Unemployment and Business Cycles
Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt
Econometrica,
Nr. 4,
2016
Abstract
We develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, we do not impose wage inertia. Instead we derive wage inertia from our specification of how firms and workers negotiate wages. Our model outperforms a variant of the standard New Keynesian Calvo sticky wage model. According to our estimated model, there is a critical interaction between the degree of price stickiness, monetary policy, and the duration of an increase in unemployment benefits.
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Identifying the Effects of Place-based Policies – Causal Evidence from Germany
Matthias Brachert, Eva Dettmann, Mirko Titze
IWH Discussion Papers,
Nr. 18,
2016
Abstract
The German government provides discretionary investment grants to structurally weak regions to reduce regional disparities. We use a regression discontinuity design that exploits an exogenous discrete jump in the probability of receiving investment grants to identify the causal effects of the investment grant on regional outcomes. We find positive effects for regional gross value-added and productivity growth, but no effects for employment and gross wage growth.
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Social Comparisons and Attitudes towards Foreigners. Evidence from the ‘Fall of the Iron Curtain’
Walter Hyll, Lutz Schneider
IWH Discussion Papers,
Nr. 12,
2016
Abstract
We exploit the natural experiment of German re-unification to address the question whether distress from social (income) comparisons results in negative attitudes towards foreigners. Our empirical approach rests upon East German individuals who have West German peers. We use the exogenous variation of wealth of West German peers shortly after the fall of the Berlin Wall as an instrument to identify the effect of distress from social comparisons on East Germans’ attitudes. We find robust evidence that East Germans expose strong negative attitudes towards foreigners, particularly from low-wage countries, if they worry about their economic status compared to better-off peers.
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Burdett–Mortensen Model of on-the-Job Search with Two Sectors
Florian Hoffmann, Shouyong Shi
Review of Economic Dynamics,
Special Issue in Honor of Dale Mortensen
2016
Abstract
The focus of this paper is on the steady state of a two-sector economy with undirected search where employed and unemployed workers can search for jobs, both within a sector and between the sectors. As in the one-sector model, on-the-job search generates wage dispersion among homogeneous workers. The analysis of the two-sector model uncovers a property called constant tension that is responsible for analytical tractability. We characterize the steady state in all cases with constant tension. When time discounting vanishes, constant tension yields the endogenous separation rate in each sector as a linear function of the present value for a worker. The one-sector economy automatically satisfies constant tension, in which case the linear separation rate implies that equilibrium offers of the worker value are uniformly distributed. Constant tension also has strong predictions for worker transitions and value/wage dispersion, both within a sector and between the two sectors. When constant tension does not hold, we compute the steady state numerically and illustrate its properties.
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Spinoffs in Germany: Characteristics, Survival, and the Role of their Parents
Daniel Fackler, A. Schmucker, Claus Schnabel
Small Business Economics,
Nr. 1,
2016
Abstract
Using a 50 % sample of all private sector establishments in Germany, we report that spinoffs are larger, initially employ more skilled and more experienced workers, and pay higher wages than other startups. We investigate whether spinoffs are more likely to survive than other startups, and whether spinoff survival depends on the quality and size of their parent companies, as suggested in some of the theoretical and empirical literature. Our estimated survival models confirm that spinoffs are generally less likely to exit than other startups. We also distinguish between pulled spinoffs, where the parent company continues after they are founded, and pushed spinoffs, where the parent company stops operations. Our results indicate that in western and eastern Germany and in all sectors investigated, pulled spinoffs have a higher probability of survival than pushed spinoffs. Concerning the parent connection, we find that intra-industry spinoffs and spinoffs emerging from better-performing or smaller parent companies are generally less likely to exit.
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How Selective Are Real Wage Cuts? A Micro-analysis Using Linked Employer–Employee Data
Boris Hirsch, Thomas Zwick
LABOUR: Review of Labour Economics and Industrial Relations,
Nr. 4,
2015
Abstract
Using linked employer–employee panel data for Germany, we investigate whether firms implement real wage reductions in a selective manner. In line with insider–outsider and several strands of efficiency wage theory, we find strong evidence for selective wage cuts with high-productivity workers being spared even when controlling for permanent differences in firms' wage policies. In contrast to some recent contributions stressing fairness considerations, we also find that wage cuts increase wage dispersion among peers rather than narrowing it. Notably, the same selectivity pattern shows up when restricting our analysis to firms covered by collective agreements or having a works council.
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Does the Plant Size–wage Differential Increase with Tenure? Affirming Evidence from German Panel Data
Daniel Fackler, Thorsten Schank, Claus Schnabel
Economics Letters,
2015
Abstract
We show that the major part of the plant size–wage premium in Germany is reflected in different wage growth patterns in plants of different size. This is consistent with the hypothesis that large firms ‘produce’ more skilled workers over time.
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A Weighty Issue Revisited: The Dynamic Effect of Body Weight on Earnings and Satisfaction in Germany
Frieder Kropfhäußer, Marco Sunder
Applied Economics,
Nr. 41,
2015
Abstract
We estimate the relationship between changes in the body mass index (bmi) and wages or satisfaction, respectively, in a panel of German employees. In contrast to previous findings, our dynamic models indicate an inverse u-shaped association between bmi and wages. As the implied maximum occurs in the ‘overweight’ category, the positive trend in weight may not yet constitute a major limitation to productivity. Further investigation points out a stronger association among young workers and workers with jobs that are less protected. Work satisfaction of young workers is associated with bmi beyond the effect of earnings.
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Is There Monopsonistic Discrimination against Immigrants?
Boris Hirsch, Elke J. Jahn
ILR Review,
Nr. 3,
2015
Abstract
The authors investigate immigrants’ and natives’ labor supply to the firm within an estimation approach based on a dynamic monopsony framework. Applying duration models that account for unobserved worker heterogeneity to a large administrative employer–employee data set for Germany, they find that immigrants supply labor less elastically to firms than do natives. Under monopsonistic wage setting, the estimated elasticity differential predicts a 7.7 log points wage penalty for immigrants thereby accounting for the entire unexplained native–immigrant wage differential of 5.8 to 8.2 log points. When further distinguishing immigrant groups differing in their time spent in the German labor market, their immigration cohort, and their age at entry, the authors find that the observed unexplained wage differential is larger for those groups that show a larger elasticity differential relative to natives. These findings not only suggest that search frictions are a likely cause of employers’ more pronounced monopsony power over their immigrant workers but also imply that employers profit from discriminating against immigrants.
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Understanding the Great Recession
Mathias Trabandt, Lawrence J. Christiano, Martin S. Eichenbaum
American Economic Journal: Macroeconomics,
Nr. 1,
2015
Abstract
We argue that the vast bulk of movements in aggregate real economic activity during the Great Recession were due to financial frictions. We reach this conclusion by looking through the lens of an estimated New Keynesian model in which firms face moderate degrees of price rigidities, no nominal rigidities in wages, and a binding zero lower bound constraint on the nominal interest rate. Our model does a good job of accounting for the joint behavior of labor and goods markets, as well as inflation, during the Great Recession. According to the model the observed fall in total factor productivity and the rise in the cost of working capital played critical roles in accounting for the small drop in inflation that occurred during the Great Recession.
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