FDI AND INCOME INEQUALITY: EVIDENCE FROM A PANEL OF U.S. STATES

This study employs state‐level panel data to explore the relationship between inward foreign direct investment (FDI) and income inequality in the United States. Using panel cointegration techniques that allow for cross‐sectional heterogeneity and cross‐sectional dependence, we find that, in the long run, FDI exerts a significant and robust negative effect on income inequality in the United States. This result for the United States as a whole does not imply that FDI narrows income gaps in each individual state. There is considerable heterogeneity in the long‐run effects of FDI on income inequality across states, with some states (21 out of 48 cases) exhibiting a positive relationship between FDI in income inequality.(JEL F21, D31, C23)     

EMPLOYMENT DYNAMICS OF IMMIGRANTS VERSUS NATIVES: EVIDENCE FROM THE BOOM‐BUST PERIOD IN SPAIN, 2000–2011

This article studies whether the durations in unemployment and employment for immigrants and natives respond differently to changes in economic conditions and to the receipt of unemployment benefits. Using Spanish administrative data for the period 2000–2011, we estimate multi‐spell duration models that disentangle unobserved heterogeneity from true duration dependence. Our findings suggest that immigrants are more sensitive to changes in economic conditions both in terms of unemployment and employment hazards. The effect of the business cycle is not constant but decreases with duration at a higher rate among immigrants. We provide evidence that the higher job separation rates and lower capital‐labor complementarity of immigrants are mechanisms that are possibly compatible with these results. We also find evidence of a disincentive effect of unemployment benefits on unemployment duration, which is stronger for immigrants, but only at the beginning of the unemployment spell, especially under good economic conditions. Finally, unemployment benefits increase job match quality only for native workers with temporary contracts. (JEL J64, J61, C23, C41, J65)     

INFLATION DYNAMICS AND THE OUTPUT‐INFLATION TRADE‐OFF: INTERNATIONAL PANEL DATA EVIDENCE

We explore the impact of inflation and its variability on the output‐inflation trade‐off using a single‐step approach in a panel data context. Previous empirical approaches focus on either cross‐country or country‐by‐country time‐series analyses. We employ a dynamic heterogeneous panel specification using an all‐encompassing estimation framework accounting for parameter heterogeneity, cross‐sectional dependence, dynamics, and nonstationarity. Our sample covers 60 countries from 1970 to 2010. While inflation variability reduces the trade‐off for specific periods and country groups, an unambiguous and more pronounced negative relation emerges between the inflation rate and the trade‐off. The findings are consistent with the New Keynesian view. (JEL E31, E12, C23)     

PRODUCTIVITY EFFECTS OF PUBLIC CAPITAL MAINTENANCE: EVIDENCE FROM U.S. STATES

This article assesses the productivity effects of infrastructure operation and maintenance (O&M) spending by state and local governments in the 48 contiguous U.S. states over the period 1978–2000. We explicitly account for transboundary spillovers of capital and O&M spending and follow a semiparametric methodology that allows us to estimate state‐specific output elasticities. We find strong evidence that in all 48 states the cross‐state spillover effects of O&M outlays on productivity exceed their within‐state impacts and are substantially higher than the spillover effects of capital expenditure. (JEL C14, E22, E62, H76, O11, O47, R11)     

THE EFFECTS OF MACROECONOMIC CONDITIONS AT GRADUATION ON OVEREDUCATION

This article shows that unfavorable economic conditions at graduation decrease the likelihood of a good job‐worker match over a worker's subsequent career. Mismatch is quantified in terms of overeducation by both industry and occupation. The German Socio‐Economic Panel and region‐level unemployment rates from 1994 to 2012 are used. Instrumental variables estimates account for endogenous graduation timing. A single percentage point increase in regional unemployment causes an increase in the probability of overeducation of 1.6–1.7 percentage points for university graduates. Effects for technical tertiary education and apprenticeship graduates are smaller. Labor market entry conditions affect workers for up to 9 years after graduation. (JEL J23, J22, E32, I23)     

COMMON DRIVERS OF TRANSNATIONAL TERRORISM: PRINCIPAL COMPONENT ANALYSIS

This article applies principal component analysis to decompose transnational terrorism during 1970–2007 into common (worldwide) and idiosyncratic (country‐specific) factors. Regardless of alternative thresholds and filtering procedures, a single common factor is related to individual countries' transnational terrorist events. Based on a conventional criterion, Lebanon's transnational terrorism is the key common driver of global transnational terrorist incidents. With a more conservative criterion, four additional countries—United States, Germany, Iraq, and the United Kingdom—are core countries in explaining cross‐sectional correlation across 106 countries' transnational terrorism. The analysis shows that there is a marked cross‐sectional dependence among transnational terrorist incidents worldwide. (JEL C38, H56)     

SELF‐EMPLOYMENT,EFFICIENCY WAGE,AND PUBLIC POLICIES

Empirical evidence suggests that unemployed workers are much more likely to become self‐employed than wage‐employed workers. Also, higher unemployment benefits significantly reduce the rate of self‐employment. This article develops a model of self‐employment which incorporates transitions between unemployment and self‐employment. It integrates two strands of theoretical literature—models of occupational choice and the efficiency wage models. In this model, a higher unemployment benefit reduces the self‐employment rate and the transition rate of unemployed workers to self‐employment, which is consistent with empirical evidence. (JEL J23, J58, J64)     

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.     

NEW MEASURES OF THE COSTS OF UNEMPLOYMENT: EVIDENCE FROM THE SUBJECTIVE WELL‐BEING OF 3.3 MILLION AMERICANS

Using two large U.S. surveys, we estimate the effects of unemployment on the subjective well‐being (SWB) of the unemployed and the rest of the population. For the unemployed, the nonpecuniary costs of unemployment are several times as large as those resulting from lower incomes, while the indirect effect at the population level is 15 times as large. For those who are still employed, a one percentage point increase in local unemployment has an impact on well‐being roughly equivalent to a 4% decline in household income. We also find evidence indicating that job security is an important channel for the indirect effects of unemployment. (JEL E24, H23, J64, J68)     

WHO QUITS NEXT? FIRM GROWTH IN GROWING ECONOMIES

We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity of a firm relative to others. In contrast, aggregate growth is linked to average firm‐level productivity growth and firm age. We formalize this intuition through a tractable model of endogenous aggregate growth and firm dynamics where firms realize positive returns to investment with some probability. We find that cross‐country disparities in this probability can account for two‐thirds of the variation in aggregate growth. (JEL D21, D22, E23, O4)     

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)     

THE EFFECT OF MINIMUM WAGES ON EMPLOYMENT: A FACTOR MODEL APPROACH

This paper uses factor model methods to resolve issues in the minimum wage‐employment debate. Factor model methods provide a more flexible way of addressing concerns related to unobserved heterogeneity that are robust to critiques from either side of the debate. The factor model estimators produce minimum wage‐employment elasticity estimates that are much smaller than the traditional ordinary least squares (OLS) results and are not statistically different from zero. These results hold for many specifications and datasets from the minimum wage‐employment literature. A simulation shows that unobserved common factors can explain the different estimates seen across methodologies in the literature. (JEL C23, J21, K31)     

ON FRUITFUL AND FUTILE TESTS OF THE RELATIONSHIP BETWEEN SEARCH AND PRICE DISPERSION

We exploit cross‐sectional and temporal differences in search intensity in order to examine the relationship between search costs and price dispersion using a hand‐collected panel data set from Jerusalem's Shuk Mahane Yehuda outdoor market. We present empirical evidence that price dispersion increases with the cost of search using several different measures of price dispersion; however, our interpretation of this finding is sensitive to the search proxy in question. We also address several acute difficulties facing empiricists seeking to test theoretical price‐dispersion models in which consumers are heterogeneous in their search behavior. (JEL L11, L13)     

RENT CREATION AND RENT SHARING: NEW MEASURES AND IMPACTS ON TOTAL FACTOR PRODUCTIVITY

This analysis proposes new measures of rent creation and rent sharing and assesses their impact on productivity on cross‐country‐industry panel data. We find first that: (1) anticompetitive product market regulations positively affect rent creation and (2) employment protection legislation boosts hourly wages, particularly for low‐skill workers. However, we find no significant impact of this employment legislation on rent sharing, as the hourly wage increases are offset by a negative impact on hours worked. Second, using regulation indicators as instruments, we find that rent creation and rent sharing both have a substantial negative impact on total factor productivity. (JEL E22, E24, O30, L50, O43, O47, C23)     

Unemployment,Reemployment, and Health Insurance Status Among Older Workers in the Flexible Labor Market

As employment becomes more precarious, and spells of displacement become more common across the labor market, many individuals are forced to make decisions about the speed at which they seek reemployment and the types of employment they will seek. Using repeated cross‐sectional data from various years of the Displaced Worker Supplement of the Current Population Survey, we examine the degree to which employer‐provided health insurance and organizational provision of advanced layoff warning helped workers—particularly those from earlier birth cohorts—navigate the labor market during a period of growing employment flexibility. Our results indicate that workers from older cohorts, rather than older chronological ages, suffered more from displacement in terms of longer unemployment spells and declines in job quality upon reemployment. Workers able to obtain a job with health insurance had shorter unemployment durations, while those displaced from jobs with health insurance remained unemployed for longer periods of time. Advance notice appears to reduce some of the disproportionately negative effects of displacement for older workers, perhaps by easing the shock of a psychological contract breach. Our findings point to the importance of historical and cultural factors in shaping labor market outcomes.     

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)     

UNDERSTANDING THE COSTS OF CONSUMER DURABLE ADJUSTMENTS

This article examines whether adjustment frictions help account for the patterns of household consumption expenditures observed in the Consumer Expenditure Survey, namely, that the variance of log durable expenditure is four times larger than that of log nondurable expenditure for annual data and this gap substantially widens for quarterly data. Estimating a structural model of household consumption with nondurable and durable goods with the simulated method of moments, I find that the fixed costs associated with durable adjustments are important in matching the cross‐sectional moments. Using the estimated model, I also examine the response of nondurable and durable expenditures to income shocks. (JEL D12, D91, E21)     

FINANCIAL RESTRAINTS AND PRIVATE INVESTMENT: EVIDENCE FROM A NONSTATIONARY PANEL

We employ recently developed panel data methods to estimate a model of private investment under financial restraints for 20 developing countries using annual data for 1972–2000. We show that the qualitative nature of the results varies depending on whether we take into account cross‐country effects. When we allow for cross‐sectional dependence, investment displays more sensitivity to world capital market conditions and exchange rate uncertainty. A perhaps even more surprising result is the finding that countries that managed to suppress domestic real interest rates without generating high inflation enjoyed higher levels of private investment than those that would have been obtained under liberalized conditions. (JEL O16, G18, G28)     

LABOR MARKET DYNAMICS WITH SEARCH FRICTIONS AND FAIR WAGE CONSIDERATIONS

Fairness considerations in wage setting can improve the ability of the Diamond‐Mortensen‐Pissarides search and matching model to account for U.S. labor market dynamics. Firms' production is influenced by workers' effort input, which depends on whether workers consider the employment relation as fair. A typical worker's effort is determined in a comparison of individual current wage with wage norms, including the outside option, the individual past wage, and the wage level in the steady state. The fairness considerations in the search framework give rise to endogenous real wage rigidity, and realistic volatilities of unemployment, vacancies, and labor market tightness. (JEL E24, E32, J64)     

ON THE HETEROGENEOUS EMPLOYMENT EFFECTS OF OFFSHORING: IDENTIFYING PRODUCTIVITY AND DOWNSIZING CHANNELS

This article examines the channels through which offshoring affects employment in a representative sample of German establishments, using a difference‐in‐differences matching approach. Offshoring is measured by an increase in the share of foreign to total intermediate inputs at the plant‐level. We identify a positive productivity effect and isolate a negative downsizing effect from offshoring on employment, by exploiting differences between offshoring plants that do and do not simultaneously restructure. Furthermore, we cannot find evidence of negative indirect employment effects on domestic suppliers or competitors. (JEL F16, J23, F23, C21)