This paper evaluates the worker-level effects of a historically large and permanent increase in the minimum wage in Lithuania. Our identification strategy leverages variation in workers’ exposure to the new minimum wage, and exploits the fact that there has been no increase in the minimum wage in previous years, to account for heterogeneous labor market prospects of low-wage workers relative to high-wage workers. Using detailed administrative records to track workers before and after the policy change, we show that the minimum wage hike significantly increased the earnings of low-wage workers. This direct effect was amplified by wage spillovers reaching the median of the pre-policy income distribution. Overall, we find no negative effects on the employment prospects of low-wage workers. However, we provide suggestive evidence that young workers, highly exposed municipalities, and tradable sectors may be more negatively affected. In contrast, labor market concentration or the presence of envelope wages appear to be associated with lower job losses. Taken together, our findings imply an employment elasticity with respect to the minimum wage of -0.021, and an own-wage elasticity of -0.033, suggesting that wage gains dominated employment losses.
We propose an economic framework for determining the optimal allocation of a scarce supply of vaccines that become gradually available during a public health crisis, such as the Covid-19 pandemic. Agents differ in observable and unobservable characteristics, and the designer maximizes a social welfare function over all feasible mechanisms—accounting for agents’ characteristics, as well as their endogenous behavior in the face of the pandemic. The framework emphasizes the role of externalities and incorporates equity as well as efficiency concerns. Our results provide an economic justification for providing vaccines immediately and for free to some groups of agents, while at the same time showing that a carefully constructed pricing mechanism can improve outcomes by screening for individuals with the highest private and social benefits of receiving the vaccine. The solution casts light on the classic question of whether prices or priorities should be used to allocate scarce public resources under externalities and equity concerns.
Thorough structural change occurs periodically across world economies. In a parsimonious overlapping generation setup with political economy, we present a novel result: structural change not only exacerbates the rise in inequality but also strengthens the preference for redistribution. Labor mobility frictions are instrumental in this mechanism.
We analyze spatial diffusion of new Covid-19 cases and country-wide impact of state-specific containment policies during the early months of the Covid-19 pandemic in the United States. We first use spatial econometric techniques to document direct and indirect spillovers of new infections across county and state lines, as well as the impact of individual states' lock-down policies on infections in neighboring states. We find consistent statistical evidence that new cases diffuse across county lines, holding county level factors constant, and that the diffusion across counties was affected by the closure policies of adjacent states. We then develop a spatial version of the epidemiological SIR model where new infections arise from interactions between infected people in one state and susceptible people in the same or in neighboring states. We incorporate lock-down policies into our model and calibrate the model to match both the cumulative and the new infections across the 48 contiguous U.S. states and DC. Our results suggest that, had the states with the less restrictive social distancing measures tightened them by one level, the cumulative infections in other states would be about 5% smaller. In our spatial SIR model, the spatial containment policies such as border closures have a bigger impact on flattening the infection curve in the short-run than on the cumulative infections in the long-run.
Many scarce public resources are allocated below market-clearing prices (and sometimes for free). Such "non-market" mechanisms necessarily sacrifice some surplus, yet they can potentially improve equity by increasing the rents enjoyed by agents with low willingness to pay. In this paper, we develop a model of mechanism design with redistributive concerns. Agents are characterized by a privately observed willingness to pay for quality, and a publicly observed label. A market designer controls allocation and pricing of a set of objects of heterogeneous quality, and maximizes a linear combination of revenue and total surplus| with Pareto weights that depend both on observed and unobserved agent characteristics. We derive structural insights about the form of the optimal mechanism and describe how social preferences influence the use of non-market mechanisms.
We analyze the link between resource misallocation and subsequent long-run economic growth. We use two unique and novel sources of data for Poland and measure misallocation inherited from the period of central planning, i.e. period where input prices did not determine the use of inputs at firm, industry and country level. We assess sectoral, regional and cohort dimension of the inputs misallocation. We then show that undercapitalization was more prevalent that overcapitalization, and that it was due mostly to the firm and sector level variation in factor inputs. Given this insight, subsequent reallocation of the resources required shifting of inputs not only between firms, but also between sectors: a process which is relatively more prone to frictions due to specialization and information. When analyzing the link to the rate of growth once market mechanisms were reinstated, we find that regions with more misaligned firms (especially in terms of undercapitalization) experienced lower subsequent economic growth. This result proves highly robust, even three decades since the market mechanisms were reinstated.
This paper utilizes our novel dataset on survival of all state manufacturing plants from 1988, details here. The full replication package is available here.
In this paper, we received wonderful research assistance from Peter Szewczyk.
This paper evaluates the impacts of 2017’s labour law liberalisation on labour market flexibility in Lithuania. While employment did grow rapidly in 2017–2019, there was little change in labour market flexibility. Against expectations, part-time employment declined as labour relations continued to be administered under path-dependent institutional inertia inherited from previous decades. The prevalence of full-time, dual-earner employment was shaped by the country’s socialist legacy and was reflected in high employment rates and permanent open-ended contracts for both men and women. Analysis also showed that the revised labour law lowered the probability for women with family care responsibilities to be hired. Once hired, they were offered permanent employment albeit with the reduced protections that such contracts now provide. Impacts of the new labour law on shaping what is considered to be ‘men’s work’ and ‘women’s work’ in Lithuania are discussed.
Among the G7 economies gross foreign direct investment (FDI) positions are very large, averaging 100% of GDP and dwarfing the absolute values of net FDI positions in most countries. Additionally, inward and outward FDI flows exhibit robust, positive correlation over the business cycle. In the standard international business cycle (IBC) model gross FDI stocks and flows are not well defined, and only net flows matter. We extend the standard model by allowing domestic and foreign ownership of physical capital in the aggregate production function to be imperfect substitutes. We estimate that elasticity of substitution using the co-movement of gross FDI flows, and find it to be less than 2.5 – a value much smaller than the implicitly assumed infinity in the IBC literature. Our results uncover a new source of welfare gains from openness to FDI among otherwise identical, developed economies – a capital diversity channel, akin to product variety in trade models. The channel is quantitatively important – openness to FDI yields steady-state welfare gains equivalent to at least a 4-5% increase in life-time consumption.
Parenthood, especially in the first years after childbirth, is unevenly split between genders and varies by country. In countries like the three Baltic states, with relatively generous parental leave benefits compared to the EU and norms encouraging mothers to care for children, females’ earnings are more affected than their male counterparts. I carry out an event study to estimate the effect of having a child on the earnings of both genders and find that the earnings of females reduce by half in the first calendar year after childbirth and by 20% to 33% in the second, while male earnings do not change in either period. This results in a widening earnings gap in the Baltics, more so than in several comparison countries (Denmark, Finland, Sweden, the Netherlands, and Norway), in the first two years after the birth of the first child.
Internet-based surveys provide data for social research for many years right now. Pandemic times sped up need for such sources, making seeking for effective ways to attract participants, especially in the panel studies, particularly important. In this study, we experiment on the existing panel study to test effectiveness of financial and non-financial incentives to participate in the subsequent wave of the Internet-based survey.
The experimental treatments were about to test several dimensions of such incentives. We compare whether when the reward is provided - before or after completing the survey - differentiate willingness to participate again. We test whether the fact that the reward is certain in comparison to a lottery with the same expected value makes a difference for participants. Then, we also test whether high stake in the lottery attract more current participants.
Not only financial incentives were tested. We also incentivized participants by providing them a motivational paragraph either highlighting what is going to be gained thanks to their participation, or what will be lost if they resign (in comparison to a neutral message).
In this paper, I present differences in income, intra-household inequality and tax planning between mixed and same-sex couples. By using unique administrative tax data, I find that household incomes of same-sex couples are significantly higher than those of heterosexual couples. While there is no difference in intra-household inequality between heterosexual couples and male same-sex couples, lesbian couples have significantly lower intra-couple income inequality. This is in line with previous research. When it comes to tax planning, there are major differences between heterosexual couples and homosexual couples. While tax planning in heterosexual couples often leads to a high marginal tax burden for the secondary earner, this is not the case for same-sex couples.
I study a simple equity-efficiency problem: A designer allocates a fixed amount of money to a population of agents differing in privately-observed marginal values for money. She can only screen agents by asking them to burn utility (through some socially wasteful activity). I show that giving a lump-sum payment is outperformed by a mechanism with utility burning when the agent with the lowest money-denominated cost of engaging in the wasteful activity has an expected value for money that exceeds the average value by more than a factor of two.
Statistical discrimination offers a compelling narrative on gender wage gaps among younger workers. Employers could discount women's wages to adjust for probable costs linked to childbearing. Given trends towards lower and delayed fertility one should observe a lower discount in wages and a reduction in the gender wage gap among entrants. We put this conjecture to test. We provide a novel collection of adjusted gender wage gap (AGWG) estimates among young workers from 56 countries spanning four decades. We use these estimates to study the effects of postponing childbirth on AGWG. We find that postponing first parity by a year reduces AGWG by two percentage points (15%). We further benchmark the implied gender inequality with the help of time-use data
The only accessible source of financial firm-level in Poland data is database prepared by Central Statistical Office (CSO), available for only minor group of economists. Our study aim at providing to wider audience Orbis database, providing information about substantial part of Polish firms. With this data we present the evolution of labor share of value added in Poland, together with labor productivity and wages. We compare our estimates with indicators prepared by Growiec (2009) and national accounts data. We find that different data source produce differing levels of indicators, however its shapes remain similar. Furthermore we show how construct database using Orbis data and how to improve its coverage using imputation methods.
We study the evolution of income and wealth inequality in an economy undergoing endogenous structural change with imperfect labor mobility. Our economy features two sectors: services and manufacturing. With faster TFP growth in manufacturing, labor reallocates from manufacturing to services. This reallocation is slower due to labor mobility frictions, which in turn, raises relative wages in services. As a result, income inequality is higher. Moreover, we study the impact of structural change on wealth inequality. Its economic intuition is more ambiguous. On the one hand, increased income dispersion implies increased dispersion in the ability to accumulate wealth across individuals. On the other hand, younger workers who hold the least assets are the most mobile across sectors. Their incomes are improved, which boosts their savings, which works towards equalizing wealth distribution. The consequence of these changes can by only verified with a computational model. To this end we construct and an overlapping generations model with two sectors: manufacturing and services. Our model also features heterogeneous individuals. With our model we are able to show how structural change affected the evolution of income and wealth inequality in Poland as of 1990.%Furthermore, we argue that the effects of structural change are stronger in economies undergoing a demographic transition.
We study the evolution of wealth inequality in an economy undergoing structural change. Economic intuition hints that structural change should imply increased income inequality, at least transiently. Economic intuition is more ambiguous for the effects on wealth inequality. On the one hand, increased dispersion in incomes implies increased dispersion in the ability to accumulate wealth across individuals. On the other hand, workers experience greater uncertainty, which may push them to more precautionary savings, which works towards equalizing wealth distribution. The net effect of these two opposing forces is essentially an empirical question. We build an overlapping generations model which features heterogeneous sectors and workers. Using this model, we quantify the role of demographics and the structural change in the evolution of wealth inequality in Poland as of 1990.
We present a learning-based selection argument for Linear Bayesian Nash equilibrium in a Walrasian auction. Endowments vary stochastically; traders model residual supply as linear, estimate its slope from past trade data, and periodically update these estimates. With quadratic preferences, this learning process converges to the unique LBN. In an example with non-quadratic preferences, it converges to a steady state close to a particular equilibrium of the corresponding deterministic setting; strategies played are not an equilibrium, but utility sacrificed is negligible. Anonymity and statistical learning therefore support use of LBN under quadratic utility, and motivate a related concept under non-quadratic utility.
The canonical one-sector model over predicts international capital flows by a factor of ten. We show that introducing a non-traded goods sector can reconcile the differences between the theoretical predictions and the observed flows. We analyze the quantitative impact of the non-traded sector using a calibrated model of a small open economy, in which non-traded goods are used in consumption and investment, and need capital and labor to be produced. The model features international frictions directly affecting international borrowing and lending, as well as domestic frictions that limit the scope of inter-sectoral reallocation of capital and labor. We find that: (1) the impact of domestic frictions on the size of international capital flows is similar to the impact of international frictions, and (2) the median elasticity of capital flows with respect to international frictions in the two-sector model with costly inter-sectoral reallocation is about 50-60% lower than that same elasticity in the one-sector model.
The full set of replication codes and data is available here.
We investigate immediate effects of a large scale child benefit program introduction on labor supply of the household members in Poland. Due to nonrandom eligibility and universal character of the program standard evaluation estimators are likely to be inconsistent. In order to address this issues we propose a novel approach which combines difference-in-difference (DID) propensity score based methods with covariate balancing propensity score (CBPS) by Imai and Ratkovic (2014). The DID part solves potential problems with non-parallel outcome dynamics in treated and non-treated subpopulations resulting from non-experimental character of the data, whereas CBPS is expected to reduce significantly bias from the systematic differences between treated and untreated subpopulations. We account also for potential heterogeneity among households by estimating a range of local average treatment effects which jointly provide a reliable view on the overall impact. We found that the program has a minor impact on the labor supply in periods following its introduction. There is an evidence for a small encouraging effect on hours worked by treated mothers of children at school age, both sole and married. Additionally, the program may influence the intra-household division of duties among parents of the youngest children as suggested by simultaneous slight decline in participating mothers' probability of working and a small increase in treated fathers' hours worked.
Population ageing poses new challenges to the sustainability of the pension system and possibly to economic growth in advanced economies. In such context, calls are made to increase participation of workers close to their retirement age. Ageing occurs in a period where technological progress has changed the patterns of labor demand, away from physically demanding tasks (opportunity) and into more cognitive-interpersonal type of tasks (challenge). To understand the net effect, we analyze the relation between automation and labor supply of older workers. We explore whether exposure to technological change, measured by the task content of jobs, was connected to labor supply of older workers in Germany and Great Britain. Using panel data, we show that the adjustment in the number of hours of workers in occupations exposed to automation was small, and only negative for a subset of workers. The exposure to automation is related to somehow earlier retirement, but the size of the relation is small.
We leverage the flexibility enactment theory to study the link between working arrangements and job satisfaction. We propose that this link is moderated by individual inclination to non-standard working arrangements. Thus, we provide novel insights on the (mis)match between preferred and actual working arrangements. We apply this approach to data from the European Working Conditions Survey and empirically characterize the extent of mismatch in working arrangements across European countries. We shed new light on several phenomena. First, the extent of mismatch is substantial and reallocating workers between jobs could substantially boost overall job satisfaction in European countries. Second, the mismatch more frequently affects women and parents. Finally, we demonstrate that the extent of mismatch differs across European countries, which hints that one-size-fits-all policies, whether they deregulate or curb non-standard arrangements, are not likely to maximize the happiness of workers.
Policymakers frequently use price regulations as a response to inequality in the markets they control. In this paper, we examine the optimal structure of such policies from the perspective of mechanism design. We study a buyer-seller market in which agents have private information about both their valuations for an indivisible object and their marginal utilities for money. The planner seeks a mechanism that maximizes agents’ total utilities, subject to incentive and market-clearing constraints. We uncover the constrained Pareto frontier by identifying the optimal trade-off between allocative efficiency and redistribution. We find that competitive-equilibrium allocation is not always optimal. Instead, when there is substantial inequality across sides of the market, the optimal design uses a tax-like mechanism, introducing a wedge between the buyer and seller prices, and redistributing the resulting surplus to the poorer side of the market via lump-sum payments. When there is significant within-side inequality, meanwhile, it may be optimal to impose price controls even though doing so induces rationing.
The notion of ideal worker necessitates being available at the discretion of the employer in terms of time. By contrast, the ability to set one's own schedule is widely considered a cornerstone of work-life balance and job satisfaction. We provide causal evidence on the pecuniary and social valuation of the discretion to decide about working schedules. We embed our study in the context of gender and compare employee-initiated and employer-initiated request for a change towards more discretion over working hours. We show that employer-initiated availability should be reflected in higher wages, but the premium is small. There appears to be no penalty to employee-initiated request for autonomy to decide about working schedules. While our results lend support to the ideal worker model, they cast doubt on explanations linking gender wage inequality to labor market flexibility.
What are the welfare and macroeconomic effects of family policies and how do they depend on policy composition? I answer those questions in overlapping generations model calibrated to the US. I account for the idiosyncratic income risk, redistribution via social security, and tax and benefit system. I explicitly model child-related tax credit, child care subsidies, and child allowance. I show the expansion of the family policy yields higher welfare. The expenditure on the optimal policy accounts for approximately 3% of GDP. Even though the optimal family policy is three times bigger than the status quo policy, taxes decrease when the optimal policy is implemented. Therefore, reform is self-financing. The structure of family policy is crucial for welfare evaluation. Tax credit and child allowance generate higher welfare gains than child care.
I study two types of unconventional monetary policy: quantitative easing (QE) and money-financed fiscal stimulus (MFFS), in a modified New Keynesian framework. I compare their effectiveness in stabilizing output and inflation when monetary policy is constrained by the effective lower bound. Money-financed fiscal stimulus performs better than quantitative easing, except the case of the TFP shock. It tends to cause lower inflation and output volatility. Nevertheless, it might be substantially more problematic in implementation as it demands cooperation between the central bank and the fiscal authority. Real reserve targeting (RRT) delivers similar outcomes as quantitative easing but is easier to implement.
We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.
This paper extends the notion of equivalent variation, Hicks (1939) to an abstract decision problem. It also provides a modern, ordinal variant of the maximum theorem, Berge (1963) that formulates the assumptions in terms of underlying preferences and demonstrates the continuity of the classic preference-based welfare indices (i.e., the equivalent and compensating variations) as well as the upper hemicontinuity of the choice correspondence. We then apply the theorem to the relevant economic problems.
We provide survey subjects with a mild information treatment about consequences of working from home (WFH) for productivity, life satisfaction and career prospects. With a spiking prevalence of WFH during the covid-19 pandemic, existing research utilizes stated preferences for WFH from surveys to argue that workers' preferences were permanently shifted. We put into empirical test the stability of stated preferences for WFH. We find robust treatment effects for stated preference for WFH, attitude towards WFH as well as self-assessed changes in productivity
An outbreak of a deadly disease pushes policymakers to depress economic activity due to externalities associated with individual behavior. Sometimes, these decisions are left to local authorities (e.g., states). This creates another externality, as the outbreak doesn't respect states' boundaries. A strategic Pigouvian subsidy that rewards states which depress their economies more than the average corrects that externality by creating a race-to-the-bottom type of response. In a symmetric equilibrium nobody receives a subsidy, but the allocation is efficient. If states are concerned about unequal burden of the lockdown costs, but cannot easily issue new debt to finance transfer payments, then lock-downs will be insufficient in some areas and excessive in others. When that's the case, federal stimulus checks can limit the extent of local outbreaks.
This paper evaluates effects of introduction of a universal child benefit program on female labor supply. Large scale government interventions affect economic outcomes through different channels of various magnitude and direction of the effects. In order to account for this feature, I develop a model in which a woman decides whether to participate in the labor market in a given period. I show how to use the resulting decision rules to explain flows in aggregate labor supply and simulate counterfactual paths of labor force. My framework combines flexibility of reduced form approaches with an appealing structure of dynamic discrete choice models. The model is estimated nonparametrically using recent advances in machine learning methods. The results indicate a 2-4 percentage points drop in labor force among the eligible females, mainly driven by changes in women's perceived trade-offs and beliefs that discouraged inflows.
In addition to this study, I also present a variety of sensitivity analyses. With the development of statistical theory behind the machine learning algorithms, they are becoming an important tool in the empirical economists' toolbox. By construction, they rely on a set of pre-specified hyper parameters governing the architecture of the algorithm chosen arbitrarily by a researcher. In this note, I show that the economic interpretation of the estimates (obtained via Generalized Random Forest by Susane Athey, Julie Tibshirani, and Stefan Wager ) is robust to different choices of the hyper parameters. This is an encouraging result suggesting that despite their complexity, the machine learning algorithms are likely to become a part of applied econometricians' toolbox.
Less liquid markets for government bonds (LLMs) are characterized by many well recognized challenges which reduce the reliability of the classic Nelson-Siegel-Svensson (NSS) parsimonious approach. We document key stylized facts about government bond markets concerning liquidity, diversity of maturities available, bid-ask spread in price quotes, as well as price distortion in the very short end of the curve due to switch auctions. Based on these facts, we augment the NSS approach with model- and data-driven endogenous system of weights which permits reliable estimation of yield curves in LLMs. We apply our approach to the data for one of the largest European emerging markets: Poland. Through a battery of sensitivity analyses we show that there exists a class of weights that systematically gives better results than the classic NSS approach. The best fit weights have at least the same weight for the short end of the curve as a sum for all other tenors of bonds. It proves that inferring from the liquidity in particular maturities raises the information content and quality of yield curve estimation, which links our results to the expectation hypotheses. Unlike findings for most mature markets (e.g. US), for Poland there is a limited domain where pure expectations hypothesis (PEH) cannot be ruled out. Moreover, expectations hypothesis (EH) holds in Poland for almost all horizons. The existence of term premia structure explains the differences between compounded rates of returns from shorter investments and longer term zero-coupon yields of corresponding maturity.
It is well-known that social relationships and altruism among workers foster cooperation in the workplace and, therefore, may have beneficial effects for firms. Yet it is unclear how and to what extent co-worker altruism impacts labor market outcomes. In this paper, we find that, although co-worker altruism may be seamless in good times, it may impact the functioning of labor markets during bad times. Specifically, co-worker altruism may potentially lead to wage rigidity and involuntary unemployment in economic downturns. These results seem to be consistent with recent empirical findings.
The canonical infinite horizon framework with heterogeneous consumers, used in macro and financial literature, lacks a preference-based welfare index that produces consistent normative predictions for different policies. In particular, the classic preference-based indices, such as equivalent or compensating variations, do not aggregate and they are not additive on the set of policies. This paper offers a positive result. We show that for arbitrary heterogeneous von Neumann Morgenstern preferences with common discount factor, an equivalent (compensating) variation is nearly additive and admits a representative agent representation, as long as consumers are patient. Therefore, this index generates consistent quantitative comparisons of welfare effects in a wide variety of problems studied in the macro and finance literature. These problems include, among others, predictions regarding welfare impacts of fiscal or monetary policies, costs of real business cycles, or welfare costs of policies implemented in financial markets.
During a pandemic, companies may adopt teleworking agreements even if they lower current productivity. If managers (or policymakers) want to project an image of ``return to normality'', completely orthogonal to any economic or health outcomes, the scope of teleworking agreements is lower but constant in a stationary equilibrium. In response to the news about upcoming vaccine, rational managers always increase the scope of teleworking agreements, unless the desire to project the image of ``return to normality'' is sufficiently strong, effectively creating a reopening-smoothing motive. The ``return to normality'' may be premature if managers do not understand Lucas' Critique.
We model the household disposable income distribution in Lithuania and explore the drivers of the increase in income inequality between 2007 and 2015. We quantify the contributions of four factors to changes in the disposable income distribution: (i) demographics; (ii) labor market structure; (iii) returns and prices; and (iv) tax–benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two subperiods: changes in the tax and benefit system cushioned a rapid rise in market income inequality because of the global financial crisis during 2007–2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labor and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to the increase in income inequality in Lithuania.
The paper studies the implication of initial beliefs and associated confidence under adaptive learning. We first illustrate how prior beliefs determine learning dynamics and the evolution of endogenous variables in a small DSGE model with credit-constrained agents, in which rational expectations are replaced by constant-gain adaptive learning. We then examine how discretionary experimenting with new macroeconomic policies is affected by expectations that agents have in relation to these policies. More specifically, we show that a newly introduced macro-prudential policy that aims at making leverage counter-cyclical can lead to substantial increase in fluctuations under learning, when the economy is hit by financial shocks, if beliefs reflect imperfect information about the policy experiment.
We add a companion background paper on estimating financial frictions under adaptive learning.
Optimal policy during an epidemic includes depressing economic activity to slow down the outbreak. Sometimes, these decisions are left to local authorities (e.g. states). This creates an externality, as the outbreak does not respect states' boundaries. The externality directly exacerbates the outbreak. Indirectly, it creates a free-rider problem, because local policymakers pass the cost of fighting the outbreak on to other states. A standard system of distortionary taxes and lump-sum transfers can implement the optimal allocation, with higher tax rates required if states behave strategically. A strategic system of taxes and transfers, rewarding states which depress their economies more than average, improves the outcomes by creating a race-to-the-bottom type of response. In a symmetric equilibrium, the optimal tax rate is lower if states behave strategically.
The ratio estimator of a firm's markup is the ratio of the output elasticity of a variable input to that input's cost share in revenue. This note raises issues that concern identification and estimation of markups using the ratio estimator. Concerning identification: (i) if the revenue elasticity is used in place of the output elasticity, then the estimand underlying the ratio estimator does not contain any information about the markup; (ii) if any part of the input bundle is either used to influence demand, or is neither fully fixed nor fully flexible, then the estimand underlying the ratio estimator is not equal to the markup. Concerning estimation: (i) even with data on output quantities, it is challenging to obtain consistent estimates of output elasticities when firms have market power; (ii) without data on output quantities, as is typically the case, it is not possible to obtain consistent estimates of output elasticities when firms have market power and markups are heterogeneous. These issues cast doubt over whether anything useful can be learned about heterogeneity or trends in markups, from recent attempts to apply the ratio estimator in settings without output quantity data.
We analyze the political stability social security reforms which introduce a funded pillar (a.k.a. privatizations). We consider an economy populated by overlapping generations and intra-cohort heterogeneity, which introduces a funded pillar. This reform is efficient in Kaldor-Hicks sense and has political support. Subsequently, agents vote on abolishing the funded system, capturing the accumulated pension wealth, and replacing it with the pay-as-you-go scheme, i.e. “unprivatizing” the pension system. We show that even if such reform reduces welfare in the long run, the distribution of benefits across cohorts along the transition path implies that “unprivatizing” social security is always politically favored. We conclude that property rights definition over retirement savings may be of crucial importance for determining the stability of retirement systems with a funded pillar.
Some ideas underlying this paper were originally started as a part of MODELLING project, but with the time, it evolved in terms of research question. Now, it has a new theoretical setup, and it features heterogeneous agents framework.
The full replication package may be found in this GitHub repository.
Plenty of economic phenomena cannot be explained in the absence of family structure. For example, the immense changes in women's labor force participation are strongly affected by family structure: married women work less than single, and mothers work less than childless women (Greenwood et al. 2017). A significant share of these differences is a result of the family-specific design of tax and social security systems (Borella et al. 2019). Family structure is also a natural framework for studying intergenerational mobility and parent-child correlations. More and more macroeconomics papers reconcile the importance of a family and explicitly model decisions within the household. In this paper, we propose a systematic overview of this stream of literature.
We are not the first ones to review family economics in the context of macroeconomics, e.g. Browning et al. (2014). Doepke and Tertilt (2016) provide an excellent summary of advances in family economics and its successes in explaining classic macroeconomics phenomena. We extend their study by focusing on family-dependent policy interventions, the joint aspect of taxation, and the impact of labor market structure on fertility. What is more, an outstanding guideline of family economics models by Greenwood et al. (2017) pointed out several remaining research questions – concerning childcare subsidies, fertility policies, taxation, and within-family insurance. We prove that many of them have already received a satisfactory empirical and theoretical answer.
The definition of family differs substantially across macroeconomics literature. However, we can systematize these definitions using two dimensions: the household structure and decision process. We can distinguish two types of households: the first consists of the parent(s) and child(ren), the second consists of husband and wife. The latter fits analyzing gender inequality, unequal tax treatment, or family-dependent components of social security. The parent(s) and child(ren) family structure is the most common and helps explaining human capital accumulation, inequality, and fertility decisions. Both setups are employed to study different drivers of women's labor force participation.
In terms of the decision-making process, we can distinguish unitary households and households based on game-theoretic bargaining models. The members of the unitary household maximize the so-called household utility function, which describes the joint interests of all household members under aggregated budget constraint. However, the formation, as well as the dissolution of a partnership, usually require decisions of the individuals involved. Thus, it always contains the possibility of conflict. Bargaining models better reflect this feature and describe household behavior as the cooperation of utility-maximizing individuals. Despite that, the unitary household is a typical framework, even in recent literature. Models with bargaining are mostly used to describe the formation and stability of marriage and recently to analyze fertility decisions.
In the following part of the paper, we review both macroeconomics and family economics literature in the context of labor force participation, fertility choice, human capital accumulation, inequality and taxes, and social security. Depending on the policy in question, the literature proposes models with significantly different structures and features, e.g., types of heterogeneity, choice set, applied utility functions, and model timing. All of them contribute to the mechanism of the model and its fit to the data (Borella et al. 2018). We discuss below different model setups, with particular caution to policies' welfare effect. In this way, we provide a method guideline useful for future research.
This chapter is a part of volume "Pensions today - economic, managerial, and social issues" edited by Filip Chybalski and Edyta Marcinkiewicz.
Early transition literature linked large number of firm failures with the inability to overcome the pre-transition misallocation of resources, i.e. the inadequate capital-labor ratio. We look at the link between misallocation and firm survival using a rich firm-level dataset of over 1600 manufacturing plants established in a centrally planned economy after 1945. Our duration models include the standard Olley-Pakes misallocation measures as well as firm-level counterfactual level of capital that takes into account the present day market allocation and productivity. We show that i) misallocation was rather a firm-level than sector-level phenomenon and more importantly ii) it did not have a sizeable effect on the actual firm survival. Moreover, privatization tends to be negatively related to firm survival. This may imply both inappropriate self-selection into privatization programs and possibly inadequate implementation of the privatization.
This paper utilizes our novel dataset on survival of all state manufacturing plants from 1988, details here.
We investigate the reliability of data from the Wage Indicator (WI), the largest online survey on earnings and working conditions. Comparing WI to nationally representative data sources for 17 countries reveals that participants of WI are not likely to have been representatively drawn from the respective populations. Previous literature has proposed to utilize weights based on inverse propensity scores, but this procedure was shown to leave reweighted WI samples different from the benchmark nationally representative data. We propose a novel procedure, building on covariate balancing propensity score, which achieves complete reweighting of the WI data, making it able to replicate the structure of nationally representative samples on observable characteristics. While rebalancing assures the match between WI and representative benchmark data sources, we show that the wage schedules remain different for a large group of countries. Using the example of a Mincerian wage regression, we find that in more than a third of the cases, our proposed novel reweighting assures that estimates obtained on WI data are not biased relative to nationally representative data. However, in the remaining 60% of the analyzed 95 datasets systematic differences in the estimated coefficients of the Mincerian wage regression between WI and nationally representative data persists even after reweighting. We provide some intuition about the reasons behind these biases. Notably, objective factors such as access to the Internet or richness appear to matter, but self-selection (on unobservable characteristics) among WI participants appears to constitute an important source of bias.
We provide weights and full documentation here.
We provide an empirical explanation for cross-country differences in the size of the voluntary payments made for a good offered in a Pay-What-You-Want payment scheme. Using a sample of almost 500 international travellers from 50 nations participating in a guided tour that uses a voluntary payment method, we analyse the relationship between the size of the average voluntary payments and national values defined by Hofstede’s Cultural Dimensions (1983) as well as selected values from the World Value Survey (WVS). Strong correlations between certain cultural values and average payment sizes are found.
We present empirical evidence that large structural shocks are followed by changes in labor market inequality. Specifically, we study short-run fluctuations in adjusted gender wage gaps (unequal pay for equal work) following episodes of structural shocks in the labor markets, using several decades of individual data for a wide selection of transition countries. We find that for cohorts who entered the labor market after the onset of transition. Labor market shocks lead to significant declines in the gender wage gap. This decrease is driven mostly by episodes experienced among cohorts who enter the labor market during the transition. By contrast, we fail to find any significant relation for cohorts already active in the labor market at the time of transition. We provide plausible explanations based on sociological and economic theories of inequality.
Undergoing a large structural shock, labor markets indeed do become less inclusive, but it has taken us several turns to identify a convincing knowledge gap and hypotheses appealing to the academic community. A much different and earlier version of this text was in the past developed within DISCef project. Our work has since changed substantially: the deeper understanding of theoretical foundations has led to improving the empirical approach and information content of interpretation. Originally, we combined a study into gender wage gaps, with a study into gender employment gaps. This approach had too much empirical clutter and too dispersed theoretical foundations. Eventually, the original work has evolved into two separate studies: the current, focused on structural shocks and wage inequality, and a companion paper looking at long-term drivers of gender inequality in access to employment.
The files required to reproduce our findings are available below.
We study a relationship between perceived price fairness and digital piracy. In a large-scale field experiment on customers of a leading ebook store we employ the Bayesian Truth Serum to elicit the information on acquiring books from unauthorized sources (often referred to as digital piracy). We provide empirical evidence in support of the conjecture that willingness to ‘pirate’ is associated with having experienced subjective overpricing. We propose and verify the relevance of two mechanisms behind this link: reactance theory and moral cleansing/licensing. The results indicate that pricing policy perceived as fair may reduce the scope for digital piracy.
We demonstrate the importance of distinguishing between the traditional use of labor for production, versus alternative uses of labor for overhead, marketing and other expansionary activities, for studying the distribution of both factor income and labor income. We use our framework to assess the impact of changes in markups on the overall labor share and on labor income inequality across occupations. We identify the production and expansionary content of different occupations from the co-movement of occupational income shares with markup-induced changes in the labor share. We find that around one-fifth of US labor income compensates expansionary activities, and that occupations with larger expansionary content have experienced the fastest wage and employment growth since 1980. Our framework can rationalize a counter-cyclical labor share in the presence of sticky prices and can be used to study the distributional effects of demand shocks, monetary policy and secular changes in competition.
We study the design of mechanisms involving agents that have limited strategic sophistication. The literature has identified several notions of simple mechanisms in which agents can determine their optimal strategy even if they lack cognitive skills such as predicting other agents' strategies (strategy-proof mechanisms), contingent reasoning (obviously strategy-proof mechanisms), or foresight (strongly obviously strategy-proof mechanisms). We examine whether it is optimal for the mechanism designer who faces strategically unsophisticated agents to offer a mechanism from the corresponding class of simple mechanisms. We show that when the designer uses a mechanism that is not simple, while she loses the ability to predict play, she may nevertheless be better off no matter how agents resolve their strategic confusion.
The Great Recession has strongly influenced employment patterns across skill and gender groups in EU countries. We analyze how these changes in workforce composition might distort comparisons of conventional measures of gender wage gaps via non-random selection of workers into EU labour markets. We document that male selection (traditionally disregarded) has become positive during the recession, particularly in Southern Europe. As for female selection (traditionally positive), our findings are twofold. Following an increase in the LFP of less-skilled women, due to an added-worker effect, these biases declined in some countries where new female entrants were able to find jobs, whereas they went up in other countries which suffered large female employment losses. Finally, we document that most of these changes in selection patterns were reversed during the subsequent recovery phase, confirming their cyclical nature.
The aim of the paper is to analyze the impact of the Labor code reform in Lithuania on the flexible work arrangements with regards to gender differences in its outcomes. We observe positive labor market trends in Lithuania for the period of 2014-2019 and since the introduction of the Labor code reform, i.e.: increase in employment rate for both men, women and for people with care-related responsibilities, increased share of permanent contracts, increased flexibility of the working schedules and more favorable evaluation of the working time as optimal by both sexes. However, the argument is that these positive changes would have happened in the Lithuanian labor market in the first year after the reform even if there was no change in employment laws. Our strategy for identifying the reform effects is based on an assumption that higher effect of the new legislation, if any, can be expected on women with care-related responsibilities due to their higher demand for flexibility, compared to both women with no such responsibilities and men with or without care-related responsibilities. The identified reform effects after controlling for other effects and individual characteristics are significant in three areas: reduction in the employment level, reduction in the prevalence of contracted work and a high positive effect in the prevalence of permanent contracts. No reform effect was identified for changes in the prevalence of full-time versus part-time work, standard versus non-standard working hours and evaluation of working time as being more or less optimal by workers. Hence, it can be stated that the Labor code reform has not, at least within its first year of functioning, achieved more flexibility in the labor market for those who have higher demands for it and no associated increase in the satisfaction with the time balance between work and care-related responsibilities.
This paper aims at disentangling factors behind the changes in income inequality and relative poverty in the Baltics. The evaluation of the income, policy and demographic effects was based on counterfactual scenarios constructed using tax-benefit microsimulation and re-weighting techniques. Decomposition showed that income and policy effects were dominant for changes in inequality and relative poverty. The policy effects were inequality- and poverty-reducing before the crisis and after the EU accession as a whole. The income effects for the same periods were inequality- and poverty-increasing. Despite rapid demographic changes, the demographic effect on income inequality and relative poverty was marginal.
Using a unique database of over 20 million firms over two decades, we examine the industry sector and national institution drivers of the prevalence of women directors on supervisory and management boards in both public and private firms across 41 advanced and emerging European economies. We demonstrate that gender board diversity has generally increased, yet women remain rare in both boards of firms in Europe: approximately 70% have no women directors on their supervisory boards, and 60% have no women directors on management boards. We leverage institutional and resource dependency theoretical frameworks to demonstrate that few systematic factors are associated with greater gender diversity for both supervisory and management boards among both private and public firms: the same factor may exhibit a positive correlation to a management board, and a negative correlation to a supervisory board, or vice versa. We interpret these findings as evidence that country-level gender equality and cultural institutions exhibit differentiated correlations with the presence of women directors in management and supervisory boards. We also find little evidence that sector-level competition and innovativeness are systematically associated with the presence of women on either board in either group of firms.
P.S. Not to brag, but we were a runner up (finalist) in the Emerald Best International Symposium Award of the 2019 Academy of Management Annual Meeting.
Financing consumption of the elderly in the face of the projected increase in life expectancy is a key challenge for economic policy. Moreover, standard structural models with fully rational agents suggest that about 50-60 percent of old-age consumption is financed with voluntary savings, even in the presence of a fairly generous public pension system. This is clearly inconsistent with either the data, or the alarming simulations of old-age poverty in the years to come. Old-age saving (OAS) schemes are widely used policy instruments to address this challenge, but structural evaluations of such instruments remain rare. We develop a framework with incompletely rational agents: lacking financial literacy and experiencing commitment difficulties. We study a broad selection of OAS schemes and find that they raise welfare of financially illiterate agents and to a lesser extent improve welfare of agents with a high degree of time inconsistency. They also reduce the incidence of poverty at old age. Unfortunately, these instruments are fiscally costly, induce considerable crowd-out and direct fiscal transfers mostly to those agents, who need it the least.
We compare welfare and macroeconomic effects of monetary policy and macroprudential policy, in particular targeting loan-to-value (LTV) ratios. We develop a DSGE model with collateral constraints and two types of agents. In this setup, we study seven potential policy rules responding to credit growth and fluctuations in prices of collateral. We show that monetary policy responding to deviations of collateral prices from their steady state value results in the highest level of social welfare. It is also useful in stabilizing output and inflation. Macroprudential policy using LTV ratio as the instrument is dominated in terms of output and inflation stability by the interest rate rules. If interest rate rules are not available, the LTV ratio can be used to improve welfare, but gains are small.
According to psychology, affective empathy is one of the key processes governing human interactions. It refers to the automatic transmission and diffusion of emotions in response to others' emotions, which gives rise to emotional contagion. Contrary to other forms of empathy, affective empathy has received little attention in economics. In this paper, we augment the standard game-theoretic framework by allowing players to affectively empathize. Players' utility functions depend not only on the strategy prole being played, but also on the realized utilities of other players. Thus, players' realized utilities are interdependent, capturing emotional contagion. We offer a solution concept for these empathetic games and show that the set of equilibria is non-empty and, generically, finite. Motivated by psychological evidence, we analyze sympathetic and antipathetic games. In the former, players' utilities increase in others' realized utilities, capturing unconditional friendship; whereas in the latter the opposite holds, resembling hostility.
We review the developments and practice of the discounted cash-flow method in finance with an intermediate goal of presenting parsimonious methods of generating density valuation rather than point forecasts. Our ultimate aim is to select, propose and discuss some density-based risk measures that may be used by appraisers and investment analysts when conducting DCF valuation for broad group of heterogeneous (by risk appetite) final users or investors. Such a toolbox may be applied directly by the latter group without necessity to rely on aggregated point valuations and recommendations.
Sample Matlab code to replicate the result of the two examples from this article is here.
Most analyses linking task content of jobs to income inequality focus on the effects between occupations, e.g. the growing dispersion between lousy and lovely jobs. Theory, meanwhile, provides insights on links between task content of jobs and inequality also within occupations: models predict compression of wages in more routine jobs, that is those where capital is a direct substitute for labor, and an increase in dispersion in jobs where capital and labor are complements. I document that within occupations dispersion of wages is empirically relevant, as it represents around half of total wage inequality across Europe. I then link wage inequality to the task content of jobs. Using matched employee-employer data from Europe for the period 2002-2014, I show that occupations where tasks complement newer technologies exhibit higher wage dispersion. This relationship is robust to adjusting for a variety of confounding and mitigating channels.
Despite an apparent consensus in the literature that privatization leads universally to an increase in firm performance, the problem of endogeneity bias is profound and has been emphasized in a number of meta-analyses. We propose a new instrument to address the endogeneity bias and apply it Polish medium and large firms over 1995-2008. We find that improvement in firm performance is not universal, in particular, we find no improvement among manufacturing firms privatized to domestic investors.
Over the past decade or so, the literature has sprung in analyses of the impact the so-called online or digital "piracy" has on sales. Since theory posits both positive and negative effects are possible, the question remains purely empirical. Consequently, there is a variety of published articles and working papers arguing in both ways, many of which attempt to account for the challenge of providing a reliable and causal effect. The objective of this survey is to review and discuss the accomplishments of the field so far. We also provide a tentative meta-analysis. Despite the multiplicity of measures and methods used we argue that the literature as a whole fails to reject the null hypothesis of no effects on sales.
Methods for estimating the the scope of inequality in various outcome measures such as income, education, health or poverty are fairly accurate in detecting differences adjusted for individual characteristics. However, the actual estimated inequality may depend on the interaction between (the weakness of) the method and (the weakness of) the institutional environment. We make a case by comparing the country rankings for the adjusted gender wage gap among 23 EU countries. We show that the effects of these interactions are indeed large by comparing the estimates from various methods obtained from the same database. In fact, depending on the control variables and estimation method, a country may change its position in the ranking by as much as 10 positions -- both towards greater equality and towards greater inequality. We argue that this variability in country ranking position may yield important policy insights into prioritizing intervention. We also infer that given the intimate and unbreakable relationship between institutional deficiencies and features of the adjustment methods, ranking per se may be misguiding the public debate and thus should be abandoned or substantially refined.
Gender wage gaps are typically measured by the means of decomposition. Proliferation of methods makes the choice of the correct estimator for a given data a conceptual challenge, especially if data availability necessitates simplifications. The challenge lies in accounting for observable differences adequately, which in itself is not only a data issue, but also a conceptual issue. Ideally, one would want to compare men and women actually “alike” in terms of all relevant characteristics, including hours effectively worked, commitment, talent. However, many of these characteristics are not observable (or are imperfectly measured, e.g. human capital).
Decompositions are prone to multiple risks. For example, the urge to compare only the comparable implies that a decision needs to be made about the use of observations which clearly are not comparable. Nopo (2008) proposes to use these observations to infer about the possible selectivity in this process, but alternative approaches consist of reweighing or neglecting this issue. Similar choices concern the treatment of distributional issues. Finally, for the parametric methods, the dependence on the functional form may influence the results as well. Consequently, depending on the features of a given labor market, an estimate of gender wage gap obtained with a given method is likely to overstate or understate the extent of true unjustified inequality in wages.
We make available a dataset which provides a full selection of gender wage gap estimates for the EU countries, using data from EU-SILC. Across countries and years, everybody can see for themselves, what is the source of the gender wage inequality in a given European country. We provide:
- A dta file with the full set of estimates for the gender wage gaps and a generating dofile
- Data documentation
We develop a dynamic general equilibrium model in which firms may evade the employer contribution component of social security taxes by offering some workers “secondary contracts”. When calibrated, the model yields estimates of secondary labor market participation consistent with empirical evidence for the EU14 countries and the US. We investigate the optimal mix of the avoidable and unavoidable components of labor taxes and analyze the fiscal and macroeconomic effects of bringing the composition to the welfare optimum. We find that partial labor tax evasion makes tax revenues more elastic, but full tax compliance need not be a welfare enhancing policy mix.
This study employs a vignette experiment to inquire, which features of online "piracy" make it ethically discernible from a traditional theft. This question is pertinent since the social norm concerning traditional theft is starkly different from the evidence on ethical evaluation of online "piracy". We specifically distinguish between contextual features of theft, such as for example the physical loss of an item, breach of protection, availability of alternatives, emotional proximity to the victim of theft, etc. We find that some of these dimensions have more weight in ethical judgment, but there are no clear differences between online and traditional theft which could explain discrepancy in the frequency of commitment.
The article presents the results of the decomposition of the changes in the age profiles of percentages of disabled people and labor force participation rates (LFPR) using the age-period-cohort (APC) decomposition. The aim of the analysis is the separation of long-term (cohort-specific) and short-term (period-specific) tendencies to verify hypotheses about the positive impact of the increasing human capital of new cohorts in the population on health and LFPRs. Calculations have been made on quasi-panel data constructed from the Polish Labor Force Survey (PLFS) database for the period 1995–2017. The results show that the improving health of people of pre-retirement age was very loosely connected with the gains in their labor force participation. The lower share of people with disability benefits and the improving LFPRs of disabled people have played a relatively minor role in explaining the change in the total LFPR in the economy as the vast majority of the positive changes in the labor supply were due to changes in the behavior of people without disabilities. Finally, the results of the APC decomposition do not confirm the hypothesis about the simultaneous generational changes in LFPRs and disability during the analyzed period
We empirically investigate the interaction between internal and external reference prices on stated payments in a Pay-What-You-Want (PWYW) scheme. Using results of a vignette experiment with e-books, we show that when an external reference price provided is lower than respondents’ internal reference prices, the average of PWYW payments significantly decreases compared with a situation in which the external reference price is not provided. The relationship is the opposite when the external reference price provided to respondents is higher than their internal reference prices. In such a case, upward pressure is created, thus the average of PWYW payments increases. These results remain true when we control for expected quality of e-books. Additionally, we find that when the external reference price is not provided, the size of PWYW payments depends positively on individual factors such as risk-taking propensity and perceived costs of e-book production.
The data summarizes results of a vignette experiment conducted in cooperation with Virtualo e-book store on the sample of their newsletter subscribed clients. In the file, you will find the Excel file with the data and full list of variables with descriptions. All questions from the original survey (conduced in Polish) were translated into English. Note that the dataset might not be exclusively owned by the authors. Use of data requires a license from the data owner. If you wish to use them for your own work, please contact authors for permissions: Anna Kukla, Katarzyna Zagórska.
We consider feasible Heath-Jarrow-Morton framework specifications that are easily implementable in XVA engines when pricing linear and non-linear interest rate derivatives in a multi-curve environment. Our particular focus is on relatively less liquid markets (Polish PLN) and the calibration problems arising from that fact. We first develop the necessary tool-kit for multi- -curve construction and XVA integration and then show and discuss various specifications of the HJM model with regard to their practical usage. We demonstrate the importance of the Cheyette subclass and derive the dynamics of instantaneous forward rates in generic forms of different models. We performed calibrations of several one-factor models of that form and found that even with a relatively simple specification, i.e. Hull-White with two summands, we may achieve satisfactory results in terms of the quality of the calibration and calculation time.
We provide ex ante welfare, fiscal and general macroeconomic evaluation of the voluntary old-age saving scheme recently introduced in Poland (Pracownicze Plany Kapitałowe, Employees’ Capital Plans). ECPs provide tax redemptions as well as lump-sum transfers with the objective to foster old-age savings. Reduction in capital income tax revenues and a rise in expenditure needs to be compensated through adjustment in other taxes. We employ an overlapping generations model (OLG) to gauge the plausible magnitude of the macroeconomic and welfare effects and provide insights in terms of microfoundations of these adjustments. Our OLG model features voluntary participation and innovates relative to the literature by introducing agents with hand-to-mouth preferences. We find relatively high crowding out of private savings. In our preferred specification roughly 0.08 to 0.09 PLN of each 1 PLN allocated to ECPs are actually new savings, the rest being displaced from unincentivized private voluntary savings. The plausible values of the effective capital growth range between 0.03 and 0.42 of 1 PLN in ECPs. ECPs reduce welfare of the fully rational agents, unless they offer a sufficiently large annuity. ECPs provide consumption smoothing and interest income to HTM agents.
Attached to this publication are data covering the sensitivity analyses for the alternative calibrations of the share of incompletely rational agents in the economy. The file comprises data and program files (stata *.do files) which delivers the replication of tables in figures in the paper for the alternative shares of hand-to-mouth (HTM) agents in population.
The reform introduced in Poland in 2009 substantially and abruptly reduced the number of workers eligible for early retirement. This paper evaluates the causal effects of this reform on labor force participation and exit to retirement. We use rich rotating panel from the Polish Labor Force Survey and exploit the discontinuity imposed by this reform. We find a statistically significant, but economically small discontinuity at the timing of the reform. The placebo test shows no similar effects in earlier or later quarters, but in a vast majority of specifications the discontinuity is not larger for the treated individuals, i.e. those whose occupation lost eligibility. We interpret these results as follows: the changes in the eligibility criteria were not instrumental in fostering the participation rates among the affected cohort, i.e. the immediate contribution to increased labor force participation of these cohorts is not economically large.
This paper develops a non-parametric method to infer social preferences over policies from prices of securities when agents have non-stationary heterogeneous preferences. We allow for arbitrary efficient risk-sharing mechanisms, formal and informal, and consider a large class of policies. We present a condition on the distribution of aggregate wealth that is necessary and sufficient for the revelation of social preferences over a universal set of policies. We also provide a weaker condition that is sufficient for revelation of social preferences for an arbitrary finite collection of policies.
This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning their economic environment. When agents update their beliefs about the unobserved process driving financial shocks to the leverage ratio, the responses of output and other aggregates under adaptive learning are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage, debt-to-GDP and land value-to-GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three, relative to rational expectations. When fed with the actual leverage innovations, the learning model predicts the correct magnitude for the Great Recession, while its rational expectations counterpart predicts a counter-factual expansion. In addition, we show that procyclical leverage reinforces the impact of learning and, accordingly, that macro-prudential policies enforcing countercyclical leverage dampen the effects of leverage shocks. Finally, we illustrate how learning with a misspecified model that ignores real/financial linkages also contributes to magnify financial shocks.
Income inequality in the context of large structural change has received a lot of attention in the literature, but most studies relied on household post-transfer inequality measures. This study utilizes a novel and fairly comprehensive collection of micro data sets from between 1980’s and 2010 for both advanced market economies and economies undergoing transition from central planning to market based system. We show that wage inequality was initially lower in transition economies and immediately upon the change of the economic system surpassed the levels observed in advanced economies. We find a very weak link between structural change and wages in both advanced and post-transition economies, despite the predictions from skill-biased technological change literature. The decomposition of changes in wage inequality into a part attributable to changes in characteristics (mainly education) and a part attributable to changes in rewards does not yield any leading factors.
This paper uses a large collection of individual level data, described in detail in the paper. We acquired over 1600 individual level data for 44 countries over three decades. Contact us if you would want to utilize this vast collection of data. The inequality measures are shared here.
In the context of the second demographic transition, many countries consider rising fertility through pro-family polices as a potentially viable solution to the fiscal pressure stemming from longevity. However, an increased number of births implies private and immediate costs, whereas the gains are not likely to surface until later and appear via internalizing the public benefits of younger and larger population. Hence, quantification of the net effects remains a challenge. We propose using an overlapping generations model with a rich family structure to quantify the effects of increased birth rates. We analyze the overall macroeconomic and welfare effects as well as the distribution of these effects across cohorts and study the sensitivity of the final effects to the assumed target value and path of increased fertility. We find that fiscal effects are positive but, even in the case of relatively large fertility increase, they are small. The sign and the size of both welfare and fiscal effects depend substantially on the patterns of increased fertility: if increased fertility occurs via lower childlessness, the fiscal effects are smaller and welfare effects are more likely to be negative than in the case of the intensive margin adjustments.
We develop an OLG model with realistic assumptions about longevity to analyze the welfare effects of raising the retirement age. We look at a scenario where an economy has a pay-as-you-go defined benefit scheme and compare it to a scenario with defined contribution schemes (funded or notional). We show that, initially, in both types of pension system schemes the majority of welfare effects comes from adjustments in taxes and/or prices. After the transition period, welfare effects are predominantly generated by the preference for smoothing inherent in many widely used models. We also show that although incentives differ between defined benefit and defined contribution systems, the welfare effects are of comparable magnitude under both schemes. We provide an explanation for this counter-intuitive result.
An earlier version of this text was circulated under a title "Does social security reform reduce gains from increasing the retirement age?". This earlier version was coauthored by Karolina Goraus.
With compulsory funded public social security systems, pension savings constitute a large stock of assets. In this paper we consider an economy populated by overlapping generations, which may decide about abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable as well as politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path may turn privatizing social security politically unsustainable.
In this paper we provide the first analysis of whether rushed privatizations, usually carried out under fiscal duress, increase or decrease firms’ efficiency, scale of operation (size) and employment. Using a large panel of firm-level data from Poland over 1995-2015, we show that rushed privatization has negative efficiency, scale and employment effects relative to non-rush privatization. The negative effect of rushed privatization on the scale of operations and employment is even stronger than its negative effect on efficiency. Our results suggest that when policy makers resort to rushed privatization, they ought to weigh these negative effects against other expected effects (e.g. on fiscal revenue).
The emergence of global value chains leads to fragmentation of the production processes and reallocation of those processes across countries. With increasing number of production stages, the manufacturing process is located increasingly further away from the consumer. Literature suggests that fragmentation of production increases the international transmission of shocks. The global financial crisis is believed to lead to consolidation and shortening of global value chains and amplification of demand shocks along the global value chains, the so-called bullwhip effect. In this paper we study the effects of global financial crisis on employment, focusing specifically on the role of the distance from final demand (upstreamness) in this adjustment. We find that upstreamness matters for both labor demand and adjustment in employment during the periods of crisis, but this relationship is heterogeneous across countries. While the reaction to the crisis is indeed amplified further away from final demand, contrary to our expectations it is mostly channeled through lower job creation rates rather than faster job destruction. Moreover, the adverse effects of the crisis are lower in foreign firms, this difference does not depend on the distance from final demand.
In a field experiment conducted in cooperation with city theatres in Warsaw, we allowed some of the visitors to pay whatever they wanted for the tickets. Half of these visitors were asked randomly to make a voluntary payment after (instead of before) the performance. We found a significant positive difference between payments made after and before the show. In a specially designed survey we capture factors that may potentially explain this difference: the visitors’ general expectations towards the performance and different aspects of the audience experience.
The data summarizes results of field experiments conducted in three theaters in Warsaw. In the file, you will find the Excel file with the data and full list of variables with descriptions. All questions from the original survey (conduced in Polish) were translated into English. Note that the dataset might not be exclusively owned by the authors. Use of data requires a license from the data owner. If you wish to use them for your own work, please contact authors for permissions: Anna Kukla & Katarzyna Zagórska.
Women in developed economies have experienced an unparalleled increase in employment rates, to the point that the gap with respect to men was cut in half. This positive trend has often been attributed to changes in the opportunity costs of working (e.g. access to caring facilities) and not-working (e.g. educational attainment). Meanwhile, the gender employment gaps were stagnant in transition economies. Admittedly, employment equality among genders was initially much higher in transition countries. We exploit this unique evidence from transition and advanced countries, to analyze the distributional nonlinearities in the relationship between the institutional environment and the (adjusted) gender employment gaps. We estimate comparable gender employment gaps on nearly 1600 micro databases from over 40 countries. We relate these estimates to changes in the opportunity costs of working and not-working. Changes in opportunity costs exhibited stronger correlation with gender employment equality where the gap was larger, i.e. advanced economies. We provide some evidence that these results are not explained away by transition-based theories, and argue that the observed patterns reflect a level effect. Currently, advanced and transition economies are at par in terms of gender employment equality. Hence, the existing instruments might not be sufficient to further reduce the gender employment gap.
The data for replication is distributed here.
Given theoretical premises, gender wage gap adjusted for individual characteristics is likely to vary over age. We extend DiNardo, Fortin and Lemieux (1996) semi-parametric technique to disentangle year, cohort and age effects in adjusted gender wage gaps. We rely on a long panel of data from the German Socio-Economic Panel covering the 1984-2015 period. Our results indicate that the gender wage gap increases over the lifetime, for some birth cohorts also in the post-reproductive age.
We investigate willingness to share and download cultural content by implementing a novel "piracy game" modelled after standard public good games. Subjects' decisions have real consequence, as they are rewarded with individual "transfer" on a file-sharing service. We find that willingness to share depends positively on the sharing by others. Interestingly, however, this tendency does not seem to be associated with reciprocity or other-regarding social preferences. We employ several measures of sharing - from self-reporting to experimental - and incorporate to the analysis other factors which may explain the autonomous willingness to share, irrespective of the group effects. We find that conditional cooperation in content sharing is fairly prevalent, but unrelated to personality traits, attitude towards risk, attitude towards the other, marginal valuation, as well as socio-demographic characteristics.
We explore data from all transition economies over nearly two decades, providing insights on the mechanisms behind labor force reallocation. We show that worker flows between jobs in different industries are rare relative to the demographic flows of youth entry and elderly exit. The same applies to the flows between state-owned enterprises and private firms. In fact, evidence suggest that changes in the demand for labor were accommodated mostly through demographic flows, with a smaller role left for job transitions. We also show that the speed of changing the ownership structure in the economy has driven exits to retirement, in particular the early exits.
This study uses data from LiTS, see the paper tab for replication files as well as the additional controls.
We analyze the determinants of value added and productivity growth of New Member States in the period between 1995 and 2009. We show that in the analyzed countries exports contributed to roughly 30 to over 40% of the overall growth of GDP while the contribution of the domestic component varied from negative to over 60%. We show that in the most important export manufacturing industries of the NMS, the growth in exported value added was substantial, while the growth of the domestic component of GDP was mostly due to the growth in services. We associate growth of sectoral productivity with the foreign direct investment and exporting but, more importantly, with the position of a sector/country in the global value chains. We show that sectors that have imported intermediate goods have experienced higher productivity growth. Moreover, productivity growth was found in sectors further away from the final demand and in sectors exporting intermediate goods.
- This paper uses the WIOD data together with the accompanying Social and Economic Accounts.
- You can compute the GVC measures used in the paper (WWZ, 2013) using the Decompr R package.
- The codes computing the GDP growth decompositions presented in the paper can be downloaded below, if you use it or any part of it in your research, please, cite our paper. This code assumes that you have the WWZ (2013) decomposition ready.
While the inequalities of endowments are widely recognized as areas of policy intervention, the dispersion in preferences may also imply inequalities of outcomes. In this paper, we analyze the inequalities in an OLG model with obligatory pension systems. We model both policy relevant pension systems (a defined benefit system — DB — and a transition from a DB to a defined contribution system, DC). We introduce within cohort heterogeneity of endowments (individual productivities) and heterogeneity of preferences (preference for leisure and time preference). We introduce two policy instruments, which are widely used: a contribution cap and a minimum pension. In theory these instruments affect both the incentives to work and the incentives to save for the retirement with different strength and via different channels, but the actual effect attributable to these policy instruments cannot be judged in an environment with a single representative agent. We show four main results. First, longevity increases aggregate consumption inequalities substantially in both pension systems, whereas the effect of a pension system reform works to reinforce the consumption inequalities and reduce the wealth inequalities. Second, the contribution cap has negligible effect on inequalities, but the role for minimum pension benefit guarantee is more pronounced. Third, the reduction in inequalities due to minimum pension benefit guarantee is achieved with virtually no effect on capital accumulation. Finally, the minimum pension benefit guarantee addresses mostly the inequalities which stem from differentiated endowments and not those that stem from differentiated preferences.
Our data are shared here.
We present an agency model of corporate tax auditing by a residual claimant government and embed it into a macro model with financial constraints. In our economy, entrepreneurs with access to risky investment technologies raise funds by issuing equity claims to new capital. Information asymmetries create incentives to choose a riskier but cheaper technology that provides private benefits and opportunities to evade taxes. Random auditing by the government for tax verification reveals technology choice, reducing the asymmetric information problem between lenders and borrowers. We show that moderate corporate governance quality accompanied by high taxes raise output, investment and consumption.
Non-technical summary: Unintended consequences of Mr Taxman
Gender wage gap (adjusted for individual characteristics) as a phenomenon means that women are paid unjustifiably less than men, i.e. below their productivity. Meanwhile, efficiency wages as a phenomenon mean that a group of workers is paid in excess of productivity. However, productivity is typically unobservable, hence it is proxied by some observable characteristics. If efficiency wages are effective only in selected occupations and/or industries, and these happen to be dominated by men, measures of adjusted gender wage gaps will confound (possibly) below productivity compensating of women with above productivity efficiency wage prevalence. We propose to utilize endogenous switching models to estimate adjusted gender wage gaps. We find that without correction for the prevalence of efficiency wages, the estimates of the adjusted gender wage gaps tend to be substantially inflated.
Celem artykułu jest zmierzenie skali obciążenia oszacowań luki płacowej kobiet, w warunkach gdy wydajność nie jest obserwowalna. Korzystamy z unikatowych danych jednostkowych o wydajności i wynagrodzeniach dla 2 292 pracowników polskiej firmy zajmującej się handlem detalicznym w branży odzieżowej. Korzystamy z parametrycznych metod dekompozycji do oszacowania skorygowanej luki płacowej z uwzględnieniem i bez uwzględnienia miar wydajności. Wyniki wskazują, że obciążenie wynikające z pominięcia miar wydajności jest istotne statystycznie i wysokie w sensie ekonomicznym, w niektórych specyfikacjach zasadniczo zmieniając wnioskowanie o występowaniu nieuzasadnionej różnicy w wynagrodzeniach pomiędzy kobietami i mężczyznami. Większość oszacowań tzw. skorygowanej luki płacowej nie uwzględnia miar produktywności, głównie z uwagi na brak stosownych miar w dostępnych zbiorach. Choć nasze wyniki dotyczą tylko dla jednego przedsiębiorstwa, dają przesłanki by stwierdzić, że oszacowania, którymi posługuje się literatura, cechować może znaczne obciążenie.
The aim of this paper is to compare estimates of the adjusted wage gap from different methods and sets of conditioning variables. We apply available parametric and non‐parametric methods to LFS data from Poland for 2012. While the raw gap amounts to nearly 10 percent of the female wage; the adjusted wage gap estimates range between 15 percent and as much as 23 percent depending on the method and the choice of conditional variables. The differences across conditioning variables within the same method do not exceed 3pp, but including more variables almost universally results in larger estimates of the adjusted wage gaps. Methods that account for common support and selection into employment yielded higher estimates of the adjusted wage gap. While the actual point estimates of adjusted wage gap are slightly different, all of them are roughly twice as high as the raw gap, which corroborates the policy relevance of this methodological study.
Theoretical literature on entrepreneurship hints that labor market inequality may constitute a relevant push factor for necessity self-employment, as opposed to aspirational self-employment. Drawing on empirical confirmation, this insight is used in many policy recommendations. We provide a new approach to test and quantify the link between labor market inequality and self-employment. We exploit rich and diverse international data on patterns of self-employment from the Global Entrepreneurship Monitor. We focus on measures of labor market inequality for women, utilizing estimates of adjusted gender wage and gender employment gap, comparable for a large selection of countries and years. Our results show that greater gender disparities in access to and in compensation for wage employment are associated with necessity self-employment, but the effect is small. We find no link for the aspirational self-employment.
What is necessary to make entrepreneurship sector successful? It seems like two key factors in this matter are quantity of financial capital and quality of human capital. So far, studies on innovative firms were rather focused on spending on resources, and not on qualification of people who are entering entrepreneurship sector. Using concept of so-called talent workers (Hsieh et al. 2013) we check who is entering self-employment in Poland. Our question is whether people who enter self-employment are more likely to create successful businesses. The analysis is based on the labor force survey panel data for Poland for over a decade between 2001 and 2013. We found that talent workers were more likely to become self-employed in this period. Results are robust on two possibly confounding effects – within sector mobility and productivity of workers before entering self-employment.
In this study I use data on grades awarded for bachelor and master theses at a large Polish university, seeking to identify discrimination on gender or physical attractiveness. I focus on the gap between the grades awarded by the advisor (who knows the student personally) and the reviewer (who typically does not, so that gender is less salient and beauty is not observable). This provides an excellent control for actual quality of the work, which is often problematic in previous literature. Observations on nearly 15 thousand students are available, of which 2500 also have their physical attractiveness rated and included in my analysis. I can thus check if the advisor-reviewer grade gap depends on student’s gender and beauty, also in interaction with their genders. Overall, there is no evidence of such influence.
I screen academic literature for cases of misattribution of cited author’s gender. While such mistakes are overall not common, their frequency depends dramatically on the gender of the cited author. Female scholar are cited as if they were male more than ten times more often than the opposite happens, probably revealing that citers are influenced by the gender-science stereotype. The gender of the citing author and the field of study appear to have only limited effect.
The pattern of trade of the Central and Eastern European countries has been changing since the beginning of the economic transition in the early 1990s. By the end of the century this process was additionally strengthened by their integration with the European Union and overlapped with the development of global value chains (GVC) spanning across Europe with which the new member states (NMS) have become increasingly integrated.
In this paper, we shed light on these changes by analysing the position of the NMS within the global value chains. We employ the upstreamness measure proposed by Antràs et al. (2012) and use the World Input–Output Database. Although we observe a global increasing trend in the upstreamness of all countries, we find that the NMS have in many cases gone against this trend while converging in their production structure within their group and with the EU-15. This convergence is mostly observed in Czech Republic, Hungary, Poland and Slovakia where the level of upstreamness in the most important exporting sectors was close to that of Germany by the end of the analyzed period 1995–2011.
- This paper uses the WIOD data
- The STATA code used to compute the U measure can be downloaded below. If you use it or any part of it in your research, please, cite our paper. This code assumes that you have all the WIOD data in one Stata file.
Ethical norms on the Internet are believed to be more permissive than in the ‘real’ world and this belief often serves as an explanation for the prevalence of the so-called digital “piracy”. In this study we provide evidence from a vignette experiment that contradicts this claim. Analyzing the case of sports broadcast, we compare explicitly the ethical judgment of legal and illegal sharing in the offline and online context. We find that the norms concerning legality, availability of alternatives and deriving material benefits from sharing content do not differ substantially between the virtual and real worlds. We also test explicitly for the role of legal awareness and find that emphasizing what is prohibited (copyright infringement) is less effective than focusing on what is permitted (fair use) in reducing the disparity between legal and ethical norms.
Gender occupational segregation is one of the most stable phenomena of the labor market. In this study we employ PSID dataset to test whether the fact that women have different professions than men can be, at least partially, explained by their parents occupational history. We find that fathers profession, both first one and the one observed by the son correlate positively with gender intensity of son's occupation. Mother's first occupation is associated with daughter's, but the one that it is performed by mother during daughter's growing up is insignificant. While father's profession is negatively correlated with gender intensity of daughter's profession, mother's occupation does not matter for son's career.
Psychology and sociology literature suggests that the fact that women are less likely to work in STEM occupations may be caused by gender stereotypes related to differences in math and science abilities. In this study we test whether, particularly parents' beliefs are associated with their children's gender beliefs and with their choices of occupation. We show that the correlation between parents' and children's beliefs is strong. We use High School Longitudinal Study data - survey conducted among US 9th graders, their parents and teachers. Finally, we also test to what extend gender beliefs (parents' and own) correlate with planning to work in STEM fields by highschool pupils. We find that girls are discouraged (and boys encouraged) by parents believing that boys are better in math and science, and that the effect of parent's beliefs are stronger than the effect of pupils' school achievements in math and science.
This article aims to investigate factors that influence the time needed for young people to find their first job. Using data from the Programme for the International Assessment of Adult Competencies (PIAAC), a Cox proportional hazard model was estimated for all respondents and for five subgroups of respondents coming from countries with similar labor markets. The results for all the respondents show that factors influencing the time needed for young people to find their first job are in line with the literature. In the case of the five subgroups, there are significant differences between countries in terms of these factors. It seems that, in order to shorten the time needed for young people to find their first job, measures from labor markets with similar characteristics, where similar factors influence the process of people searching for work, should be applied. However, one should bear in mind that this process of “copying” may not be completely successful.
An important feature of the reallocation process that took place in Eastern European and former Soviet Union countries was the decline in public sector employment due to the collapse of state-owned enterprises combined with an increase in private sector employment as new private firms emerged and old public companies were privatized. We propose a theoretical, parsimonious model which combines this feature with the standard search and matching model introduced by Diamond, Mortensen and Pissarides. Using numerical simulation we show that faster transition (associated with faster restructuring of state-owned enterprises into more productive private firms) leads to a quicker convergence to the post-transitional equilibrium characterized by high GDP and high employment in the private sector. However, this comes at the cost of negative output growth and higher unemployment in the short run.
Two main features of the reallocation process that took place in Eastern European and Former Soviet Union countries should be distinguished. The first feature was the decline in public sector employment as a result of the collapse of state-owned enterprises, linked with an increase in private sector employment as new private firms emerged and old public companies were privatized. The second feature was, and still is, the reallocation of labor from manufacturing to the service sector. Data from the Polish Labor Force Survey for the period 1995–2015 were used to construct measures of worker flows, gross and net, and their cyclical properties were used as a way to test the predictions of structural change and transition theories. It was found that labor market adjustments tend to amplify in upturns of the business cycle, while worker flows contribute only a fraction to the changing structure of employment. The policy implications of these findings are discussed.
From a theoretical perspective, the link between the speed and scope of rapid labor reallocation and productivity growth or income inequality is ambiguous. Do reallocations with more flows tend to produce higher productivity growth? Does such a link appear at the expense of higher income inequality? We explore the rich evidence from earlier studies on worker flows in the period of massive and rapid labor reallocation, that is, the economic transition from a centrally planned to a market-oriented economy in CEE. We have collected over 450 estimates of job flows from the literature and used these inputs to estimate the short-run and long-run relationship between labor market flows, labor productivity, and income inequality. We apply the tools typical for a meta-analysis to verify the empirical regularities between labor flows and productivity growth as well as income inequality. Our findings suggest only weak and short-term links with productivity, driven predominantly by business cycles. However, data reveal a strong pattern for income inequality in the short run—more churning during reallocation is associated with a level effect toward increased Gini indices.
The Great Recession has resulted in a seemingly permanent level shift in many macroeconomic variables. This paper presents a microfounded general equilibrium model featuring frictional labor markets and financial frictions that generates procyclical R&D expenditures and replicates business cycle features of establishment dynamics. This allows demonstrating the channels through which productivity and financial shocks influence the aggregate endogenous growth rate of the economy, creating level shifts in its balanced growth path.
I find that financial shocks are an important driver of the aggregate fluctuations and their influence is especially pronounced for establishment entry. Since the growth rate of the economy can in principle be affected by policy measures, I examine the macroeconomic and welfare effects of applying several subsidy schemes.
Endogenous growth literature treats deliberate R&D effort as the main engine of long-run technology growth. It has been already recognized that R&D expenditures are procyclical. This paper builds a microfounded model that generates procyclical aggregate R&D investment as a result of optimizing behavior by heterogeneous monopolistically competitive firms.
I find that business cycle fluctuations indeed affect the aggregate endogenous growth rate of the economy so that transitory productivity shocks leave lasting level effects on the economy’s Balanced Growth Path. This result stems from both procyclical R&D expenditures of the incumbents and procyclical firm entry rates, and is in line with the empirical evidence on the negative impact of “missing generations” of firms on macroeconomic variables.
This mechanism generates economically significant hysteresis effects, increasing the welfare cost of business cycles by two orders of magnitude relative to the one typically found by the business cycles literature. High welfare costs of business cycles and potential to affect endogenous growth create ample space for welfare improving policy interventions. The paper evaluates the effects of several countercyclical subsidy schemes and finds some of them welfare improving.
This paper proposes a microfounded model featuring frictional labor markets that generates procyclical R&D expenditures as a result of optimizing behavior by heterogeneous monopolistically competitive firms. This allows to show that business cycle fluctuations affect the aggregate endogenous growth rate of the economy. Consequently, transitory shocks leave lasting level effects.
This mechanism is responsible for economically significant hysteresis effects that increase the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. I show that this has serious policy implications and creates ample space for policy intervention. I find that several static and countercyclical subsidy schemes are welfare improving.
Pension system reforms imply substantial redistribution between cohorts and within cohorts. They also implicitly affect the scope of risk sharing in societies. Linking pensions to individual incomes increases efficiency but reduces the insurance motive implicit in Beveridgean systems. The existing view in the literature argues that the insurance motive dominates the efficiency gains when evaluating the welfare effects. We show that this result is not universal: there exist ways to increase efficiency or compensate the loss of insurance, assuring welfare gains from pension system reform even in economies with uninsurable idiosyncratic income shocks. The fiscal closure, which necessarily accompanies the changes in the pension system, may boost efficiency and/or make up for lower insurance in the pension system. Indeed, fiscal closures inherently interact with the effects of pension system reform, counteracting or reinforcing the original effects. By analyzing a variety of fiscal closures, we reconcile our result with the earlier literature. We also study the political economy context and show that political support is feasible depending on the fiscal closure.
Wykorzystanie wspólnych tablic dalszego oczekiwanego trwania życia przy obliczaniu wysokości emerytury w systemie zdefiniowanej składki skutkuje subsydiowaniem przeciętnie dłużej żyjących kobiet przez krócej żyjących mężczyzn. Celem artykułu jest oszacowanie skali tej redystrybucji. Przeprowadzono symulacje oparte na modelu nakładających się pokoleń z obowiązkowym repartycyjnym systemem zdefiniowanej składki oraz heterogeniczności w ramach kohorty. Uwględniono również wydłużanie się dalszego oczekiwanego trwania życia, zgodnie z projekcjami demograficznymi. Zastosowanie wspólnych tablic życia skutkuje redystrybucją w kierunku kobiet na poziomie ok. 0,5-0,7%, wyrażoną za pomocą ekwiwalentu konsumpcji jako procent konsumpcji mężczyzn w cyklu życia. Taka skala redystrybucji w ramach systemu emerytalnego w bardzo niewielkim stopniu rekompensuje kobietom dyskryminację na rynku pracy.
Pension system reforms involve fiscal consequences. In practice, a variety of fiscal closures may be implemented, while not all of them involve the same extent of distortions. This paper develops an overlapping generations model to analyze the case of a shift from pay-as-you-go defined benefit system to a partly funded defined contribution system. We calibrate the system to mimic the economy of Poland, which actually implemented such reform in 1999. We analyze the efficiency of the reform with two main closure types: public debt and taxes. Regardless of the fiscal closure scenario this particular reform seems to be efficient in terms of welfare and enhances economic performance. Comparing the welfare of various closures we find that while labor taxation yields relatively higher welfare gain, public debt closure involves least need for the redistribution if capital pillar is to be implemented.
This paper was awarded Joseph A. Schumpeter Prize from Deutsche Bundesbank.
Jedną z istotnych przesłanek decyzji migracyjnej są różnice w płacach na domowym i docelowym rynku pracy. Różnice te wynikać mogą jednak nie tylko z względnej różnicy w produktywności czy ew. zapotrzebowania na kapitał ludzki. Istotną przyczyną może być także nierówność płac, np. ze względu na płeć. Tymczasem ekonomia behawioralna i psychologiczna dają silne przesłanki, by oczekiwać, ze grupa dyskryminowana w krajach o większej skali nierówności płacowych może akceptować wyższe luki płacowe także na docelowym rynku pracy. Wykorzystując oszacowania nierówności płacowych ze względu na płeć w krajach pochodzenia imigrantek w Stanach Zjednoczonych oraz oszacowania luk płacowych na amerykańskim rynku pracy poddajemy empirycznej weryfikacji tezę, że wysokość luki płacowej imigrantek zależy od (skorygowanych) luk płacowych doświadczanych przez kobiety w kraju pochodzenia. Otrzymane wyniki wskazują na brak korelacji pomiędzy lukami płacowymi na rynku pracy w Stanach Zjednoczonych i w kraju pochodzenia.
In this project I look at the results of Polish matriculation exams (matura) from the gender perspective. Specifically, I investigate if male and female students are treated differently by the evaluators. I develop a new method to answer this question using the peculiarity of the data: for some subjects the scores just below the passing threshold are very rare, apparently because they are often adjusted upwards, so that the student (barely) passes. I check if the probability of such assistance depends on the gender of the student. I also apply the standard approach of checking if any gender does particularly well on oral exams (which are taken locally) compared to their scores on written exams (which are anonymized and evaluated by teachers from other schools). The main finding is that gender does matter. I find that poorly performing female students have a slightly higher chance of passing than their matched male colleagues, although for better students the bias appears to be reversed.
Even though women׳s position in academia has changed dramatically over the last few decades, there is still some evidence that when it comes to evaluation of scientific achievements, gender may play a significant role. Gender bias is particularly likely to take the form of statistical discrimination. In this study we sought to verify the hypothesis that researcher׳s gender affects evaluation of his or her work, especially in a field where women only represent a minority. Towards this end we asked a sample of subjects, mostly economics majors, to evaluate a paper written by mixed-gender couples, indicating that it was (co-)authored by a “female economist”, “male economist”, “young female economist” or “young male economist” or giving no information about the author at all. While age factor played no role, female authors appeared to be seen as less competent than males, in that subjects (being incentivized to give their best judgment) less often believed that their papers have been published. This effect did not interact strongly with the gender of the subject.
Since about 40 years the Laffer curve is used to investigate tax evasion in different ways and with different results. In this paper we present, using a critical literature review, the main considerations related to the Laffer curve starting from historically oldest theoretical models and empirical studies, through direct empirical estimations of the Laffer curve to, widely used nowadays, general equilibrium models, in particular endogenous growth models. We show, by discussing the advantages and drawbacks of these approaches, their different usefulness in studying tax evasion. We conclude that currently endogenous growth models, particularly DSGE models, provide an appropriate approach for the analysis of tax evasion using the Laffer curve.
We report a laboratory experiment aimed at investigating factors affecting choice between different versions of a full-length movie. In particular, we estimate the willingness to pay for a legal, rather than pirated copy and compare it to the impact of such characteristics as picture quality or delay in delivery. We find a modest but highly significant preference for the authorized version. By conducting otherwise identical choice experiments both with and without actual experiential and monetary consequences, we conclude that the method does not seem to suffer from hypothetical bias. We also find that when the proceeds from legal sale are transferred to a good cause, willingness to pay for the unauthorized copy is reduced.
The efficiency wage hypothesis suggests that wages are higher than labor productivity in labor markets where workers may shirk. The paper presents an attempt to verify empirically prevalence of efficiency wages in Poland. We utilize Labor Force Survey data for the years 1995-2010. Our identification strategy relies on differences in residuals from the Mincer wage regression between movers (i.e. people changing jobs) and stayers (i.e. persons who did not change employment in the observational window). The results provide tentative confirmation to the prevalence of efficiency wages in Poland.
We analyze the effects of increasing the retirement age in two economies with overlapping generations and within cohort ex ante heterogeneity. The first economy has a defined benefit system and the second economy is in transition from a defined benefit to a defined contribution. We find that if increase in the retirement age is phased in a way that allows agents to adjust, welfare is not reduced and welfare effects have a similar magnitude and between cohort distribution in both types of the pension systems.
Empirical evidence suggests that contractionary monetary and macroprudential policies have stronger effects than expansionary ones. We introduce this feature into a structural DSGE model with financial frictions. The asymmetry results from the assumption of occasionally binding credit constraints which we introduce via a penalty function. Our simulations show that a large loan-to-value ratio (our macroprudential tool) tightening can have a much stronger impact on the economy than a loosening of the same size. In contrast, small policy innovations, whether expansionary or contractionary, have effects of almost equal magnitude. Our approach provides an interesting way of modeling asymmetric effects of financial frictions for policy purposes.
Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a two economy macrofinancial DSGE model and simulate the effects of macroprudential policies under the assumption of asymmetric shocks hitting the core and the periphery. We find that macroprudential policy is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be set individually for each region. Area-wide policy is almost ineffective in this respect.
In this paper we link the estimates of the gender wage gap with the gender sensitivity of the language spoken in a given country. We find that nations with more gender neutral languages tend to be characterized by lower estimates of GWG. The results are robust to a number of sensitivity checks.
In this paper we link the estimates of the gender wage gap with the gender sensitivity of the language spoken in a given country. We find that nations with more gender neutral languages tend to be characterized by lower estimates of GWG. The results are robust to a number of sensitivity checks.
Our source of estimates for the adjusted gender wage gap is an updated version of the dataset developed by Doris Wichselbaumer and Rudolf Winter-Ebmer for a paper published in Journal of Economic Surveys in 2005 and a paper published in Kyklos in 2008. The original data covers articles published until 2005, whereas we include studies published between 2005 and 2014. In total we added 1197 estimates of the adjusted GWG from 117 new studies for 56 countries.
To ensure continuity, we adopted the same conventions with respect to the language of publication (English) and the search engine (EconLit). We also used the same keywords: “(wage* or salar* or earning*) and (discrimination or differen*) and (sex or gender)”. To test if this search was not excessively narrow, we erased one keyword at a time from the first parenthesis, subsequently erasing the logical connectors (“or” “and”). We included published final or the most recent available versions of articles (chapters and books excluded). The complete list is available upon request.} Similarly to WWE, we excluded incomparable estimates of the adjusted GWG (e.g. non-parametric estimates along the wage distribution).
All the data needed to replicate our analysis is available below. The zip file contains:
- A csv file with the information on the articles added.
- Data on language gender intensity come from World Atlas of Language Structures
- Complete data set (combining meta-data and country characteristics)
- Do files
Bibliometric studies show that male academics are more productive than their female counterparts and that the gap cannot be explained in terms of difference in abilities. In this project we wish to verify the hypothesis that this tendency is related to the greater support that men receive from their colleagues (“old boys network”). Towards this end we had e-mails sent by a male or female student asking academics for a minor favour. In Study 1 we asked authors of nearly 300 papers in experimental economics to share the raw data used in their study. We observed no difference in response rate or compliance rate between male and female senders. In Study 2 we sent 2775 e-mails to academics affiliated with prestigious schools from ten different fields, asking to either send us a copy of their recent article or meet the sender supposedly interested in pursuing a PhD program. Once again we manipulated gender of the senders but this time we also varied their physical attractiveness. We found a small but significant difference in the Article Treatment: attractive females’ requests were honoured less often. No such tendency was found in the Meeting Treatment and no general gender effect was observed. Overall, we find very little support for the claim that early-stage male researchers enjoy greater support than their female colleagues.
The New Member States have been experiencing firm internationalization not only through inward foreign direct investment but also through exporting, importation of foreign technology in investment goods and increased use of imported intermediates. We argue that there are important productivity spillovers within the global value chains, ie. FDI alone does not tell the whole story of the reallocation processes going on in the economies of the NMS. We augment the standard TFP spillover empirical model with modern measures of GVC participation. We show that increased foreign content of exports brings additional productivity gains on top of the ones attributed to exporting. Moreover, we show that in selected cases, participation in the GVC leads to a smaller productivity gap between foreign and domestic firms. In Poland the productivity gains for domestic firms are located in production of intermediate goods with high foreign value content as well as in goods located close to the final demand. In many other NMS the benefits are concentrated close to the final demand.
- This paper uses WIOD data and Amadeus database.
- You can compute the GVC measures used in the paper using the Decompr R package.
- The codes used to compute the Levinsohn-Petrin TFP from firm-level data, the FDI spillover measures from WIOD and Amadeus can be found here and some trade aggregates can be downloaded below. If you use it or any part of it in your research, please, cite our paper.
In this study, we try to assess the prevalence of illicit downloading in the market of audio books and the willingness to admit to such practices. We compare the Bayesian Truth Serum (Prelec, 2004) treatment in which truthful responses and precise estimates are rewarded to the control treatment with a flat participation fee. We find a sizable treatment effect – incentivized ‘pirates’ admit approximately 60% more often than the nonincentivized ones.
A fair share of studies analyzing “online piracy” are based on easily accessible student samples. However, it has been argued that the youths tend to have more lax social and ethical norms concerning both property rights and online behavior. In this study we present the results of a vignette experiment, i.e. a scenario survey where responders are asked to provide an ethical judgment on different forms of unauthorized acquisition of a full season of a popular TV series described in a number of hypothetical stories. The survey is conducted both on a student sample and on a sample of individuals who openly endorse protection of intellectual property rights for cultural goods. In this way we can investigate the possibly limited external validity of studies relying solely on the student samples. The vignette experiment concerned ethical evaluation of unauthorized acquisition of cultural content in both virtual and real context and was focused on six dimensions previously identified as relevant to the ethical judgment. Surprisingly, we found that the rules for the ethical judgment do not differ between our samples, suggesting that the social norms on “online piracy” follow similar patterns in student and in other populations. Findings from studies relying on ethical or moral judgments of students may thus be valid in a much broader population.
Literature on charitable giving often finds that seed money matters: the example of a wealthy donor is followed by others (List and Lucking-Riley, 2002). Nearly all relevant theoretical accounts (e.g. that leaders possess superior information on quality of the project) seem to apply to the closely related environment of Pay-What-You-Want mechanisms as well. Yet, as far as we can tell, no empirical study has tested for that until now. To fill this gap, we analyze data from 16 campaigns of BookRage (an equivalent of Humble Bundle, offering bundles of e-books). We make use of the fact that a fixed number of currently highest contributions are always displayed (along with mean contribution and total amount raised). Thus a discontinuity may be expected: contributions that are displayed might directly affect subsequent donors’ behavior, in contrast to just slightly lower donations that are only observable as a (small) change in mean contribution. We find that the example of leaders makes no impact on willingness to purchase and amount paid. By contrast, the mean of past contributions has a positive impact on current contribution, yet a negative impact on the probability of contributing.
In many countries, the fiscal tension associated with the global financial crisis brings about the discussion about unprivatizing the social security system. This article employs an Overlapping Generations model to assess ex ante the effects of such changes to the pension reform in Poland from 1999 as implemented in 2011 and in 2013. We simulate the behaviour of the economy without the implemented/proposed changes and compare it to a status quo defined by the reform from 1999. We find that the changes implemented in 2011 and in 2013 are detrimental to welfare. The effects on capital and output are small and depend on the selected fiscal closure. Implied effective replacement rates are lower. These findings are robust to time inconsistency. The shortsightedness of the governments imposes welfare costs.
Given the decreasing fertility and increasing longevity, in many countries the policy debate emphasizes the role of either raising the minimum eligible retirement age (MERA) or raising fertility to avoid adverse changes in the population structure. In this paper we evaluate the welfare and macroeconomic effects of increasing the retirement age for various demographic scenarios under three major pension systems (defined benefit, notionally defined contribution and funded defined contribution). We compare populations with decreasing fertility, increasing longevity and one subject to both of these changes, and show that the welfare effects of raising MERA stem mainly from longevity. We show that – for increasing longevity – raising the retirement age is universally welfare enhancing for all living and future cohorts, regardless of the pension system and fertility. Finally, we show scope for further welfare gains if productivity is relatively high at old ages.
The objective of this paper is to inquire the consequences of some simplifying assumptions typically made in the overlapping generations (OLG) models of pension systems and pension system reforms. This literature is largely driven by policy motivations. Consequently, the majority of the papers is extremely detailed in the dimension under scrutiny. On the other hand, complexity of general equilibrium OLG modeling necessitates some simplifications in the model. We run a series of experiments in which the same reform in the same economy is modeled with six different sets of assumptions concerning the shape of the utility function, time inconsistency, bequests? redistribution, labor supply decisions and internalizing the linkage between social security contributions and benefits in these decisions as well as public spending. We find that these assumptions significantly affect both the size and the sign of the macroeconomic and welfare measures of policy effects with the order of magnitude comparable to the reform itself.
The raw gender wage gap over the period 1995-2012 amounts to app. 9% of hourly wage and is fairly stable. However, the raw gap does not account for differences in endowments between genders. In fact, the adjusted wage gap amounts to as much as 20% on average over the analysed period and shows some cyclical properties. The estimates of adjusted gender wage gap do not seem to exhibit any long-term trends, which suggest that in general neither demographic changes nor the progressing transition underlie the phenomenon of unequal pay for the same work among men and women.
One could expect that in the so-called talent occupations, while access to these professions may differ between men and women, the gender wage gap should actually be smaller owing to the high relevance of human capital quality. Wage regressions typically suggest an inverted U-shaped age–productivity pattern. However, such analyses confuse age, cohort and year effects. Deaton decomposition allows us to disentangle these effects. We apply this method to investigate the age–productivity pattern for the so-called ‘talent’ occupations. Using data from a transition economy (Poland) we find that talent occupations indeed have a steeper age–productivity pattern. However, gender differences are larger for talent occupations than for general occupations.
We report the results of an experimental study analyzing the effects of Internet piracy on book sales. We conducted a year-long controlled large-scale field experiment with pre-treatment pair matching. Half of the book titles received experimental treatment, in which a specialized agency would immediately remove any unauthorized copy appearing on the Internet. For the other half we merely registered such occurrences, but no countermeasures were taken. For all the titles we obtained print and e-book sales statistics from the publishers. We find that removal of unauthorized copies was an effective method of curbing piracy, but this had no bearing on legal sales.
We consider a monopolist producer of information goods that may be subject to unauthorized copying. The key feature of our model is that we allow consumers to have ethical concerns based on equity theory that may reduce their utility of such a copy. We derive the formulas describing demand for the product. We find that piracy reduces prices and producers’ profit, an effect that can be limited by such measures as copyright enforcement (proxied by expected value of punishment for piracy) and anti-piracy campaigns. Welfare effects are also analyzed and generally turn out to be ambiguous.
The recent global financial crisis has increased interest in macroeconomic models that incorporate financial linkages. Here, we compare the simulation properties of five mediumsized general equilibrium models used in Eurosystem central banks which incorporate such linkages. The financial frictions typically considered are the financial accelerator mechanism (convex \spread costs related to firms' leverage ratios) and collateral constraints (based on asset values). The harmonized shocks we consider illustrate the workings and mechanisms underlying the financial-macro linkages embodied in the models. We also look at historical shock decompositions of real GDP growth across the models since 2005 in order to shed light on the common driving factors underlying the recent financial crisis. In these exercises, the models share qualitatively similar and interpretable features. This gives us confidence that we have some broad understanding of the mechanisms involved. In addition, we also survey the current and developing trends in the literature on financial frictions.
We compare two standard extensions to the New Keynesian framework that feature financial frictions. The first model, originating from Kiyotaki and Moore (1997), is based on collateral constraints. The second, developed by Carlstrom and Fuerst (1997) and Bernanke et al. (1999), accentuates the role of external finance premia. We tweak the models and calibrate them in a way that allows for both qualitative and quantitative comparisons. Next, we thoroughly analyze the two variants using moment matching, impulse response analysis and business cycle accounting. Overall, we find that the business cycle properties of the external finance premium framework are more in line with empirical evidence. In particular, the collateral constraint model fails to produce hump-shaped impulse responses and generates volatilities of the price of capital and rate of return on capital that are inconsistent with the data by a large margin.
This article analyses the macroeconomic impact of the loss of autonomous monetary policy after the euro adoption in Poland. Using a two-country Dynamic Stochastic General Equilibrium (DSGE) model with sticky prices and wages, we find that the euro adoption will have a noticeable impact on the magnitude of economic fluctuations. In particular, the volatility of output, interest rate, consumption and employment is expected to increase while the volatility of inflation should decrease. Also, in order to quantify the effect of the euro adoption, we compute the welfare effect of this monetary policy change. Our findings suggest that the welfare cost is not large.
It is well known that central bank policies affect not only macroeconomic aggregates, but also their distribution across economic agents. Similarly, a number of papers demonstrated that heterogeneity of agents may matter for the transmission of monetary policy to macro variables. Despite this, the mainstream monetary economics literature has so far been dominated by dynamic stochastic general equilibrium models with representative agents. This paper aims to tilt this imbalance towards heterogeneous agents setups by surveying the main positive and normative findings of this line of the literature, and suggesting areas in which these models could be implemented. In particular, we review studies that analyse the heterogeneity of (i) households’ income, (ii) households’ preferences, (iii) consumers’ age, (iv) expectations and (v) firms’ productivity and financial position. We highlight the results on issues that, by construction, cannot be investigated in a representative agent framework and discuss important papers modifying the findings from the representative agent literature.
We construct an open-economy DSGE model with a banking sector to analyze the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland–a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by approximately 1.5 percent.