The Cyclical Behavior of Unemployment and Wages under Information Frictions

I propose a new mechanism for sluggish wages based on workers’ noisy information about the state of the economy. Wages do not respond immediately to a positive aggregate shock because workers do not (yet) have enough information to demand higher wages. The model is robust to two major criticisms of existing theories of sluggish wages and volatile unemployment, namely, that wages are flexible for new hires and the flow opportunity cost of employment (FOCE) is pro-cyclicality. The model generates volatility in the labor market as well as wage and FOCE elasticities with respect to productivity, consistent with the data. (JEL E24, E32, J24, J31, J63)

Storm after the calm!

To work with or to research on subjects related to Homeopathy and High Dilutions was never a monotonous activity! At all moment skeptics and believers are discussing about clinical and experimental proofs to validate the phenomenon behind the high dilutions. Independently how structured are their reasoning, and which part is attacking, the counterpart can always neutralize the discussion using the same antidote: the intrinsic uncertain provided by statistical methods, converging to an endless technical tie. For recent examples, we can cite the UK Parliament discussion, the attempt of collective suicide by skeptics and the Belgium KCE report. I agree they had consequences, but not enough to stop the polemics or this scenario. Behind and beyond all these discussion there is an important consensus: no one knows how a HD acts or even whether it really works or whether we are dealing with experimental artifacts! Each side has its beliefs and answers. However, we can extract an ironical consequence from that: the fight between the practitioners and politicians, believers and skeptics, is the motivation and the fuel for the researchers!! What a beautiful opportunity to challenge with a potentially new phenomenon! The mind storming we are submitted should be taken as the basal state, a cyclical behavior own of this field. Cycles will repeat no matter the Science might be able to bring new theories, models, experiments, concepts, etc, about HD, to explain it or to refuse such hypothetical phenomenon! Storms are cyclical and the winds can take us to new possibilities! And the calm period is very useful to repair or even redesign our structures and skills, preparing us to the next storm! But not to eliminate them! I consider we are living a calm period, on which we should take a deep breath and relax to observe where the winds have brought us, what new possibilities we have, what challenges we must deal with! This current IJHDR’s issue and the next one will be an invitation to a break to meditation. IJHDR will publish the scientific contributions submitted to the GIRI (Groupe International de Recherche sur l’Infinitesimal) Symposia. The GIRI was created in 1986 aiming to bring together pharmacologists, biologists, physicians, chemists, physicists and other professionals to keep in touch, to exchange experiences and develop joint research projects about the biological effects of high dilutions, Homeopathy included. In the current issue, IJHDR will publish 17 contributions presented on 2010 (Monaco) and in the next issues, more than 50 contributions submitted to the XXV GIRI Symposium (September 2011, Brazil). This way, IJHDR exerts its mission as a vehicle to share open access high quality information about research in HD. Enjoy the calm, because new storms are coming!

Uncertainty, Wages, and the Business Cycle*

We show that limited wage flexibility in economic downturns generates strong and state-dependent amplification of uncertainty shocks. It also explains the cyclical behavior of empirical measures of uncertainty. In the presence of matching frictions, an occasionally binding constraint on downward wage adjustment enhances the concavity of firms’ hiring rule, resulting in an endogenous profit-risk premium. In turn, higher uncertainty increases the profit-risk premium when the economy operates close to the wage constraint, deepening a recession. Non-linear local projections and VAR estimates support the model predictions. In addition, we show that measured uncertainty rises in a recession even without uncertainty shocks.

The Cyclical Behavior of Job Quality and Real Wage Growth

We study the empirical relevance of implicit insurance contracts for wage setting while accounting for cyclical fluctuations in average job quality. Using proxy measures, we find the latter to be acyclical, if not countercyclical, due to the cleansing effects of layoffs during recessions versus quits during expansions. Then, we study the cyclical behavior of wage growth among job stayers to test for contracts, circumventing differences in job quality altogether. Both methods strongly corroborate the prevalence of wage contracts in the labor market and imply a highly procyclical price for labor. (JEL E24, E32, J31, J41, J63)

Effects of Multilateral Surveillance Criteria on the Pro-cyclicality of Fiscal Policy in Economic and Monetary Community of Central Africa

The objective of this article is to study the effect of multilateral surveillance criteria on the cyclical behavior of fiscal policy in CEMAC. Using a linear regression model and estimated by fixed-effect ordinary double least squares on panel data from 1992 to 2012, we find that the surveillance criteria adopted in 2001 increased the pro-cyclicality of fiscal policy.

EXPRESS: National Culture and the Cyclical Behavior of R&D Expenditure

This article examines the cyclical behavior of business (firm-financed) R&D expenditure at the national level, using a panel of 64 countries spanning about 4 decades. R&D is considerably more volatile than GDP and tends to be procyclical. We adopt the Hofstede framework to investigate systematically cross-national heterogeneity in comovement and volatility of R&D. Similar to prior studies, a higher R&D intensity (R&D expenditure / GDP) is associated with more uncertainty accepting, long-term oriented, and indulgent countries. Notably, R&D behaves less procyclically in more uncertainty accepting, individualistic, long-term oriented, and indulgent countries, and it is less volatile in more masculine, individualistic, long-term oriented, and indulgent countries. That is, a culture with a higher propensity to invest in R&D tends to follow business cycles less closely (i.e., lower comovement) and have more persistent spending over time (i.e., lower volatility). Furthermore, higher comovement or volatility of R&D indeed harms national productivity and innovativeness. Therefore, this research broadens our understanding of the role national culture plays by demonstrating (1) that it affects considerably the cyclical behavior of R&D and (2) that this cyclical behavior is another conduit through which culture influences economic performance.