Showing papers by "Federal Reserve System published in 1973"

Systematic job search and unemployment

Abstract: A great deal of attention has been paid recently to the micro-economic foundations of macro-economic theory and in particular to the derivation of the Phillips relationships from a study of the underlying labour markets. Following Stigler [12, 13], the methodology of some of these recent papers3 has been to study the behaviour of a worker searching for a new job in a labour market characterized by uncertain wage-differentials, vacancies and qualifications. Faced with this uncertain environment, the individual calculates a subjective wage-offer probability distribution for the entire market from his expectations of wage-rates and vacancies and then samples the firms randomly, stopping his search and accepting employment when he is offered a position at a wage at least as great as the " acceptance wage " which he had calculated from the wage-offer distribution. This " acceptance wage " has the property that the marginal cost of further search equals (or exceeds) the marginal benefit. An important deficiency of this approach is the assumption that workers are unable to distinguish between firms ex ante. Only after sampling the wage-offer at a firm is the job seeker able to characterize that firm as a highor low-wage employer. The job seeker travels around the labour market, sampling a firm here and a firm there and consequently, unless new information causes a change in his expectations, never changing his level of acceptance.4 Furthermore, the possibility that the job seeker will be given no offer is not analyzed although this aspect of the problem has a number of interesting implications. In fact, individuals are able to distinguish among firms ex ante, and they sample specific firms in a systematic fashion rather than just sampling the job market in general. Consequently, at every moment of time a rational job seeker must select a firm to sample as well as an acceptance wage. Allowing the job seeker this additional information on specific firms in the market and the extra degree of freedom in his search strategy obviously makes him better off, that is, he would be willing to pay a fee to be able to search systematically rather than sample the market randomly. Furthermore, his maximizing behaviour changes as a result of this new information. It will be shown that his optimal acceptance level declines with his duration of unemployment as he samples his best opportunities first and poorer ones later. It is also interesting that the criterion derived for rating firms is not merely an expected wage expression but one which also includes the probability of acceptance and the rate of time preference as separate arguments in addition to the expected wage.

Uncertainty, Market Structure, and Performance: The Galbraith-Caves Hypothesis and Managerial Motives in Banking

Abstract: I. The market structure-uncertainty avoidance relationship, 455. — II. Rationale behind the Galbraith-Caves hypothesis, 456. — III. A measure of uncertainty avoidance and the theory of the firm under uncertainty, 458. — IV. The Galbraith-Caves thesis in the context of the firm under uncertainty, 460. — V. Testing the relationship between market power and uncertainty-avoidance behavior, 463. — VI. Empirical results, 469. — VII. Conclusion, 472.

On the Service Flow from Labour

Abstract: For some time economists have been perplexed by the conflict between theoretical labour demand functions which posit decreasing returns to labour and measured labour demand functions which display increasing returns. Kuh [11], Brechling [5], Brechling and O'Brien [6], Ball and St. Cyr [3], and Coen and Hickman [7] are among the economists who, in the recent past, have published articles in which the implied elasticity of output with respect to labour exceeded one. Naturally, the estimates troubled them. Most of them assumed " labour hoarding" explained the observed high elasticity. The labour hoarding hypothesis, developed by Oi [14] and Soligo [17], includes adjustment costs for changing the stock of labour. As a result, firms hold a buffer stock of labour which augments labour productivity in a procyclical fashion. There are a number of other explanations, however. Anderson [2] presented a model with cyclical demand, production of an intermediate product, and production hoarding that led to shortrun increasingreturns in observed labour inputwith respect to final output. Puttyclay models (i.e., positive factor substitution in the planning stage and zero factor substitution once capital is installed, see Allen [1], p. 282) can account for the observed high elasticity of output with respect to labour through a variable capital utilization rate.2 Ireland and Smyth [10] reformulated a putty-putty model (positive factor substitution at any stage) to include a variable capital utilization rate determined by a capital utilization charge. However, their assumption that the ratio of factor rental rates-the cost of utilizing capital to the cost of labour-can be approximated by a constant makes their results equivalent to a clay-clay model. In the labour demand function they derive, the coefficient commonly identified as the elasticity of output with respect to labour in a Cobb-Douglas function is actually a returns to scale coefficient. This paper suggests a simple generalization that helps bring empirical results into closer agreement with theoretical models for any type of production function. We separate manhours, the surrogate for labour in most empirical studies into two heterogeneous components, " men " and hours. Feldstein [9] hypothesized that increases in average hours may increase labour productivity more than proportionally. His cross-section estimates of a three-factor Cobb-Douglas function (average hours, men, capital) for British manufacturing industries tended to confirm the hypothesis.3 This paper uses Feldstein's hypothesis as a base. We derive and estimate a model that posits the service flow from labour is a non-proportional function of men and hours. The model displays the conventional characteristics of decreasing returns to men and capital, but it has increasing returns for hours. Overtime costs limit the long run demand for hours per man.

Financing Agriculture: Demand for and Supply of Farm Capital and Credit

Abstract: N this paper, I discuss aggregate farm financial relationships and trends and then project a large further increase in farm debt. Along the way, I note some interesting findings bearing on the underlying causes of the debtincrease process-findings that raise questions about the completeness of the popular current assessment of that process. Where my story differs from the standard analysis, I take the liberty of stating the differences boldly--perhaps more boldly than they deserve to be advanced, given deficiencies of the data base and the fact that current econometric work on aggregate postwar farm financial behavior is still in the exploratory stage. But since my projections do not differ significantly from those emanating from the standard analysis, I thought it best to emphasize the analytical differences lest they be overlooked when, as usually happens, the numerical projections attract the limelight. To whet your appetite for the analysis, therefore, let me momentarily depart from orderly presentation of the subject to look at the main components of the standard analysis of most farm economists and lenders. A statement by Evans on the agricultural finance outlook for 1972, presented at the USDA's National Outlook Conference last February, is representative of this genre:

Bayesian Analysis of Error Components Regression Models

Abstract: This article examines the use of a two-way, random-effects, model with correlated errors and additional explanatory variables in combining cross-section with time series data. This model has been analyzed from a Bayesian viewpoint. Methods are developed for computing posterior distributions of slope coefficients. The advantage of our approach over sampling theory approaches is briefly discussed. It has been shown how one can obtain reasonable inferences about slope coefficients which are the parameters of interest, in the presence of nonestimable nuisance parameters by judicious use of sample and prior information.

Monetary policy, bank credit, and total credit : a preliminary analysis

Abstract: For the last three years, the Federal Open Market Committee has focused greater attention on certain monetary and credit aggregates in specifying its longer-run targets.