ONE important question arises out of current attempts to provide a foundation for aggregate wage rigidity and unemployment. How mobile are unemployed workers? Recent theoretical models of unemployment can be divided into two basic categories: the new microeconomic search theories attribute unemployment to the job search and job changing behavior of workers who become permanently separated from their jobs. The newer contract theories attribute unemployment to the periodic employment reductions (via temporary layoffs) that are necessary to accommodate demand fluctuations when workers remain indefinitely attached to specific firms. The relative importance of these two approaches in explaining cyclical unemployment hinges on the share of unemployment over the business cycles that is associated with real labor turnover. Unfortunately no data are currently collected on the fraction of unemployment with or without job change. This paper derives estimates of temporary layoff unemployment for U.S. manufacturing from Bureau of Labor Statistics (BLS) establishment turnover data. After a brief discussion of current unemployment data, a time dependent distributed lag model of manufacturing rehires is developed. The model allows estimation of both the percentage of each month's layoffs that end in rehire and the average duration of unemployment before rehire. Together with the layoff rate, these two statistics determine an estimate of manufacturing unemployment without job change.

A substantial fraction of cyclical unemployment is better characterized as fluctuations of the "frictional" or "natural" rate than as deviations from some relatively stable natural rate. Shifts of employment demand between sectors of the economy necessitate continuous labor reallocation. Since it takes time for workers to find new jobs, some unemployment is unavoidable. This paper presents evidence that most of the unemployment fluctuations of the seventies (unlike those in the sixties) were induced by unusual structural shifts within the U.S. economy. Simple time-series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market. These models are estimated and a derived natural rate series is constructed.

A substantial fraction of cyclical unemployment is better characterized as fluctuations of the "frictional" or "natural" rate than as deviations from some relatively stable natural rate. Shifts of employment demand between sectors of the economy necessitate continuous labor reallocation. Since it takes time for workers to find new jobs, some unemployment is unavoidable. This paper presents evidence that most of the unemployment fluctuations of the seventies (unlike those in the sixties) were induced by unusual structural shifts within the U.S. economy. Simple time-series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market. These models are estimated and a derived natural rate series is constructed.

The oil-price shocks of 1973-74 and 1979-80 reduced output growth in oil-importing countries. Using monetary policy to accommodate exogenous shocks of this kind undoubtedly works. But the more such monetary policy is used, the less effective it becomes. And discretionary monetary policy has a negative effect on economic growth in the long run. This is how we interpret the econometric results reported below. We find that money is neutral neither in the medium term nor in the long run. The effects of current and lagged money growth shocks on output growth are significantly positive. Over time, however, discretionary monetary policy creates a higher variance of money growth shocks. The period-average variance of money growth shocks together with our indicator of an accommodative monetary policy regime are both negatively related to the rate of growth in real gross domestic product (GDP). Higher variance of money growth shocks reduces both the medium-term impact of discretionary monetary policy on output growth and output growth itself in the long run (see Robert Lucas, 1973, and Roger Kormendi and Philip Meguire, 1984, 1985). The only way of testing both the mediumand long-run effects of discretionary monetary policy is by pooling time-series data across countries; we use 647 observations for 55 developed and developing countries. We believe this to be the first appropriate test. Monetary accommodation of exogenous shocks, specifically accommodation of the 1973-74 oil-price increase, works temporarily to offset the output growth-reducing impact of the shock. However, accommodation adds noise to the economic environment and reduces output growth in the longer run. Indeed, we find that our monetary accommodation variable performs in virtually the same way as the variance of money growth shocks. Expansionary fiscal policy has mediumand long-run effects on output growth that are similar to monetary accommodation. Specifically, expansionary fiscal policy raises the ratio of net government credit to total domestic credit in countries lacking well-developed direct financial markets. In the medium term, a positive government credit shock raises output growth by stimulating aggregate demand. But a higher government credit ratio lowers output growth in the long run by starving the private sector of finance for productive investment.

The effect of Social Security and private pensions on individual retirement decisions is modeled, relaxing in turn three commonly maintained assumptions—perfect capital markets, actuarial fairness, and certain lifetimes—which together imply that there is no effect. In each case, raising the contribution level can cause systematic changes (of either sign in general) in individual retirement decisions. For Social Security, the effects associated with forced saving and deviations from actuarial fairness probably tend to advance retirement. But those effects that arise solely from the insurance aspect of Social Security and private pensions are ambiguous in sign, owing to the presence of a substitution effect that tends to delay retirement because the insurance benefits can be fully realized only by working longer.

Much recent thought has been devoted to the macroeconomic importance of the existence of wage contracts. Still, some puzzling features of the most conspicuous form of wage bargaining, that done formally by employers and labor unions, deserve further theoretical attention. Among these important features are: 1. Collective bargaining agreements are rarely contingent on outside events even though the parties have very imperfect knowledge of prospective economic conditions during the period of the contract. The only important exception is the indexing of wages to the cost of living. 2. Employers are permitted wide discretion in determining the level of employment when demand shifts unexpectedly. As employment varies, total compensation varies according to a formula established in the agreement. 3. Agreements are not permanent but are renegotiated on a regular cycle. 4. In the process of renegotiation, the current state of demand has little impact on the new wage schedule. On the other hand, current wages in other industries have an important influence. This feature especially has been denied or ignored by economic theorists even though it is a prominent part of the thinking of labor economists on wage determination.

The expectati on of the excess holding yield on a long bond is postulated to depend upon its conditional variance. Engle's ARCH model is extended to allow the conditional variance to be a determinant of the mean and is called ARCH-M. Estimation and infer ence procedures are proposed, and the model is applied to three interest rate data sets. In most cases the ARCH process and the time varying risk premium are highly significant. A collection of LM diagnostic tests reveals the robustness of the model to various specification changes such as alternative volatility or ARCH measures, regime changes, and interest rate formulations. The model explains and interprets the recent econometric failures of the expectations hypothesis of the term structure. Copyright 1987 by The Econometric Society.