Abstract: The public sector hires
disproportionately more educated workers. Using US microdata, we show
that the education bias also holds within industries and in two thirds
of 3-digit occupations. To rationalize this finding, we propose a model
of private and public employment based on two features. First, alongside
a perfectly competitive private sector, a cost-minimizing government
acts with a wage schedule that does not equate supply and demand.
Second, our economy features heterogeneity across individuals and jobs,
and a simple sorting mechanism that generates underemployment – educated
workers performing unskilled jobs. The equilibrium model is parsimonious
and is calibrated to match key moments of the US public and private
sectors. We find that the public-sector wage differential and excess
underemployment account for 15 percent of the education bias, with the
remaining accounted for by technology. In a counterintuitive fashion, we
find that more wage compression in the public sector raises inequality
in the private sector. A 1 percent increase in unskilled public wages
raises private-sector inequality by 0.13 percent.
Abstract:
In most countries, the public sector
hires dis-proportionally more women than men. We document gender di
erences in employment, transition probabilities, hours, and wages in the
public and private sector using microdata for the United States, the
United Kingdom, France, and Spain. We then build a search and matching
model where men and women decide if to participate and if to enter
private or public sector labor markets. We calibrate our model
separately to the four countries. Running counterfactual experiments, we
quantify whether the selection of women into the public sector is driven
by: (i) lower gender wage gaps, (ii) possibilities of better
conciliation of work and family life, (iii) greater job security, or
(iv) intrinsic preferences for public sector occupations. We find that,
quantitatively, women's higher public sector wage premia and their
preferences for working in the public sector explain most of the
selection. We calculate the monetary value of public sector job security
and work-life balance premia, for both men and women, and we quantify
how wage and employment policies affect male and female unemployment,
inactivity rates, and wages di erently.
Abstract:
The size of the public sector in terms of employment and compensation
has a strong life-cycle dimension. We establish a quantitative
partial-equilibrium life-cycle model with incomplete markets, private
and public sectors, and risk-averse workers, and use it to (i) calculate
three dimensions of public-sector compensation: wage, pension, and
job-security premia, and (ii) quantify the effects of harmonizing the
compensation in the two sectors. We find that the job-security and
pension’s premia are important forms of compensation to public-sector
workers. Harmonizing the characteristics of public employment with those
of the private sector would lower the unemployment rate and reduce
government costs.
Abstract: We set up a search and matching model
with a private and a public sector to understand the effects of
employment and wage policies in the public sector on unemployment and
education decisions. The effects of wages and employment of skilled and
unskilled public-sector workers on the educational composition of the
labor force depend crucially on the structure of the labor market. An
increase of skilled public-sector wages has a small positive impact on
educational composition and larger negative impact on the private
employment of skilled workers, if the two sectors are segmented. If
search across the two sectors is random, it has a large positive impact
on education and a large positive impact on skilled private employment.
We highlight the usefulness of the model for policymakers by calculating
the value of public-sector job security for skilled and unskilled
workers.
Abstract: We set up a model with search and
matching frictions to understand the effects of employment and wage
policies, as well as nepotism in hiring in the public sector, on
unemployment and rent seeking. Conditional on inefficiently high
public-sector wages, more nepotism in public sector hiring lowers the
unemployment rate because it limits the size of queues for public-sector
jobs. Wage and employment policies impose an endogenous constraint on
the number of workers the government can hire through connections.
Abstract: We measure the size of gross
worker flows between public and private sector and their importance for
the dynamics of public employment over the last two decades in the US,
UK, France and Spain. Between 10 and 35 percent of all in flows and out
flows of the public sector are from and to private employment. These
flows only account for 7 to 25 percent of the fluctuations of public
employment.
Abstract: For the period between 2003 and
2018, we document a number of facts about worker gross flows in France,
the United Kingdom, Spain and the United States, focussing on the role
of the public sector. Using the French, Spanish and UK Labour Force
Survey and the US Current Population Survey data, we examine the size
and cyclicality of the flows and transition probabilities between
private and public employment, unemployment and inactivity. We examine
the stocks and flows by gender, age and education. We decompose
contributions of private and public job-finding and job-separation rates
to fluctuations in the unemployment rate. Public-sector employment
contributes 20 percent to fluctuations in the unemployment rate in the
UK, 15 percent in France and 10 percent in Spain and the US.
Private-sector workers would forgo 0.5 to 2.9 percent of their wage to
have the same job security as public-sector workers.
Abstract:
Countries with a lower fraction of workers with secondary
education have smaller firms. We set up a model of occupational choice
where individuals have primary, secondary or tertiary education. A more
educated work force raises firm size and productivity. More educated
workers earn higher wages, and hence among educated individuals only the
more able become entrepreneurs. We find that within the framework of our
model, different educational attainments can explain one third of the
difference in average firm size between the US and Mexico. While
improved educational attainments hence imply an increase in firm size
over time, a fall in the price of capital together with capital-skill
complementarity acts in the opposite direction, something that can
explain a relatively constant average firm size in the US since the late
1970's. Our policy experiments highlight additional effects of public
employment and a skill bias in public hiring on firm size and
productivity.
Abstract:I propose a reform of public sector wages
consisting of: i) a review of pay of all public sector workers to align
the distribution of public sector wages with the private sector and ii)
stipulating up a rule to determine the yearly growth rate of public
sector wages. I use a model with search and matching frictions and
heterogeneous workers to evaluate this reform in the steady-state and
over the business cycle. The model was calibrated to the UK economy
based on Labour Force Survey data. A review of the pay received by all
public sector workers to align the distribution of wages with the
private sector reduces steady-state unemployment by 3 percentage points.
Implementing a procyclical simple rule to determine the yearly growth
rate of public sector wages reduces the volatility of unemployment by 3
to 8 percent and of private consumption by 4 to 12 percent. I show that,
in a sample of 29 developed countries for the pre-crisis period of
1995-2006, countries that deviated more from the rule had a larger
increase in the unemployment rate and higher volatility of unemployment
relative to GDP.
Abstract:
A model with search and matching frictions and heterogeneous workers was
established to evaluate a reform of the public sector wage policy in
steady-state. The model was calibrated to the UK economy based on Labour
Force Survey data. A review of the pay received by all public sector
workers to align the distribution of wages with the private sector
reduces steady-state unemployment by 1.9 percentage points.
Abstract:I build a dynamic stochastic general
equilibrium model with search and matching frictions in order to
determine the optimal public sector wage policy. Public sector wages are
crucial to achieve efficient allocation of jobs. High wages induce too
many unemployed to queue for public sector jobs, in turn raising
unemployment. The optimal wage depends on the frictions in the two
sectors. Following technology shocks, public sector wages should be
procyclical, and deviations from the optimal policy significantly
increase the volatility of unemployment.
Awarded the Austin Robinson Memorial Prize for the best paper published
in the Economic Journal in 2015 by an author who is within five years of
receiving their PhD.
Abstract:We examine the
interactions between public and private sector wages per employee in
OECD countries. The growth of public sector wages and of public sector
employment positively affects the growth of private sector wages.
Moreover, total factor productivity, the unemployment rate and the
degree of urbanisation are also important determinants of private sector
wage growth. With respect to public sector wage growth, we find that it
is influenced by fiscal conditions in addition to private sector wages.
We then set up a dynamic labour market equilibrium model with two
sectors, search and matching frictions and exogenous growth to
understand the transmission mechanisms of fiscal policy. The model is
quantitative consistent with the main estimation findings.
Abstract:I argue that when two
or more credit rating agencies rate a product, they have the incentive
to put a weight on the competitors' rating. This piggybacking allows an
agency to increase the precision of its own rating while doing less
monitoring. Although it is privately effcient, it implies that having
more rating agencies does not necessarily increase the overall
monitoring. Using annual data on sovereign debt ratings I show that the
probability of a rating change depends on the rating differential
towards its competitors, even when accounting for a common information
set, which is consistent with the hypothesis.
Abstract:The reaction of EU bond and equity market
volatilities to sovereign rating announcements (Standard & Poor's,
Moody's, and Fitch) is investigated using a panel of daily stock market
and sovereign bond returns. The parametric volatilities are filtered
using EGARCH specifications. The estimation results show that upgrades
do not have significant effects on volatility, but downgrades increase
stock and bond market volatility. Contagion is present, with sovereign
rating announcements creating interdependence among European financial
markets with upgrades (downgrades) in one country leading to a decrease
(increase) in volatility in other countries. The empirical results show
also a financial gain and risk (value-at-risk) reduction for portfolio
returns when taking into account sovereign credit ratings’ information
for volatility modelling, with financial gains decreasing with higher
risk aversion.
Abstract:We use EU sovereign
bond yield and CDS spreads
daily
data to
carry out an event study analysis on
the
reaction of government yield spreads before and after announcements from rating
agencies (Standard & Poor's, Moody's, Fitch). Our results show significant
responses of government bond yield spreads to changes in rating notations and
outlook, particularly in the case of negative announcements. Announcements are
not anticipated at 1-2 months horizon but there is bi-directional causality
between ratings and spreads within 1-2 weeks; spillover effects especially among
EMU countries and from lower rated countries to higher rated countries; and
persistence effects for recently downgraded countries.
Abstract:We use sovereign
debt rating estimations from Afonso, Gomes and Rother (2009, 2011) for Fitch,
Moody's, and Standard & Poor's, to assess to what extent the recent fiscal
imbalances are being reflected on the sovereign debt notations. With macro and
fiscal data up to 2010, and macro and fiscal projections, we obtain the expected
rating for several OECD countries. The answer to the title question is yes, but
in a diverse way for each country. Our average model predictions point to a
heterogeneous behaviour of rating agencies across countries.
Abstract:
We study the determinants of sovereign debt ratings from the three main
international rating agencies, for the period 1995-2005. Using linear and
ordered response models we employ a specification that allows us to distinguish
between short and long-run effects, on a country's rating, of macroeconomic and
fiscal variables. Changes in GDP per capita, GDP growth, government debt, and
government balance have a short-run impact on a country's credit rating, while
government effectiveness, external debt, foreign reserves and default history
are important long-run determinants.
Abstract:
Using ordered logit and probit plus random effects ordered probit approaches we study the
determinants of sovereign ratings. The last procedure should be more appropriate
for panel data as it considers the existence of an additional normally
distributed cross-section error.
Abstract: The public sector hires
disproportionately more educated workers. Using US microdata, we show
that the education bias also holds within industries and in two thirds
of 3-digit occupations. To rationalize this finding, we propose a model
of private and public employment based on two features. First, alongside
a perfectly competitive private sector, a cost-minimizing government
acts with a wage schedule that does not equate supply and demand.
Second, our economy features heterogeneity across individuals and jobs,
and a simple sorting mechanism that generates underemployment – educated
workers performing unskilled jobs. The equilibrium model is parsimonious
and is calibrated to match key moments of the US public and private
sectors. We find that the public-sector wage differential and excess
underemployment account for 15 percent of the education bias, with the
remaining accounted for by technology. In a counterintuitive fashion, we
find that more wage compression in the public sector raises inequality
in the private sector. A 1 percent increase in unskilled public wages
raises private-sector inequality by 0.13 percent.
Abstract:
We propose a simple theory of under-
and over-employment. Individuals of high type can perform both skilled
and unskilled jobs, but only a fraction of low-type workers can perform
skilled jobs. People have different non-pecuniary values over these
jobs, akin to a Roy model. We calibrate two versions of the model to
match moments of 17 OECD economies, considering separately education and
skills mismatch. The cost of mismatch is 3% of output on average but
varies between -1% to 9% across countries. The key variable that
explains the output cost of mismatch is not the percentage of mismatched
workers but their wage relative to well-matched workers.
Abstract:
In 1940, the Portuguese government approved a massive primary school
construction plan that projected a 60% increase in the number of primary
schools. Based on the collection of a new dataset, we describe literacy
levels in Portugal prior to the plan as well as the plan’s strategy
regarding the location of schools. We then estimate the causal impact of
the increase in the number of schools between 1940 and the early 60s on
enrolment and literacy, all at the county level. We conclude the
increase in the number of schools was responsible for 80% of the
increase in enrolment and 13% of the increase in the literacy rate of
the affected cohorts.
Abstract: We set up a search and matching model
with a private and a public sector to understand the effects of
employment and wage policies in the public sector on unemployment and
education decisions. The effects of wages and employment of skilled and
unskilled public-sector workers on the educational composition of the
labor force depend crucially on the structure of the labor market. An
increase of skilled public-sector wages has a small positive impact on
educational composition and larger negative impact on the private
employment of skilled workers, if the two sectors are segmented. If
search across the two sectors is random, it has a large positive impact
on education and a large positive impact on skilled private employment.
We highlight the usefulness of the model for policymakers by calculating
the value of public-sector job security for skilled and unskilled
workers.
Abstract: Capital-skill complementarity
in production implies non-trivial interactions between availability of
human capital and financial constraints. Firms that are constrained in
their access to finance hire a lower proportion of skilled workers
compared to unconstrained rms. On the other hand, a lack of human
capital increases skilled wages, reducing firms' desired capital
intensity and thus loosening effective financial constraints. We build a
dynamic occupational-choice model to quantify how a lack of human
capital and financial frictions, as well as the joint effect of both
restrictions interact to explain cross-country differences in aggregate
output per capita, productivity, average firm size, and college premia.
We calibrate our model to US data, and we vary financial frictions and
educational attainment as observed across countries. We find that the
joint effect of both restrictions is up to 50 percent larger compared to
the sum of the individual effects. In countries with a negligible share
of tertiary educated workers, financial development has only small
effects on aggregate output.
Abstract:Exit rates from unemployment and re-employment wages
decline over an unemployment period after controlling for worker
observable characteristics. In this study, the role of unobserved
heterogeneity in an economy where workers are informed privately about
skills and they direct their own search is investigated. We show that
the unique equilibrium is separating and that skilled workers have more
job opportunities with higher wages. The composition of the unemployment
pool varies with the duration of unemployment, so the average exit rates
and wages fall with time. The separating equilibrium relies on the
ability of firms to commit to renting an input that is complementary in
terms of production to the skills of worker and performance-related pay
schemes.
Abstract:
Countries with a lower fraction of workers with secondary
education have smaller firms. We set up a model of occupational choice
where individuals have primary, secondary or tertiary education. A more
educated work force raises firm size and productivity. More educated
workers earn higher wages, and hence among educated individuals only the
more able become entrepreneurs. We find that within the framework of our
model, different educational attainments can explain one third of the
difference in average firm size between the US and Mexico. While
improved educational attainments hence imply an increase in firm size
over time, a fall in the price of capital together with capital-skill
complementarity acts in the opposite direction, something that can
explain a relatively constant average firm size in the US since the late
1970's. Our policy experiments highlight additional effects of public
employment and a skill bias in public hiring on firm size and
productivity.
Abstract:
A model with search and matching frictions and heterogeneous workers was
established to evaluate a reform of the public sector wage policy in
steady-state. The model was calibrated to the UK economy based on Labour
Force Survey data. A review of the pay received by all public sector
workers to align the distribution of wages with the private sector
reduces steady-state unemployment by 1.9 percentage points.
Abstract: We measure the size of gross
worker flows between public and private sector and their importance for
the dynamics of public employment over the last two decades in the US,
UK, France and Spain. Between 10 and 35 percent of all in flows and out
flows of the public sector are from and to private employment. These
flows only account for 7 to 25 percent of the fluctuations of public
employment.
Abstract: For the period between 2003 and
2018, we document a number of facts about worker gross flows in France,
the United Kingdom, Spain and the United States, focussing on the role
of the public sector. Using the French, Spanish and UK Labour Force
Survey and the US Current Population Survey data, we examine the size
and cyclicality of the flows and transition probabilities between
private and public employment, unemployment and inactivity. We examine
the stocks and flows by gender, age and education. We decompose
contributions of private and public job-finding and job-separation rates
to fluctuations in the unemployment rate. Public-sector employment
contributes 20 percent to fluctuations in the unemployment rate in the
UK, 15 percent in France and 10 percent in Spain and the US.
Private-sector workers would forgo 0.5 to 2.9 percent of their wage to
have the same job security as public-sector workers.
Abstract:Labour markets transition rates are
typically estimated using survey data, which are mainly carried at
monthly or quarterly frequency. I argue that rates from surveys at
different frequencies are not comparable, even if corrected for time
aggregation. I estimate labour market transition rates using monthly and
quarterly frequency CPS data. I apply time-aggregation correction to
make them comparable. I find notable differences in terms of levels and
volatilities. While the continuous time-aggregation correction does not
alter the unemployment decomposition using the monthly survey, it does
so when using the quarterly survey.
Abstract:
This paper documents a number of facts about worker gross flows in the United
Kingdom for the period between 1993 and 2010. Using Labour Force Survey data, I
examine the size and cyclicality of the flows and transition probabilities
between employment, unemployment and inactivity, from several angles. I examine
aggregate conditional transition probabilities, job-to-job flows, employment
separations by reason, flows between inactivity and the labour force and flows
by education. I decompose contributions of job-finding and job-separation rates
to fluctuations in the unemployment rate. Over the past cycle, the
job-separation rate has been as relevant as the job-finding rate.
Abstract: We show that, in a financially
constrained environment, relative to an active fiscal--passive monetary
policy regime, an active monetary--passive fiscal policy amplifies
technology shocks, neutralizes financial shocks, and mitigates the
expansionary effects of fiscal shocks through a ``debt deflation" and
``real interest rate" channels. Several features of the data suggest
that, during the last decade, the United States implemented an active
fiscal--passive monetary policy, while the Euro area implemented an
active monetary--passive fiscal policy, implying that the distinct
post-crisis dynamics of the United States and the Euro area can be
rationalized through different fiscal and monetary policy mixes.
Abstract:
Over the past 40 years public investment has declined in
most developed countries. This paper argues that such pattern can be the
consequence of investment-specific technological progress. Public
investment, mostly on infrastructures, experienced a slower rate of
innovation than private investment, composed primarily by equipment and
software. Within a simple neoclassical growth model with a public
sector, we show that such type of technological progress reduces the
incentives to invest in public capital, and accounts for 80 percent of
the observed decline. The implied co-movements of other fiscal
instruments are also consistent with observed trends.
Abstract: We measure the regional impact of the European Capital of Culture
programme using a difference-in-differences approach. We compare the
regions of cities that hosted the
event with the regions of cities that tried to host it but did not
succeed. GDP per capita in hosting regions is 4.5 percent higher
compared to non-hosting regions during the event and the effect persists
more than 5 years after it. This result suggests that the economic
dimension of the event is important and support claims that the event
serves as catalyst for urban regeneration and development.
Abstract:
We show, in a broad class of affine general equilibrium models with
long-run risk, that the covariances between asset returns are linear
functions of risk factors. We use a dynamic conditional correlation
model to measure the covariances of stock and sovereign bond markets in
the Euro Area. We use a new approach to measure risk factors based on
Google search data. The factors explain 50 to 60 percent of the
variation of the covariances between European stocks and 25 to 35
percent of the covariances between European bonds. The information
improves the portfolio performance compared to an equally weighted
portfolio.