic growth and purchasing power, analysis of the sustainability of Dutch public finance, costs-benefit analysis of major infrastructure projects, analysis of the economic effects of the election plans of Dutch political parties and all kinds of analyses on the Dutch economy and the role of the government.

Insurance and Information: Firms as a Commitment Device

We explore the role of firms in insuring risk-averse workers.As a device that allows workers to commit to the delivery of their output, the firm arises endogenously as an alternative to the spot market if workers are suciently risk averse and the firm can base incentive payments on good information.Competition, however, may allow the spot market and explicit contracts to crowd out implicit insurance provided by the firm, even though the latter yields higher welfare.We explain why dierent governance structures coexist in quite homogeneous industries.information;labour;insurance;moral hazard;contracts;principal agent theory

The potential of a small model

This CPB Discussion Paper highlights potential uses of simple, small models where large traditional models are less flexible. (updated 22/12/2011). We run a number of experiments with a small two variable VAR model of GDP growth and unemployment with both quarterly and yearly data. We compare the forecasts of these simple models with the published forecasts of the CPB and we conclude that there is not much di erence. We then show how easy it is to evaluate the usefulness of a given variable for forecasting by extending the model to include world trade. Perfect knowledge of future world trade growth would help considerably but is obviously not available at the time the forecasts were made. The available world trade data doesn't improve the forecasts. Finally we also show how quick and exible measures of the output gap can be constructed.

Rhineland Exit?

We argue in favour of the shareholder model of the firm for three main reasons. First, serving multiple stakeholders leads to ill-defined property rights. What sounds like a fair compromise between stakeholders can easily evolve in a permanent struggle between the stakeholders about the ultimate goal of the company. In many cases, the vague Rhineland principles no longer offer much protection to workers. Second, giving workers a claim on the surplus of the firm raises the cost of capital for investments in jobs, which harms the position of job seekers, including new entrants to the labour market. Third, and most importantly, making shareholders the ultimate owner of the firm provides the best possible diversification of firm-specific risks. Whereas globalisation has increased firm-specific risk by intensifying competition, globalisation of capital markets has also greatly increased the scope for diversification of firm-specific risk. Diversification of this risk on the capital market is an efficient form of social insurance. Reducing the claims of workers on the surplus of the firm can be seen as the next step in the emancipation of workers. Workers derive their security not from the firm that employs them but from the value of their own human capital. In such a world, global trade in corporate control, global competition and creative destruction associated with these developments are more legitimate. Coordination in wage bargaining and collective norms on what is proper compensation play an important role in reducing the claim of workers on the firm’s surplus, thereby protecting workers against firm-specific risks. Indeed, in Denmark, workers bear less firm-specific risk than workers in the United States do. Collective action thus has an important role to play. Politicians, however, also face the temptation to please voters and incumbent workers with short-run gains at the expense of exposing workers to firm-specific risks and reducing job creation. This is why corporate governance legislation that gives moral legitimacy to the claim of insiders on the surplus of the firm is damaging. The transition from the Rhineland model (in which management serves the interests of all stakeholders) towards the shareholder model is fraught with difficulties. While society reaps long-run gains in efficiency, in the short run a generation of insiders has to give up their rights without benefiting from increased job creation and higher starting wages. Whereas the claims of older workers on the surplus of a firm may thus have some legitimacy, younger cohorts should be denied such moral claims. These problems require extreme political skill to solve. In particular, they may require some grandfathering provisions or temporary explicit transfers from younger to older generations.wagesetting, optimal risk sharing, employment protection, corporate governance

How Large are Search Frictions

wages, search, assignment

Tenure Profiles and Efficient Separation in a Stochastic Productivity Model

This paper provides a new way of analyzing tenure profiles in wages, by modelling simultaneously the evolution of wages and the distribution of tenures. We develop a theoretical model based on efficient bargaining, where both log outside wage and log wage in the current job follow a random walk, as found empirically. This setting allows the application of real option theory. We derive the efficient separation rule. The model fits the observed distribution of job tenures well. Since we observe outside wages only at job start and job separation, our empirical analysis of within job wage growth is based on expected wage growth conditional on the outside wages at both dates. Our modelling allows testing of the efficient bargaining hypothesis. The model is estimated on the PSID.random productivity growth, efficient bargaining, job tenure, inverse gaussian, wage-tenure profiles, option theory

Rhineland Exit?

We argue in favor of the shareholder model of the firm for three main reasons. First, serving multiple stakeholders leads to ill-defined property rights. What sounds like a fair compromise between stakeholders can easily evolve in a permanent struggle about the ultimate goal of the company. Second, giving workers a claim on the surplus of the firm raises the cost of capital for investments in jobs. Third, making shareholders the ultimate owner of the firm provides the best possible diversification of firm-specific risks. Diversification of firm-specific risk on capital markets is an efficient form of social insurance. Hence, firms should bear the full cost of specific investment, while workers should be paid only their outside option. Empirical results for Denmark, Portugal and the United States show that Denmark is closest to the first-best outcome, while Portugal and the United States deviate in different ways. Coordination in wage bargaining and collective norms help reduce the claim of workers on the firm’s surplus. Collective action, however, is a mixed blessing because politicians also face the temptation to please incumbent workers with short-run gains at the expense of exposing workers to firm-specific risks and reducing job creation. The transition from the Rhineland towards the shareholder model is fraught with difficulties. While society reaps long-run gains in efficiency, in the short run a generation of insiders has to give up their rights.wage setting, optimal risk sharing, employment protection, corporate governance