Implicit contracts, on-the-job search and involuntary unemployment

This paper extends the implicit contracts framework to allow for on-the-job search. It is shown that involuntary unemployment can arise in such a framework without placing any a priori restrictions on either wages or severance payments. The model also implies that firms will practice a two-tier system of adjusting their labor force. In the first stage, workers who receive outside job offers leave the firm. The second stage consists of firms hiring additional workers during good states of nature, and laying off workers during bad states of nature. Furthermore, during "bad enough" states of nature, firms will offer a severance payment or bonus for those who want to voluntarily leave, and then lay off workers without offering a large enough severance payment to compensate them for being unemployed.Labor supply ; Unemployment ; Wages

Enterprise liability: a prescription for health care reform?

A look at how the cost and quality of medical services in the United States would be affected by enterprise liability, a malpractice reform proposal that would 1) transfer liability in malpractice cases from the doctor to the patient's health care plan and 2) institute no-fault malpractice insurance.Medical care

Turnover, wages, and adverse selection

An argument that adverse selection in the labor market can explain why frequent job-changers have lower average wages and flatter age-earnings profiles than workers who change jobs infrequently. Adverse selection also provides a basis for examining the welfare implications of low-productivity workers in the labor market.Wages ; Labor mobility

Monetary policy in an economy with nominal wage contracts

A demonstration that optimal monetary policy can be either procyclical or countercyclical in a model where wages are "sticky" because of a nominal contracting constraint.Monetary policy ; Wages

A two-sector implicit contracting model with procyclical quits and involuntary layoffs

An explanation of involuntary unemployment and procyclical quits based on models of implicit contracts and on-the-job search.Unemployment

The government's role in the health care industry: past, present, and future

A look at some of the reasons behind the ascent in health care costs over the last few decades and an analysis of how government policy has both contributed to and tried to rein in these costs.Insurance, Health ; Medical care, Cost of

Marginal tax rates and income inequality in a life-cycle model

A presentation of computational counterfactual experiments that examine the quantitative impact of marginal tax rates on the distribution of income.Income tax ; Income distribution

Government consumption, taxation, and economic activity

The authors use a stylized model of the economy to analyze how permanent and temporary increases in government expenditure--and the timing of taxation used to finance them--affect aggregate output and other variables that describe the economy.Expenditures, Public ; Deficit financing

Zero inflation: transition costs and shoe-leather benefits

A comparison showing that the transition costs of indexing inflation (a major obstacle to monetary policy reform) are approximately equal to the minor shoe-leather benefits of having price stability.Inflation (Finance)

The efficiency and welfare effects of tax reform: are fewer tax brackets better than more?

Using the well-known dynamic fiscal policy framework pioneered by Auerbach and Kotlikoff, we examine the efficiency and welfare implications of shifting from a linear marginal tax rate structure to a discrete rate structure characterized by two regions of flat tax rates of 15 and 28 percent. For a wide range of parameter values, we find that there is no sequence of lump-sum transfers that the (model) government can feasibly implement to make the shift from the linear to the discrete structure Pareto-improving. We conclude that the worldwide trend toward replacing rate structures having many small steps between tax rates with structures characterized by just a few large jumps is not easily accounted for by efficiency arguments. In the process of our analysis, we introduce a simple algorithm for solving dynamic fiscal policy models that include "kinks" in individual budget surfaces due to discrete tax codes. In addition to providing a relatively straightforward way of extending Auerbach-Kotlikoff-type models to this class of problems, our approach has the side benefit of facilitating the interpretation of our results.Taxation