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101. Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value Around the World

Author:
Ricardo Correa and Uger Lel
Publication Date:
07-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Using a sample of about 90,000 observations from 38 countries over the 2001-2012 period, we provide three novel findings regarding say on pay (SoP) laws. First, we find robust evidence that SoP laws reduce CEO pay growth rates at firms. Second, such laws decrease the portion of total top management pay captured by CEOs. Firm values are higher following SoP laws in part because of this reduction in managerial pay inequality. Third, mandatory SoP laws only affect the CEO pay growth rates whereas advisory SoP laws influence various aspects of executive pay policies. These results are robust to instrumental variable estimation and nearest neighbor matching methods.
Topic:
Labor Issues, Inequality, Leadership, and Business
Political Geography:
Global Focus

102. Export Dynamics in Large Devaluations

Author:
George Alessandria and Sangeta Pratap
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, and the discount factor, we find the model can capture the salient features of export dynamics documented. At the aggregate level, the features giving rise to sluggish exports lead to more gradual net export reversals, sharper contractions and recoveries in output, and endogenous stagnation in labor productivity.
Topic:
Economics, International Trade and Finance, Labor Issues, and Exports
Political Geography:
Global Focus

103. Unemployment and Business Cycles

Author:
Lawrence J. Christiano, Martin Eichenbaum, and Mathias Trabandt
Publication Date:
09-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We develop and estimate a general equilibrium model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, wages are not subject to exogenous nominal rigidities. Instead we derive wage inertia from our specification of how firms and workers interact when negotiating wages. Our model outperforms the standard Diamond-Mortensen-Pissarides model both statistically and in terms of the plausibility of the estimated structural parameter values. Our model also outperforms an estimated sticky wage model.
Topic:
Labor Issues, Employment, Business, Economic Theory, Unemployment, and Job Creation
Political Geography:
Global Focus

104. Bonded Labor: Tackling the System of Slavery in South Asia

Author:
Siddharth Kara
Publication Date:
09-2012
Content Type:
Book
Institution:
Columbia University Press
Abstract:
Siddharth Kara's Sex Trafficking has become a critical resource for its revelations into an unconscionable business, and its detailed analysis of the trade's immense economic benefits and human cost. This volume is Kara's second, explosive study of slavery, this time focusing on the deeply entrenched and wholly unjust system of bonded labor. Drawing on eleven years of research in India, Nepal, Bangladesh, and Pakistan, Kara delves into an ancient and ever-evolving mode of slavery that ensnares roughly six out of every ten slaves in the world and generates profits that exceeded $17.6 billion in 2011. In addition to providing a thorough economic, historical, and legal overview of bonded labor, Kara travels to the far reaches of South Asia, from cyclone-wracked southwestern Bangladesh to the Thar desert on the India-Pakistan border, to uncover the brutish realities of such industries as hand-woven-carpet making, tea and rice farming, construction, brick manufacture, and frozen-shrimp production. He describes the violent enslavement of millions of impoverished men, women, and children who toil in the production of numerous products at minimal cost to the global market. He also follows supply chains directly to Western consumers, vividly connecting regional bonded labor practices to the appetites of the world. Kara's pioneering analysis encompasses human trafficking, child labor, and global security, and he concludes with specific initiatives to eliminate the system of bonded labor from South Asia once and for all.
Topic:
Labor Issues, Sex Trafficking, and Slavery
Political Geography:
Pakistan, Bangladesh, South Asia, India, Nepal, and Global Focus
Publication Identifier:
9780231528016
Publication Identifier Type:
ISBN

105. A State-Dependent Model for Inflation Forecasting

Author:
Andrea Stella and James H. Stock
Publication Date:
11-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We develop a parsimonious bivariate model of inflation and unemployment that allows for persistent variation in trend inflation and in the non-accelerating inflation rate of unemployment. The model, which consists of five unobserved components including the trends) with stochastic volatility, implies a time-varying vector autoregression model for changes in the rates of inflation and unemployment. The implied backwards-looking Phillips curve has a time-varying slope that is steeper in the 1970s than in the 1990s. Pseudo out-of-sample forecasting experiments indicate improvements upon univariate benchmarks. Since 2008, the implied Phillips curve has become steeper and the the non-accelerating inflation rate of unemployment has increased.
Topic:
Development, Labor Issues, Inflation, State Building, and Unemployment
Political Geography:
Global Focus

106. Becoming (Un)employed and Life Satisfaction: Asymmetric Effects and Potential Omitted Variable Bias in Empirical Happiness Studies

Author:
Wolfgang Maennig and Markus Wilhelm
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Chair for Economic Policy, University of Hamburg
Abstract:
Becoming unemployed has negative effects on life satisfaction; a transition from unemployment to employment, however, has stronger positive effects in absolute terms. The asymmetry of the non-pecuniary effect indicates a potential “omitted variable bias” in previous empirical happiness studies.
Topic:
Economics, Labor Issues, Employment, Unemployment, and Happiness
Political Geography:
Global Focus

107. Aggregate Hours Worked in OECD Countries: New Measurement and Implications for Business Cycles

Author:
Lee E. Ohanian and Andrea Raffo
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We build a dataset of quarterly hours worked for 14 OECD countries. We document that hours are as volatile as output, that a large fraction of labor adjustment takes place along the intensive margin, and that the volatility of hours relative to output has increased over time. We use these data to reassess the Great Recession and prior recessions. The Great Recession in many countries is a puzzle in that labor wedges are small, while those in the U.S. Great Recession - and those in previous European recessions - are much larger.
Topic:
Development, International Cooperation, Labor Issues, Business, and Labor Policies
Political Geography:
Global Focus

108. Do Men Slow Down Faster than Women?

Author:
Wolfgang Maennig and Michael Stobernack
Publication Date:
09-2010
Content Type:
Working Paper
Institution:
Chair for Economic Policy, University of Hamburg
Abstract:
This paper is the first test of differences between age-related reductions in the performance of men and women. The assumption that men age faster is obvious, because men's life expectancy is generally lower. In addition to other studies on age-related reduction in human performance, this paper examines the data taken from competitions on rowing machines, which have been standardized worldwide and which are hardly affected by weather or temperature. A third innovation is that this study looks for any potential ageing processes specific to gender and physique. Fourth, fractional polynomials have been added to the testing methodology. Contrary to intuition, we find evidence that women are affected by faster age-related reductions in performance.
Topic:
Economics, Labor Issues, Women, Aging, Men, and Gender
Political Geography:
Global Focus

109. Tax Smoothing in Frictional Labor Markets

Author:
David M. Arseneau and Sanjay K. Chugh
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We re-examine the optimality of tax smoothing from the point of view of frictional labor markets. Our central result is that whether or not this cornerstone optimal fiscal policy pre- scription carries over to an environment with labor market frictions depends crucially on the cyclical nature of labor force participation. If the participation rate is exogenous at business- cycle frequencies — as is typically assumed in the literature — we show it is not optimal to smooth tax rates on labor income in the face of business-cycle shocks. However, if households do optimize at the participation margin, then tax-smoothing is optimal despite the presence of matching frictions. To understand these results, we develop a concept of general-equilibrium efficiency in search-based environments, which builds on existing (partial-equilibrium) search- efficiency conditions. Using this concept, we develop a notion of search-based labor-market wedges that allows us to trace the source of the sharply-contrasting fiscal policy prescriptions to the value of adjusting participation rates. Our results demonstrate that policy prescriptions can be very sensitive to the cyclical nature of labor-force participation in search-based environments.
Topic:
Markets, Labor Issues, and Tax Systems
Political Geography:
Global Focus

110. Labor Market Search in Emerging Economies

Author:
Emine Boz, Ceyhun Bora Durdu, and Nan Li
Publication Date:
12-2009
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper shows that labor markets of emerging economies are characterized by large fluctuations in wages while employment fluctuations are subdued. We find that a real business cycle model of a small open economy that embeds a Mortensen-Pissarides type of search-matching frictions can account for these aforementioned regularities. Moreover, the joint interaction of countercyclical interest rates and search-matching frictions can go a long way in accounting for higher consumption variability relative to output and countercyclical current account observed in emerging markets. Extending this baseline model to incorporate procyclical variations in the technical efficiency at which matches are generated, the model can match the unemployment variability observed in the data.
Topic:
Economics, Emerging Markets, and Labor Issues
Political Geography:
Global Focus