DOES THE PUBLIC SECTOR IMPLODE FROM BAUMOL'S COST DISEASE?

The root of the Baumol cost disease is higher productivity increases for manufactured goods than for services. The implied increase in relative costs of service production is widely claimed to have devastating implications for the public sector as a provider of tax‐financed services such as health, education, and care. To match the increasing costs it appears inevitable that tax rates would be ever increasing. It is shown that this inference does not follow under standard assumptions when accounting explicitly for service provision from both the private and public sectors. Strikingly under assumptions often made in the literature, the welfare maximizing tax rate for a utilitarian policy maker would remain constant despite the Baumol cost disease, and by implication the share of public employment in total employment will remain constant. (JEL H5, H11, O41)     

BUSINESS CYCLE FLUCTUATIONS WITH THE DIVISION OF PERMANENT AND TEMPORARY EMPLOYMENT

In the mainstream real business cycle (RBC) model, labor can be viewed as temporary employment since the firm's demand for labor behaves directly in response to stochastic productivity shocks in each period. This paper provides a tractable way of analyzing fluctuations in permanent and temporary employment over the business cycle, as well as the underlying driving forces. This inclusion of heterogeneity helps reconcile the RBC model with the U.S. data given that temporary employees in general only account for a small proportion of total private‐sector employment (about 2%–3%). We draw an explicit division between permanent and temporary employment and resort to this separation to account for stylized facts that characterize a two‐tier labor market. In particular, with regard to the U.S. labor market, our benchmark model can well explain the motivating facts: (1) temporary employment is much more volatile than permanent employment, (2) the share of temporary employment (the ratio of temporary to aggregate employment) exhibits strong pro‐cyclicality, (3) permanent employment lags by two quarters on average, and (4) the correlation between temporary employment and output is stronger than that involving the permanent counterpart. The quantitative analysis suggests that our proposed channels explain the main facts well and the model further provides plausible reasoning for a firm's labor hoarding. (JEL E24, E32)     

DEEP RECESSIONS,FAST RECOVERIES,AND FINANCIAL CRISES: EVIDENCE FROM THE AMERICAN RECORD

Do steep recoveries follow deep recessions? Does it matter if a credit crunch or banking panic accompanies the recession? We look at the American historical experience in an attempt to answer these questions. The answers depend on the definition of a financial crisis and on how much of the recovery is considered. But in general recessions associated with financial crises are followed by rapid recoveries. We find three exceptions to this pattern: the recovery from the Great Contraction in the 1930s, the recovery after the recession of the early 1990s, and the present recovery. The present recovery is strikingly more tepid than the 1990s. Possible factors to explain the slowness of this recovery include residential investment and policy uncertainty. (JEL E32, N10, G01)     

PRODUCTIVITY GROWTH IN GOODS AND SERVICES ACROSS THE HETEROGENEOUS STATES OF AMERICA

In this study, we examine the importance of multifactor productivity (MFP) growth in goods and services for U.S. States during 1980–2007 by applying the dual growth accounting framework. We find that MFP growth was relatively high and converged in the goods sector, but was low and did not converge in services. Although low growth in MFP in services was due to declining real user cost, particularly in real estate services, the lack of convergence itself was due to variation in wage growth. We also document that while the gap between productivity and wage growth was higher in goods, the two series were more strongly correlated in services. Finally, states with higher initial human capital experienced higher growth in both sectors. (JEL O47, R11)     

SOVEREIGN DEBT CRISIS IN A MONETARY UNION: ACCOUNTING FOR EXCESSIVE DEBT,HOUSING BUBBLES,AND THE TRANSMISSION OF CRISES

Despite vast empirical documentation of the recent sovereign debt crisis in southern Europe, there is little research accounting for the following stylized facts in a single coherent framework: continuous borrowing, high growth, housing bubbles, and current account deficits since the beginning of the European Monetary Union ending with a sudden crisis and subsequent contagion of crisis. We fill this gap by proposing a model and fitting it to the data. Using a growth model with collateral constraints of small peripheral economies in the institution of a monetary union, we analyze the multilayer moral hazards underlying excessive borrowing. Since housing bubbles can support a constant loan‐to‐value (LTV) ratio lower than LTV limits, peripheral economies can lock into a steady‐state Ponzi growth equilibrium with high growth and current account deficits, but these economies become vulnerable to crises. We identify the “self‐fulfilling crisis region” (SFCR), in which the economy grows fast with a seemingly safe LTV ratio, but with a vulnerability to crises. Moreover, a crisis in one sector propagates to other sectors by endogenously expanding their SFCRs. We derive some policy implications on LTV regulations and market psychology. Finally, our calibration exercise presents how bubbles develop and burst along with contagion across sectors, accounting for the data. (JEL E44, F34, O16)     

Trade and jobs in Europe: The role of mode 5 service exports

Over the past two decades, EU employment supported by extra‐EU exports of goods and services has increased markedly, with a shift towards jobs supported by services exported as part of manufactured goods. The authors seek further insight into this trend through the full decomposition of trade flows using a multi‐regional input–output model and the World Input–Output Database for 40 countries and 35 industries over the period 1995–2011. Their findings call for reflection by policy‐makers regarding the four traditional modes of service supply under the General Agreement on Trade in Services with a view to adequately capturing this new reality in global trade.     

FINANCIAL CRISES,OUTPUT LOSSES,AND THE ROLE OF STRUCTURAL REFORMS

Financial crises take a heavy toll on output growth. We assess the role of structural reforms in reducing the output losses resulting from financial crises across advanced economies, emerging and developing economies, and low‐income developing economies. We also revisit the role of macroeconomic policies in this context. The impact of crises on output growth differs between types of crises and economies, thus warranting sample splits along these lines. Some but not all reforms and policies help to reduce the output losses of crises in the medium term, highlighting the need not to overgeneralize the effectiveness of reforms and policies. Further research is warranted to further explore the heterogeneity in the impact of financial crises on output growth and to better understand when and how specific structural reforms and macroeconomic policies can mitigate the output costs of financial crises. (JEL E32, E44, E63, G28, O47)     

THE IMPACT OF FISCAL POLICY ON PROFITS

This paper investigates the impact of fiscal policy on profits using panel data for 18 high‐income OECD countries during the period 1975–1999. We estimate a profit equation allowing a consistent treatment of the government budget constraint, and we try to disentangle the effects of different spending and taxation items. As far as public spending is concerned, our results strongly suggest that capital expenditures are associated with higher profits, while expenditures on goods and services and in particular on wages and salaries deteriorate profits. In general, “productive” expenditures seem to increase profits while the effect of “unproductive” expenditures is insignificant. Transport and communication expenditures seem to have a positive impact on profits. On the revenue side, we find that both direct and indirect taxation has a negative impact on profits. (JEL E62, H32, H54)     

HAS WAL‐MART BURIED MOM AND POP?: THE IMPACT OF WAL‐MART ON SELF‐EMPLOYMENT AND SMALL ESTABLISHMENTS IN THE UNITED STATES

This paper explores the widely accepted view that Wal‐Mart causes significant harm to the traditional, small “mom and pop” business sector of the U.S. economy. We present the first rigorous econometric investigation of this issue by examining the rate of self‐employment and the number of small employer establishments using both time series and cross‐sectional data. We also examine alternative measures and empirical techniques for robustness. Contrary to popular belief, our results suggest that the process of creative destruction unleashed by Wal‐Mart has had no statistically significant long‐run impact on the overall size and profitability of the small business sector in the United States. (JEL L81, D59, C21)     

MEASURING THE NOMINAL VALUE OF FINANCIAL SERVICES IN THE NATIONAL INCOME ACCOUNTS

The recent growth in the U. S. financial service sector has resurrected the controversy over the treatment of financial services in the national income accounts. The main points of contention are the treatment of interest payments and the valuation of "free" financial services provided by banks. To examine different treatments of financial services, we employ a financial firm model that links financial service prices to the user cost of money. We show that our approach subsumes both the Department of Commerce and the U. N. Statistical Office approaches and thereby provides a heretofore absent economic foundation for their methods.     

REGIONAL AND SECTORAL EVIDENCE OF THE MACROECONOMIC EFFECTS OF LABOR REALLOCATION: A PANEL DATA ANALYSIS

This article revisits the sectoral shifts hypothesis by examining unemployment fluctuations for 48 U.S. states over the period 1990:M01–2011:M12. We develop a panel approach that incorporates dynamics, parameter heterogeneity, aggregate factors, and cross‐sectional dependence (CSD). Our findings provide support for a positive and significant effect of the employment dispersion index on unemployment. This outcome is robust under alternative specifications and measures of employment dispersion. The empirical evidence corroborates the presence and relevance of CSD and heterogeneity among states. The results show that, once unobserved common factors and cross‐state heterogeneity are taken into account, labor reallocation has a significant effect on unemployment that is half the size of the estimate when cross‐sectional dependence is not taken into account. (JEL E24, E32, J21, R23, C23)     

The Impact of Migration on the Gendering of Service Work: The Case of a West London Hotel

This article responds to a call from Kerfoot and Korczynski to investigate the gendering of service sector employment. As a characteristic of many post‐industrial economies in the global North is the growing significance of migrant workers, this article investigates the impact of migration for work on the gendering of service work. Taking the embodied and emotional labour of workers to be fundamental to service work, it describes how these are refracted and produced through migration. The article draws on 60 interviews with workers in a west London hotel who were born abroad and the human resources staff and managers who are responsible for the recruitment and promotion of the workforce. We argue that migration is an important process in the construction of the contemporary workforce in post‐industrial service economies and that migration status should be understood as intersecting with gender in the production of a gendered performance at work.     

THE CYCLICALITY OF PRICE‐COST MARGINS IN BANKING: AN EMPIRICAL ANALYSIS OF ITS DETERMINANTS

We study the determinants of the cyclical behavior of banks' price‐cost margins in the United States banking sector, using time series quarterly data for the period 1979–2005. We contribute to the literature by building an empirical model of the countercyclical behavior of these margins first documented by Aliaga‐Díaz and Olivero (2010a) . Doing so we are able to explore potential explanations for this behavior, and to show that margins are consistently countercyclical, even after controlling for the effects of credit risk and monetary policy. As a mechanism for the propagation of aggregate shocks, the countercyclical nature of margins in banking can provide additional support to stabilization policy. (JEL E32, E44, G21)     

ECONOMIES OF SCALE IN BANKING,INDETERMINACY, AND MONETARY POLICY

This paper investigates economies of scale (ES) in financial intermediation as a source of equilibrium indeterminacy. Financial intermediation is embedded into a standard flexible‐price monetary model, and provides deposits (inside money) that substitute with currency to purchase consumption. The results indicate that equilibrium indeterminacy does not depend on a large degree of ES in intermediation nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any positive degree of ES, while policies targeting nominal rates eliminate indeterminacy for all degrees of ES. (JEL C62, E44, E52)     

Institutional and Demographic Explanations of Women's Employment in 18 OECD Countries, 1975–1999

This study combined demographic and institutional explanations of women's employment, describing and explaining the degree to which mothers in industrialized societies are less likely to be employed than women without children. A large number of cross‐sectional surveys were pooled, covering 18 Organisation for Economic Co‐Operation and Development countries, 192,484 observations, and 305 country‐years between 1975 and 1999. These data were merged with measures of institutional context and analyzed with multilevel logistic regression. The results indicate that, over time, women were increasingly likely to combine motherhood and employment in many, but not all, countries. Both mothers and women without children were more likely to be employed in societies with a large service sector and low unemployment. The employment of women without children was generally unaffected by family policies. Mothers were more likely to be employed in societies with extensive reconciliation policies and limited family allowances.     

ECONOMIES OF SCALE IN THE HOUSEHOLD: PUZZLES AND PATTERNS FROM THE AMERICAN PAST

Estimates of household economies of scale are critical for measuring income and living standards, yet we know little about how these scale economies change over time. I use American household expenditure surveys to produce the first comparable historical estimates of household scale economies. I find that scale economies changed significantly from 1888 to 1935 for all expenditure categories considered (food, clothing, entertainment, and housing), but not all trends in scale economies are consistent with theoretical predictions. As such, our notions about household economies of scale must be reassessed in light of this historical evidence. (JEL D1, E3, I3, J1, N3)     

THE LOCAL ECONOMIC IMPACT OF A LARGE RESEARCH UNIVERSITY: EVIDENCE FROM UC MERCED

In this paper, I estimate the short‐run economic effects of the opening of The University of California, Merced in 2005 by comparing Merced with a counterfactual constructed by the synthetic control method. During the period 2005–2014, the opening of the campus has increased local employment by 13%, mainly in nontraded industries, such as the service sector. These findings suggest that a large research university could bring immediate benefits to the local economy because of its large demand from students and employees. (JEL J24, O18, R11)     

Doing good while doing business: Using financial viability to enhance employability for the disadvantaged

The employment social enterprise (ESE) model can provide an opportunity to create a financially viable business that helps individuals with employment barriers become integrated into the labor force. This research studied eight ESEs. Findings suggest that by applying private‐sector business principles to a workforce development programs, social enterprises can provide participants with meaningful and valuable work experience, while offsetting program costs. Analysis identified four promising practices that social entrepreneurs should adopt when setting up a new enterprise. Enterprises should (a) provide soft‐skill training and social services to participants; (b) operate at a size that allows for economies of scale in production and the provision of support services; (c) have few occupational skill requirements; and (d) hire supervisors with both industry knowledge and the capacity to support individuals with employment barriers.     

OFFSHORING PRODUCTION: A SIMPLE MODEL OF WAGES,PRODUCTIVITY, AND GROWTH

We examine the relationship between offshoring and the labor market in an occupational choice model of trade and endogenous growth where workers are employed on the basis of their individual skill levels. Trade liberalization leads to offshoring and reduces employment in the manufacturing sector. Displaced workers move into traditional and innovation sectors according to their skill levels, shaping real wages and aggregate productivity in the manufacturing sector. The paper aims to show how inter‐sectoral labor market adjustments, highlighted by skill heterogeneity, could be a possible explanation for the simultaneous rise in productivity and reduction in real wages that have coincided with the sharp escalation of offshoring activities in the U.S. manufacturing sector since 2004. (JEL F16, F23, J24)     

SECTORAL COMPOSITION OF GOVERNMENT SPENDING AND MACROECONOMIC (IN)STABILITY

This article examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two‐sector real business cycle model with positive productive externalities in investment. When government purchases of consumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public‐consumption share plays no role in the model's local dynamics, and that a sufficiently high public‐investment share can stabilize the economy against endogenous belief‐driven cyclical fluctuations. When each type of government spending is postulated as a constant proportion of the economy's total output, we find that there exists a trade‐off between public consumption versus investment expenditures to yield saddle‐path stability and equilibrium uniqueness. (JEL E32, E62, O41)