The wage curve: A panel data view of labour market segments

The paper studies the relationship between the local unemployment rate and wage level – commonly referred to as the wage curve. Using a panel data setup for annual enterprise-level microdata, we confirm previous findings that wages in Slovakia are, on the whole, relatively flexible – with a rise in the local unemployment rate of 1 percentage point being associated with a drop in wages of 0.85%. We find, however, that these elasticities differ considerably across sectors, regions and, in particular, skills. Our results indicate that overall wage flexibility in the Slovak labour market is driven more by the wage flexibility of higher-skilled employees, and their broader opportunities for employment, than by the institutional arrangements of the labour market.wage curve, panel data, unemployment elasticity of wages, wage flexibility, Slovakia, Phillips curve, microdata

Unemployment fluctuations with staggered Nash bargaining

A number of authors have recently emphasized that the conventional model of unemployment dynamics due to Mortensen and Pissarides has difficulty accounting for the relatively volatile behavior of labor market activity over the business cycle. We address this issue by modifying the MP framework to allow for staggered multiperiod wage contracting. What emerges is a tractable relation for wage dynamics that is a natural generalization of the period-by-period Nash bargaining outcome in the conventional formulation. An interesting side-product is the emergence of spillover effects of average wages on the bargaining process. We then show that a reasonable calibration of the model can account well for the cyclical behavior of wages and labor market activity observed in the data. The spillover effects turn out to be important in this respect. JEL Classification: E32, E50, J6

Financial Capacity, Reliquification, and Production in an Economy with Long-Term Financial Arrangements

This paper characterizes a multi-period production economy in which borrowers and lenders enter long-term financial contracts. A key feature is that aggregate production and borrowers' capacity to absorb debt -- their "financial capacity" - are jointly determined endogenous variables, in the spirit of Gurley and Shaw (1955) Expectations of future economic conditions govern financial capacity, which in turn influences current capacity utilization. Further, disturbances in the present may persist into the future by influencing borrowers' net asset positions. Finally, borrowers may substitute future for current production by preserving their assets in hard times, behavior akin to reliquification as described in Eckstein and Sinai (1986).

A Latent Variable Model of Quality Determination

Despite substantial interest in the determination of quality, there has been little empirical work in the area. The problem, of course, is the general lack of data on quality. This paper overcomes the data problem by constructing a Multiple Indicator Multiple Cause (MIMIC) model of quality determination. We present a one-factor MIMIC model of quality which derives natural indicators out of the relationship between input demand and output determination. The indicators turn out to be input demands which have been filtered to remove variation due to all factors, except quality ana random disturbances. These indicators are measures of input investment in each unit of output or the volume (intensity) of service. The model is identified by defining input demand to be a function of quantity and "total effective output" (quantity times average quality), instead of quantity and average quality. The model is then applied to the determination of nursing home quality. The model appears to perform quite well, as the results generally conform with economic theory and restrictions implied by the MIMIC structure are accepted in hypothesis tests.

A Decomposition of the Elasticity of Medicaid Nursing Home Expenditures Into Price, Quality, and Quantity Effects

Nursing home expenditures have become a public policy concern primarily because the Medicaid program payes for approximately 50 percent. Medicaid makes health care available to individuals who otherwise could not afford it, by directly reimbursing nursing homes for Medicaid patient care. Typically, Medicaid reimbursement rates are set by a cost plus method, where the reimbursement per patient is equal to average cost plus some return referred to as the Medicaid "plus" factor. This paper estimates the elasticity of Medicaid expenditures with respect to a change in the Medicaid "plus" factor,and decomposes that elasticity into price, quality, and quantity components. The decomposition is derived from a model of nursing home behavior, which shows that an increase in the Medicaid "plus" factor causes nursing homes to admit more Medicaid patients and reduce quality.Total expenditures are the Medicaid reimbursement rate times the number of Medicaid patients receiving care. An increase in the Medicaid "plus" factor affects the Medicaid reimbursement by directly raising the Medicaid "plus" factor, and by indirectly decreasing average cost through a reduction in quality. These are the price and quality effects, respectively. The quantity effect is change in the number of Medicaid patients. The elasticities are estimated separately for proprietary and "not for profit" nursing homes using a 1980 sample of New York nursing homes. Uniformly, the proprietary elasticities are approximately twice as large as the "not for profit" elasticities. As expected the price and quantity effects are positive, and the quality effects are negative. In the decomposition, the quality effect is quite important. In fact, ignoring it would lead to a fifty-three percent overestimate of the Medicaid expenditure elasticity.

Subsidies, Quality, and Regulation in the Nursing Home Industry

This paper analyzes the impact of the Medicaid patient subsidy and Certificate of Need (CON) cost containment programs on nursing home behavior.The analysis is complicated by the fact the both proprietary and "not for profit" nursing homes exist, and by the problem that qualityis not directly observed. Medicaid pays the for the care of the financially indigent by directly reimbursing nursing homes at a predetermined rate. As a result, nursing homes can price discriminate between patients who finance their care privately and patients whose care is financed by Medicaid. Nevertheless, nursing homes are required to provide the same quality to both types of patients. Typically, Medicaid reimbursement rates are set by a cost plus method, where the reimbursement per patient is equal to average cost plus some return referred to as the Medicaid "plus" factor. Our results show that Medicaid policymakers face a trade-off between quality and the access of poor to nursing home care. Specifically, we find that increases in the Medicaid "plus" factor cause nursing homes to reduce quality and substitute Medicaid patients for "private pay" patients. These quality differences can be quite large. In fact, in our sample, we find that homes who receive high Medicaid "plus" factors provide hundreds of thousands of dollars less in goods and services than homes who receive average Medicaid "plus" factors, certris paribus. CON attempts to control nursing home expenditures by limiting the supply of beds with capacity constraints and entry barriers. Our analysis shows that CON policy makers are forced to trade off containing the size of the industry (and therefore total Medicaid payments) against quality and access of the poor to nursing home care. Specifically, we find that the capacity constraints and the reduced competition from the entry barriers lead to lower quality and fewer Medicaid patients receiving care.

Financial Structure and Aggregate Economic Activity: An Overview

This paper surveys literature which explores the possible links between the financial system and aggregate economic behavior. The survey is in two parts: The first reviews the traditional work and the second discusses new research.