Knowledge that Transforms

While fiscal adjustment is commonly viewed as the cornerstone of macroeconomic stabilization, the effectiveness of alternative fiscal instruments in raising national saving is still poorly understood. This paper enters the debate by estimating a private consumption function that allows for two types of agents—finite horizons and liquidity constraints—and nests three different consumption hypotheses. Using a large-panel data set that includes both industrial and developing countries, we reject full Ricardian equivalence. We also find substantial differences between industrial and developing countries, regarding both the extent of Ricardian offsetting and the degree to which the government budget constraint is internalized.

The decline in the unskilled share of French employment is chiefly due to the slackness of domestic demand for those industries with the highest proportion of unskilled workers. The spread of computers has not been particularly conducive to substitution between skilled and unskilled labor. We test and accept the hypothesis of technical-progress neutrality within French industries. The mechanisms that generate inequality do not appear to be the same in France and in the United States. The source of inequality isn't so much technical progress per se as its interaction with the institutions that regulate the labor market.

We develop a procedure to rank-order objects using censored panel data sets. We illustrate this by ranking countries and commodities using disaggregated American import data and find evidence that countries and commodities can be ranked. Countries habitually begin to export goods to the United States according to an ordering; goods are also exported in order. We estimate these orderings using a methodology, that takes account of the fact that most goods are not exported by most countries in our sample. Our orderings seem sensible, robust, and intuitive, and they are correlated with macroeconomic phenomena such as productivity and growth rates.

Using quarterly data to estimate state-level matching functions, we obtain point estimates that are slightly higher than are found with national gross flows data, likely because of inherent differences in the data sources. We also estimate matching functions separately by the source of the new hire, and show that the results are consistent with the assumptions of endogenous job search by the employed and a preference for employed applicants by firms. Thus, care must be taken in interpreting empirical matching functions, which are likely a reduced-form combination of a structural matching function and a job competition model.

This paper tests, using U.S. data, the dynamics implied by the NAIRU view of the relationship between inflation and the unemployment rate. The results are somewhat sensitive to the measure of inflation used, but they generally reject the dynamics. An alternative way of thinking about the relationship between inflation and the unemployment rate is suggested.

Using microdata from 1985 to 1994 for fifteen OECD countries, I find that greater union coverage and membership lead to higher relative pay and lower relative employment for less-skilled men, with similar pay effects but only weak evidence of negative employment effects for less-skilled women. Greater economy-wide union coverage or membership leads to lower employment and higher relative wages for young men (with similar but weaker effects for young women), and a greater propensity to attend school for both genders. With few jobs for young people, education may have a low opportunity cost and may enhance one's employability.

Declining fertility, mortality, and productivity rates in developed countries and the popularity of the social security privatization in Chile as a pathway to financial development have sparked a global interest in social security reform. This paper analyzes the effect of social security on saving using a panel of countries over 25 years. Variation in the characteristics of social security systems is used to determine whether less reliance on a pay-as-you-go, unfunded system is associated with higher national saving. There is little evidence that countries that implement defined-contribution reforms have higher trends in saving rates after the reform. Cross-sectionally, countries with pay-as-you-go systems tend to have lower saving rates, and this effect increases with the coverage rate on the system.

The Kuhn-Tucker model of Wales and Woodland (1983) provides a utility theoretic framework for estimating preferences over commodities for which individuals choose not to consume one or more of the goods. Due to the complexity of the model, however, there have been few applications in the literature and little attention has been paid to the problems of welfare analysis within the Kuhn-Tucker framework. This paper provides an application of the model to the problem of recreation demand. In addition, we develop and apply a methodology for estimating compensating variation, relying on Monte Carlo integration to derive expected welfare changes.

Despite widespread popular accounts that link crack cocaine to inner-city decay, little systematic research has analyzed how the emergence of crack affected urban crime. We study this question using FBI crime rates for 27 metropolitan areas and two sources of information on when crack first appeared in those cities. Using methods designed to control for unobserved differences among metropolitan areas, we find that the introduction of crack had substantial effects on crime. In the absence of crack cocaine, the 1991 peak in urban crime rates would have been approximately 10% lower, remaining below the previous peak levels of the early 1980s.

This paper examines the impact of changes in labor market conditions on participation in the Aid to Families with Dependent Children (AFDC) program in California. Transitions off welfare and transitions back onto welfare are estimated using discrete duration models that control for local labor market conditions, demographic and neighborhood characteristics, duration effects, county-fixed effects, time effects, and county- specific time trends. The results show that higher unemployment rates, lower employment growth, lower employment-to-population ratios, and lower wage growth are associated with longer welfare spells and higher recidivism rates. Hispanics, blacks, and two-parent families are the groups that are most sensitive to changes in local labor market conditions.