The link between US labor cost and price inflation has weakened notably over the past three decades. In this paper we document decline analyse potential contributing factors. We consider four important trends that have shaped economy of late: (i) improved anchoring expectations; (ii) changing constellation shocks hitting economy; (iii) increased trade integration (iv) rising firm market power. ...

This paper attempts to provide a critical appraisal of the debate on the effectiveness of microfinance as a universal poverty reduction tool. It argues that while microfinance has developed some innovative management and business strategies, its impact on poverty reduction remains in doubt. Microfinance, however, certainly plays an important role in providing safety-net and consumption smoothen...

We analyze a simple strategic model of interaction between central bank and labor union. We assume that the intransparency of the central bank (labor union) induces Knightian uncertainty faced by the labor union (central bank). Knightian uncertainty means that decision makers are unable to make exact probability judgements. It is modelled by Choquet Expected Utility Theory and its recent applic...

A search-theoretic model of equilibrium unemployment is constructed and shown to be consistent with the key regularities of the labor market and business cycle. The two distinguishing features of the model are: (i) the decision to accept or reject jobs is modeled explicitly, and (ii) markets are incomplete. The model is well suited to address a number of interesting policy questions. Two such a...

This paper tests the robustness of the “two-tiered labor market” in which efficient bilateral contracts emerge between firms and workers (Brown, Falk and Fehr, 2004). Our experiment introduces stochastic interruptions in firm’s ability to offer contracts. Involuntarily laid off workers are eager to be reemployed; they are unselective about job offers and do not shirk. Firm’s preference for thes...

This paper incorporates endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble exists through a positive feedback loop mechanism. The collapse of the bubble tightens the credit constraints, causing firms to reduce investment and hirings. Unemployed workers are hard to find jobs g...

This paper quantifies the impact of the Hartz reforms on matching efficiency, using monthly SOEP gross worker flows (1983-2009). We show that, until the early 2000s, close to 60% of changes in the unemployment rate are due to changes in the inflow rate (job separation). On the contrary, since the implementation of the reforms in the mid-2000s, the importance of the outflow rate (job finding) ha...

The framework of a general equilibrium heterogeneous agent model is used to study the optimal design of an unemployment insurance (UI) scheme and preferences for unemployment policy reforms. In a first step, the optimal defined benefit and defined replacement ratio UI systems are obtained in simulations. Then, the question whether switching to such an optimal system from the status quo would be...

Labor and product market regulations affect the unemployment rate of a country without doubt. Econometricians, however, have yet to establish an unequivocal significance of this impact. Model mis-specification, one of the main underlying problems, is overcome by adopting a Bayesian Model Averaging approach. I apply this method to a panel data set that covers 17 OECD countries for the time perio...

Standard economic analysis holds that labor market rigidities are harmful for job creation and typically increase unemployment. But many orthodox reforms of the labor market have proved di±cult to implement because of political opposition. For these reasons it is important to explain why we observe such regulations. In this paper I outline a theory of how they may arise and why they ̄t together...