Extensive vs. Intensive Margin in Germany and the United States: Any Differences?

This paper analyzes the role of the extensive vis-à-vis the intensive margin of labor adjustment in Germany and in the United States. The contribution is twofold. First, we provide an update of older U.S. studies and confirm the view that the extensive margin (i.e., the adjustment in the number of workers) explains the largest part in the overall variability in aggregate hours. Second, although the German labor market structure is very different from its U.S. counterpart, the quantitative importance of the extensive margin is of similar magnitude.variance decomposition, extensive and intensive margin, business cycle

A Game Theoretical View on Efficiency Wage Theories

The efficiency wage theory developed by Akerlof (1982) assumes observability of effort and the ability of firm and worker to commit on their effort/wage decisions. We show that, from a game theoretical point of view, we have to understand the firm/worker relationship as a repeated Prisoner's dilemma. Therefore, cooperation is per se not a (subgame perfect) Nash equilibrium and hence the Akerlof (1982) theory is based upon an implicit assumption of cooperation, which can not be implemented w.l.o.g.. In addition, we find that this approach is a special case of the Shapiro and Stiglitz (1984) approach and hence unify the two approaches

Gender-speci�c Differences in Labor Market Adjustment Patterns: Evidence from the United States

Do men and women behave differently while adjusting labor supply over the business cycle? Using data for the United States we show that women are signifi�cantly more likely to adjust along the intensive margin (number of hours), while men adjust more often along the extensive margin (employment). Older, single, and divorced/widowed adjust predominantly along the extensive margin. Our �findings have crucial implications for the design of policy reforms, especially as governments desire to increase female labor force participation while facing demographic challenges

Stochastic Volatility in the U.S. Labor Market

In state-of-the-art macroeconomic and labor market models shocks are assumed to be homoscedastic. However, we show that this assumption is much too restrictive. We �find signifi�cant evidence for strong time-varying volatility in all considered labor market time series. First, we estimate the unconditional variance-covariance matrix and �find signi�cant evidence for time variability. Second, we estimate the conditional variance-covariance matrix and discuss the time-varying risk contained in labor market variables. The implications are relevant for modelling purposes, welfare analysis, and the understanding of sources of fl�uctuations

Firing Tax vs. Severance Payment - An Unequal Comparison

The effects of firing costs crucially depend on the extend to which the additional costs can be shifted to the worker, which refers to the so called "bonding critique". In the recent literature about firing costs, these costs are assumed to be a wasteful tax, such that they can not be shifted to the worker. In this paper, we analyze the eects from respecting and non-respecting the bonding critique. We consistently show, that firing costs have to be introduced in a different way as severance payments. If they are introduced in a similar way, results are likely to be different, in particular for fluctuations of vacancies, unemployment and wages

Jobless Recoveries: The Interaction between Financial and Search Frictions

This paper establishes a link between labor market frictions and financial market frictions. We present empirical evidence about the relation between search and financial frictions. Then, we build a stylized DSGE model that features this channel. Simulation excercises show that the model with this channel generates a strong internal propagation mechanism, replicates stylized labor market effects of the Great Recession, and, most importantly, creates a jobless recovery

Fiscal and Monetary Policy Interactions in New Zealand

This paper aims to characterize the interactions between fiscal and monetary and policy in New Zealand. We estimate a multivariate Markov-switching model and document frequent policy switches. We identify two regime: accommodative and non-accommodative monetary policy. In the non-accommodative regime, monetary policy does not respond to changes in government debt, while it does so in the accommodative regime. Further, we show that the underlying shocks are characterized by a fair amount of heteroscedasticit

How Large are Firing Costs? A Cross-Country Study

This paper provides evidence for the size of firing costs for eight countries. In contrast to the existing literature, we use the optimality conditions obtained in a search and matching model to find a reduced form equation for firing costs. We find that our estimates are slightly larger compared with other studies. Finally, we offer three explanations for the observed cross-country patterns

Firing Tax vs. Severance Payment - An Unequal Comparison

Empirical evidence indicates that lay-off costs consist of two elements, namely firing costs and severance payments. This paper investigates business cycle and steady state effects of firing costs and severance payments and discusses the differences. We find that severance payments imply a lower volatility of key labor market variables compared with firing costs. Persistently increasing those costs, reduces the welfare in the model economy, but increases employment. The reason for the different performance is the impact on the wage and the additional stimulus caused by severance payments. The social planner therefore faces a trade-off in the design of employment protection. Furthermore, the appropriate design of lay-off costs also has strong implications for the design of other elements of employment protection

Sectoral Labor Market Effects of Fiscal Spending

This paper studies sectoral effects of fiscal spending. We estimate a New Keynesian model with search and matching frictions and two sectors. Fiscal spending is either wasteful (consumption) or productivity enhancing (investment). Using U.S. data we find significant differences across sectors. Further, we show that government investment rather than consumption shocks are driver of fluctuations in sectoral and aggregate outputs and labor market variables. Finally, government investment shocks are much more effective in stimulating the economy than spending shocks. However, this comes at the cost of a very persistent increase in debt