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The majority of enterprises in many developing countries have no paid workers. This paper reports on a field experiment conducted in Sri Lanka that provided wage subsidies to randomly chosen microenterprises to test whether hiring additional labor would benefit such firms. In the presence of labor market frictions, a short-term subsidy could have a lasting impact on firm employment. Using 12 rounds of surveys to track dynamics four years after the end of the subsidy, the study finds that firms increased employment during the subsidy period, but there was no lasting impact on employment, profitability, or sales. Two supplementary interventions and treatment heterogeneity suggest the lack of impact is not due to complementarities with capital or management skills, and detailed survey data help rule out a number of theoretical mechanisms that could result in sub-optimally low employment. The study concludes that the urban labor market facing microenterprises does not have large frictions that would prevent own-account workers from becoming employers.
Field Experiment --- Labor Market Frictions --- Microenterprise
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This paper shows that labor market search frictions do not explain fluctuations in the labor wedge per se. However, the introduction of extensive and intensive margin clarifies that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the competitive model. Finally, we show that it is possible to measure a strongly procyclical labor wedge when the actual data generating process is a search model that allows for movements in both margins.
Labor market --- Business cycles --- Employees --- Market, Labor --- Supply and demand for labor --- Markets --- Econometric models. --- Supply and demand --- Labor --- Macroeconomics --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Business Fluctuations --- Cycles --- Unemployment: Models, Duration, Incidence, and Job Search --- Labor Economics: General --- Demand and Supply of Labor: General --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Labour --- income economics --- Economic growth --- Labor market frictions --- Labor markets --- Labor economics --- Economic theory --- United States
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I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I document empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version of the model and show that, in Uganda, a 25% reduction in trade costs led to a 3.7% increase in consumer welfare, 12% of which was due to search externalities.
Macroeconomics --- Economics: General --- International Economics --- Exports and Imports --- Labor --- Econometrics --- Taxation --- Empirical Studies of Trade --- Economic Integration --- Trade: General --- Demand and Supply of Labor: General --- Bargaining Theory --- Matching Theory --- Business Taxes and Subsidies --- Economic & financial crises & disasters --- Economics of specific sectors --- International economics --- Labour --- income economics --- Econometrics & economic statistics --- Public finance & taxation --- Imports --- International trade --- Labor market frictions --- Search models --- Econometric analysis --- Value-added tax --- Taxes --- Currency crises --- Informal sector --- Economics --- Labor market --- Equilibrium --- Spendings tax --- Uganda
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I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I document empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version of the model and show that, in Uganda, a 25% reduction in trade costs led to a 3.7% increase in consumer welfare, 12% of which was due to search externalities.
Uganda --- Macroeconomics --- Economics: General --- International Economics --- Exports and Imports --- Labor --- Econometrics --- Taxation --- Empirical Studies of Trade --- Economic Integration --- Trade: General --- Demand and Supply of Labor: General --- Bargaining Theory --- Matching Theory --- Business Taxes and Subsidies --- Economic & financial crises & disasters --- Economics of specific sectors --- International economics --- Labour --- income economics --- Econometrics & economic statistics --- Public finance & taxation --- Imports --- International trade --- Labor market frictions --- Search models --- Econometric analysis --- Value-added tax --- Taxes --- Currency crises --- Informal sector --- Economics --- Labor market --- Equilibrium --- Spendings tax
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This paper explores the short-term employment effect of deregulating job protection for regular workers and how it varies with prevailing business cycle conditions. We apply a local projection method to a newly constructed “narrative” dataset of major regular job protection reforms covering 26 advanced economies over the past four decades. The analysis relies on country-sector-level data, using as an identifying assumption the fact that stringent dismissal regulations are more binding in sectors that are characterized by a higher “natural” propensity to regularly adjust their workforce. We find that the responses of sectoral employment to large job protection deregulation shocks depend crucially on the state of the economy at the time of reform——they are positive in an expansion, but become negative in a recession. These findings are consistent with theory, and are robust to a broad range of robustness checks including an Instrumental Variable approach using political economy drivers of reforms as instruments. Our results provide a case for undertaking job protection reform in good times, or for designing it in ways that enhance its short-term impact.
Labor --- Macroeconomics --- Business Fluctuations --- Cycles --- Labor Economics Policies --- Labor Force and Employment, Size, and Structure --- Unemployment Insurance --- Severance Pay --- Plant Closings --- Institutions and Growth --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- Labor Contracts --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Labor Economics: General --- Demand and Supply of Labor: General --- Labour --- income economics --- Economic growth --- Employment protection --- Business cycles --- Labor market frictions --- Manpower policy --- Economic theory --- Labor economics --- Labor market --- Spain
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Cross-border migration can act as an important adjustment mechanism to country-specific shocks. Yet, depending on who moves, it can have unintended consequences for business cycle stability. This paper argues that the skill composition of migration plays a critical role. When migration flows become more concentrated in skilled labor an important trade-off arises. On the one hand, migration releases unemployment pressures for the origin countries. On the other hand, it generates negative compositional effects (the so-called “brain drain” effects) and skill imbalances, which reduce supply capacity in origin countries. This paper analyses quantitatively the impact of cyclical migration in an open-economy Dynamic Stochastic General Equilibrium (DSGE) model with endogenous migration flows, trade linkages, search and matching frictions, and skill heterogeneity. I apply this framework to the case of the Greek emigration wave following the European Debt Crisis. What I find is that emigration flows implied strong negative effects for capital formation, leading to more than a 15 percentage point drop in investment. Rather than stabilizing the Greek business cycle, labor mobility led to a deeper and more protracted recession.
Macroeconomics --- Economics: General --- Emigration and Immigration --- Labor --- Investment --- Capital --- Intangible Capital --- Capacity --- Business Fluctuations --- Cycles --- Open Economy Macroeconomics --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- International Migration --- Demand and Supply of Labor: General --- Professional Labor Markets --- Occupational Licensing --- Geographic Labor Mobility --- Immigrant Workers --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Economic & financial crises & disasters --- Economics of specific sectors --- Migration, immigration & emigration --- Labour --- income economics --- Economic growth --- Migration --- Population and demographics --- Labor markets --- Labor market frictions --- Skilled labor --- Labor mobility --- Currency crises --- Informal sector --- Economics --- Emigration and immigration --- Labor market --- Business cycles
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Cross-border migration can act as an important adjustment mechanism to country-specific shocks. Yet, depending on who moves, it can have unintended consequences for business cycle stability. This paper argues that the skill composition of migration plays a critical role. When migration flows become more concentrated in skilled labor an important trade-off arises. On the one hand, migration releases unemployment pressures for the origin countries. On the other hand, it generates negative compositional effects (the so-called “brain drain” effects) and skill imbalances, which reduce supply capacity in origin countries. This paper analyses quantitatively the impact of cyclical migration in an open-economy Dynamic Stochastic General Equilibrium (DSGE) model with endogenous migration flows, trade linkages, search and matching frictions, and skill heterogeneity. I apply this framework to the case of the Greek emigration wave following the European Debt Crisis. What I find is that emigration flows implied strong negative effects for capital formation, leading to more than a 15 percentage point drop in investment. Rather than stabilizing the Greek business cycle, labor mobility led to a deeper and more protracted recession.
Macroeconomics --- Economics: General --- Emigration and Immigration --- Labor --- Investment --- Capital --- Intangible Capital --- Capacity --- Business Fluctuations --- Cycles --- Open Economy Macroeconomics --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- International Migration --- Demand and Supply of Labor: General --- Professional Labor Markets --- Occupational Licensing --- Geographic Labor Mobility --- Immigrant Workers --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Economic & financial crises & disasters --- Economics of specific sectors --- Migration, immigration & emigration --- Labour --- income economics --- Economic growth --- Migration --- Population and demographics --- Labor markets --- Labor market frictions --- Skilled labor --- Labor mobility --- Currency crises --- Informal sector --- Economics --- Emigration and immigration --- Labor market --- Business cycles
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Just as we learn from, influence, and are influenced by others, our social interactions drive economic growth in cities, regions, and nations--determining where households live, how children learn, and what cities and firms produce. From Neighborhoods to Nations synthesizes the recent economics of social interactions for anyone seeking to understand the contributions of this important area. Integrating theory and empirics, Yannis Ioannides explores theoretical and empirical tools that economists use to investigate social interactions, and he shows how a familiarity with these tools is essential for interpreting findings. The book makes work in the economics of social interactions accessible to other social scientists, including sociologists, political scientists, and urban planning and policy researchers. Focusing on individual and household location decisions in the presence of interactions, Ioannides shows how research on cities and neighborhoods can explain communities' composition and spatial form, as well as changes in productivity, industrial specialization, urban expansion, and national growth. The author examines how researchers address the challenge of separating personal, social, and cultural forces from economic ones. Ioannides provides a toolkit for the next generation of inquiry, and he argues that quantifying the impact of social interactions in specific contexts is essential for grasping their scope and use in informing policy. Revealing how empirical work on social interactions enriches our understanding of cities as engines of innovation and economic growth, From Neighborhoods to Nations carries ramifications throughout the social sciences and beyond.
Social integration --- Economics --- Economic sociology --- Socio-economics --- Socioeconomics --- Sociology of economics --- Inclusion, Social --- Integration, Social --- Social inclusion --- Sociological aspects. --- Social aspects --- Social interaction --- Human interaction --- Interaction, Social --- Symbolic interaction --- Exchange theory (Sociology) --- Psychology --- Social psychology --- Sociology --- Economic aspects. --- Belonging (Social psychology) --- Economic aspects --- Sociological aspects --- E-books --- Social interaction - Economic aspects --- Economics - Sociological aspects --- AlonsoЍillsЍuth model. --- Duranton model. --- LucasВossi-Hansberg model. --- Thomas Schelling. --- Zipf's law. --- agglomeration. --- archipelago. --- autarkic cities. --- city geometry. --- city size distribution. --- city size. --- city. --- community choice. --- community. --- contextual effects. --- decisions. --- diversification. --- econometrics. --- economic geography. --- economic growth. --- economic integration. --- economics. --- empirics. --- firms. --- geography. --- graph theory. --- hierarchy principle. --- housing. --- human capital spillovers. --- industrial specialization. --- intercity trade. --- job matching. --- labor market frictions. --- localization. --- location decisions. --- microneighborhood. --- neighborhood choice. --- neighborhood effects. --- neighborhood. --- physical capital. --- physical space. --- productivity. --- racial preferences. --- risk pooling. --- site rents. --- social effects. --- social interactions. --- social learning. --- social networks. --- social structure. --- spatial aggregation. --- spatial clustering. --- spatial econometrics. --- spatial economic activity. --- spatial equilibrium. --- spatial interactions. --- spatial structure. --- synthetic neighborhood. --- total factor productivity. --- urban archipelago. --- urban economy. --- urban evolution. --- urban expansion. --- urban externalities. --- urban growth. --- urban infrastructure. --- urban networks. --- urban social fabric. --- urban spatial structure. --- urban specialization. --- urban structure. --- urban transition. --- urban transportation. --- urban wage premium. --- urbanization.
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