The Gender Earnings Gap in Britain

The earnings gap between male and female employees is substantial and persistent. Using new data for Britain, this paper shows that an important contribution to this gap is made by the workplace in which the employee works. Evidence for workplace and occupational segregation as partial explanations of the earnings gap is presented. Having allowed also for individual worker characteristics there remains a substantial within-workplace and within-occupation gender earnings gap. The contribution of these factors, as well as the earnings gap itself, differ significantly across sectors of the labour market. The relative unimportance of occupational segregation and the large remaining gender earnings gap suggest that stronger enforcement of Equal Pay legislation is likely to be the most appropriate policy response.Gender earnings; wage-gap; fixed-effects; segregation

Job Tenure in Britain: Employee Characteristics Versus Workplace Effects

We consider differences in current job tenure of individuals using linked employee and workplace data. This enables us to distinguish between variation in tenure associated with the characteristics of individual employees and those of the workplace in which they work. The various individual characteristics are, as a group, found to be essentially uncorrelated with the workplace effect, however, this is not true for women and non-white employees. We find that the lower tenure associated with membership of these demographic groups is predominantly captured by workplace effects suggesting some degree of labour market segmentation in Britain.Job tenure; individual; fixed-effects; voice; segmentation

Men, Women and the Hiring Function

This paper examines the idea of ranking of groups and genders in terms of hiring probabilities. By incorporating a range of complementary data sources, measures of the three possible gross worker flows into employment, and the stocks of job seekers from which they come, are provided for both genders in the Australian labour market. We find a clear ranking of men over women in the hiring process. Indeed, in aggregate women appear to be effectively segregated from the male hiring market, whereas this is not true with males in the female hiring market. We also find that amongst males, employed job seekers are ranked above those unemployed and, in turn, above those not in the labour force. For women, the unemployed and employed are not found to be competing with each other, whilst those not in the labour force are ranked below the unemployed. We believe that this is the first study explicitly investigating these three major gross worker flows for women as well as men, enabling us to further explore the interdependent processes in the labour market by considering more fully the interactions across job seekers of different genders and from different labour market states.

Job Tenure in Australia and Britain: Individual Versus Workplace effects

We explore determinants of job reallocation and the implications for employment change and average job tenure in this paper. A model which associates technological advances with the process of economic growth is modified and analysed. Data on average job tenure within workplaces and gross job flows across workplaces in Australia are constructed by us from a single panel of workplace data and examined. Substantial simultaneous job creation and destruction are found in a year of strong job growth, suggesting that workplace heterogeneity is an important feature of the Australian labour market. The predictions generated from the theoretical model are examined with the data for job flows and average job tenure. Our results support the key features of the model.labour market flows; job reallocation; creative-destruction; average-tenure

The New Consensus in Monetary Policy: Is the NKM fit for the purpose of inflation targeting?

In this paper we examine whether or not the NKM is .t for the purpose of providing a suitable basis for the conduct of monetary policy through inflation targeting. We focus on a number of issues: the dynamic response of inflation to interest rates in a theoretical NKM under discretion and commitment to a Taylor rule; the implications for the specification of the New Keynesian Phillips equation of alternative models of imperfect competition in a closed and an open economy; the general equilibrium underpinnings of the IS function; the extent of empirical support for the NKM; what the empirical evidence on the NKM implies for inflation targeting. Our findings reveal a number of problems with the NKM. Theoretically, the NKM predicts that a discretionary increase in interest rates will increase inflation, not reduce it. This is supported by our VAR evidence. Estimates of the NKM indicate a negative relation between interest rates and inflation, but the signs in the structural equations are inconsistent with the theory. We conclude that the standard specifications of the inflation and output equations are inadequate and that these equations should be embedded in a larger model.Inflation targeting, monetary policy, New Keynesian model

Asset Pricing with Observable Stochastic Discount Factors.

The stochastic discount factor model provides a general framework for pricing assets. By specifying the discount factor suitably it encompasses most of the theories currently in use, including CAPM and consumption CAPM. The SDF model has been based on the use of single and multiple factors, and on latent and observed factors. In most situations, and especially for the term structure, single factor models are inappropriate, whilst latent variables require the somewhat arbitrary specification of generating processes and are difficult to interpret. In this paper we survey the principal different implementations of the SDF model for FOREX, equity and bonds and we propose a new approach. This is based on the use of multiple factors that are observable and modelling the joint distribution of excess returns and the factors using a multi-variate GARCH-in-mean process. We argue that in general single equation and VAR models, although widely used in empirical finance, are inappropriate as they do not satisfy the no-arbitrage condition. Since risk premia arise from conditional covariation between returns and the factors, both a multi-variate context and having conditional covariances in the conditional mean process, is essential. We explain how apparent exceptions, such as the CIR and Vasicek models, in fact meet this requirement - but at a price. We explain our new approach, discuss how it might be implemented and present some empirical evidence, mainly from our own researches. Partly, to enable comparisons to be made, the survey also includes evidence from recent empirical work using more traditional approaches.Asset Pricing; Stochastic Discount Factors; Forex; Equity Term Structure; Affine Factor Models; Consumption CAPM; Financial Econometrics; GARCH

Macroeconmic Sources of FOREX Risk.

This paper considers the problem of measuring macroeconomic sources of financial risk. 1. It aims to provide a general theory of asset pricing suitable for taking account of macroeconomic sources of risk. Stochastic discount factor theory is used to provide the theoretical framework. This is capable of embracing most of the approaches in the literature, including general equilibrium theory. Market structure needs to be added to this. 2. It is shown that many of the models used in the empirical literature of asset pricing have a fundamental flaw: they admit unlimited arbitrage opportunities. High profile suites of computer programs just produced and sold world-wide suffer the same problem, and hence should not be used. 3. Modelling the exchange rate is key to much of monetary policy (eg the Bank of England's Monetary Policy Committee), and to testing FOREX market efficiency. The forward premium puzzle lies at the heart of the difficulty of doing this. The theoretical results of this paper are used to re-examine the distribution of exchange rate movements and to try to resolve this puzzle. Stochastic discount factor theory is used to derive expressions for the risk premia for domestic and foreign investors. It is shown that these are likely to be different. A combined theory of market risk when both types of investor are trading is then obtained. The cases of complete and incomplete markets are considered. It is shown how macroeconomic sources of risk can be introduced by modelling the stochastic discount factor using observable macroeconomic variables. Three SDF models are compared: a benchmark model which provides a reformulation of traditional tests of FOREX efficiency; inter-temporal consumption-based CAPM; and the monetary model of the exchange rate, a familiar macroeconomic model of FOREX which can be interpreted as arising from traditional hedging concerns. The joint distribution of the excess return to foreign exchange and the macro factors is specified in a way that satisfies the no-arbitrage assumption. It is assumed that the joint distribution has multivariate GARCH and it is shown that to eliminate arbitrage opportunities it is necessary for the conditional distribution of the excess return to exhibit GARCH-in-mean. The omission of the conditional covariance between the excess return and the sources of risk is the reason why nearly all financial statistical packages are not suitable for use in financial econometrics. The presence of this term implies that the analysis must be conducted in a multi-variate and not a uni-variate framework. The theory admits the possibility that domestic and foreign investors may have different attitudes to risk. This is incorporated into the model by introducing a switching formulation of the conditional covariance structure. Extreme changes in exchange rates suggest that the usual assumption of log-normality may fail to capture the excess kurtosis of excess returns. The model is therefore also estimated assuming a log t-distribution. It is notoriously difficult to achieve convergence in multi-variate GARCH models, and GARCH-in-mean effects increase the difficulty. This is a major limitation in the practicality of the whole approach. It is shown that assuming constant correlation greatly simplifies the estimation without sacrificing any essential elements. Tests are conducted to enable a comparison of different SDF models, different market structures, different attitudes to risk, and differences between the SDF model and the Fama approach. The empirical work is based on monthly data for the sterling-dollar exchange rate 1975-1997. Our main new finding is that the evidence is more consistent with the FOREX risk premium arising from traditional partial equilibrium models of currency risk that form the basis of hedging than with consumption-CAPM, a general equilibrium theory. In particular, US and UK output appear to be important sources of FOREX risk.FOREX, market efficiency, risk premium, stochastic discount factors, GARCH.