nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2008‒03‒01
seven papers chosen by
Maximo Rossi
University of the Republic

  1. Inflation and Unemployment in General Equilibrium By Guillaume Rocheteau; Peter Rupert; Randall Wright
  2. A Public Good Version of the Collective Household Model By Chris van Klaveren; Bernard M.S. van Praag; Henriette Maassen van den Brink
  3. Study on the Social and Labour Market Integration of Ethnic Minorities By Klaus F. Zimmermann; Martin Kahanec; Amelie Constant; Don DeVoretz; Liliya Gataullina; Anzelika Zaiceva
  4. Preferences for Collective versus Individualised Wage Setting By Tito Boeri; Michael C. Burda
  5. Doctor Behaviour Under a Pay for Performance Contract: Further Evidence from the Quality and Outcomes Framework By Hugh Gravelle; Matt Sutton; Ada Ma
  6. Happiness over the life cycle: exploring age-specific preferences By Lelkes, Orsolya
  7. Assessment of income distribution and a hypothetical flat tax reform in Hungary By Lelkes, Orsolya; Benedek, Dora

  1. By: Guillaume Rocheteau (none); Peter Rupert (University of California, Santa Barbara); Randall Wright (University of Pennsylvania)
    Abstract: When labor is indivisible, there exist efficient outcomes with some agents randomly unemployed (Rogerson 1988). We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets (as in Lagos and Wright 2006). This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips Curve provides a long-run, exploitable, trade off for monetary policy; it turns out, however, that the optimal policy is the Freidman rule.
    Keywords: inflation, unemployment, Phillips Curve,
    Date: 2007–08–01
  2. By: Chris van Klaveren (University of Amsterdam); Bernard M.S. van Praag (Universiteit van Amsterdam); Henriette Maassen van den Brink (Universiteit van Amsterdam)
    Abstract: In this paper we consider an empirical collective household model of time allocation for two- earner households. The novelty of this paper is that we estimate a version of the collective household model, where the internally produced goods and the externally purchased goods are assumed to be public. The empirical results suggest that: (1) Preferences of men and women differ; (2) Although there are significant individual variations, on average the utility functions of men and women are equally weighted in the household utility function; (3) Differences in the ratio of the partners’ hourly wages are explanatory for how individual utilities are weighted in the household utility function. (4) The female’s preference for household production is influenced by family size, but this does not hold for the male; (5) Both the male and the female have a backward-bending labor supply curve; (6) Labor-supply curves are forward-bending with respect to the partner’s wage rate; (7) Our model rejects the unitary <I>Slutsky</I> symmetry condition.
    Keywords: collective household models; household behavior; labor supply; intra-household; time allocation
    JEL: D12 D13 J22
    Date: 2008–02–18
  3. By: Klaus F. Zimmermann (IZA, DIW Berlin, Bonn University); Martin Kahanec (IZA); Amelie Constant (IZA, DIW DC, Georgetown University); Don DeVoretz (IZA, Simon Fraser University); Liliya Gataullina (IZA, DIW Berlin); Anzelika Zaiceva (IZA, University of Bologna)
    Abstract: Report for the High Level Advisory Group on Social and Labour Market Integration of Ethnic Minorities and the European Commission
    Date: 2008–02
  4. By: Tito Boeri; Michael C. Burda
    Abstract: Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This paper models wage rigidity and collective bargaining endogenously, when workers differ by observable skill and may adopt either individualised or collective wage bargaining. In the calibrated model, a substantial fraction of workers and firms as well as the median voter prefer collective bargaining to the decentralised regime. A fundamental distortion of the separation decision represented by employment protection (a firing tax) is necessary for such preferences to emerge. Endogenizing collective bargaining can significantly modify comparative statics effects of policy arising in a single-regime setting.
    Keywords: Wage rigidity, employment protection, equilibrium unemployment
    JEL: J5 J6 D7
    Date: 2008–02
  5. By: Hugh Gravelle (National Primary Care Research & Development Centre, Centre for Health Economics, University of York); Matt Sutton (Health Economics Research Unit, University of Aberdeen); Ada Ma (Health Economics Research Unit, University of Aberdeen)
    Abstract: Since 2003, 25% of UK general practitioners’ income has been determined by the quality of their care. The 65 clinical quality indicators in this scheme (the Quality and Outcomes Framework) are in the form of ratios, with financial reward increasing linearly with the ratio between a lower and upper threshold. The numerator is the number of patients for whom an indicator is achieved and the denominator is the number of patients the practices declare are suitable for the indicator. The number declared suitable is the number of patients with the relevant condition less the number exception reported by the practice for a specified range of reasons. Exception reporting is designed to avoid harmful treatment resulting from the application of quality targets to patients for whom they were not intended. However, exception reporting also gives GPs the opportunity to exclude patients who should in fact be treated in order to achieve higher financial rewards. This is inappropriate use of exception reporting or ‘gaming’. Practices can also increase income if they are below the upper threshold by reducing the number of patients declared with a condition (prevalence), or by increasing reported prevalence if they were above the upper threshold. This study examines the factors affecting delivered quality (the proportion of prevalent patients for indicators were achieved) and tests for gaming of exceptions and for prevalence reporting being responsive to financial incentives.
    Keywords: Quality. Incentives. Gaming. Pay for performance.
    Date: 2008–02
  6. By: Lelkes, Orsolya
    Abstract: Existing evidence suggests a U-shaped relationship between age and life satisfaction, when controlling for income and education and other personal characteristics. On the other hand, there is no clear pattern between old age and happiness without the use of controls. Thus, it is not ageing as such, which results declining happiness, but rather the circumstances which are associated with ageing. Which of these circumstances could be averted? Are the preferences of the elderly are similar to others? The paper aims to explore these issues, using the European Social Survey. The results imply that the varying level of life satisfaction during the life cycle may be explained partly by changing preferences (by the decreasing importance of work, the increasing importance of religion, and the declining disutility of being single), and partly by changing circumstances. While changing preferences seem to increase well-being, changing circumstances seem to decrease it. Exceptions are the few positive changes in circumstances, which are likely to contribute to higher well-being, include increasing religiosity and relatively low pensioners’ poverty across the 21 European countries examined here. Old days thus are happy above all due to changing priorities in life.
    Keywords: Life Satisfaction; Age; Preferences
    JEL: J14 I31 Z10
    Date: 2008–02–20
  7. By: Lelkes, Orsolya; Benedek, Dora
    Abstract: The paper presents evidence on the effects of taxes and benefits on household incomes in Hungary referring to the 2006 system and a hypothetical flat tax reform. For this, a microsimulation model is used, which is based on a matched sample of an income and a consumption survey and administrative tax records. The Hungarian budget receives more revenues from VAT than from PIT. This has major implications on equity, as while PIT is progressive, VAT is regressive, imposing a higher tax burden on low-income households. We highlight the importance of tax allowances. The absolute amount of total tax allowances tends to increase with income, and the share of allowances within total incomes is around 5-7% in all income groups, except the top fifth, where it declines. Targeting is thus inadequate, and it is especially so in case of child support. Family tax allowance reaches the bottom decile only to a limited extent. This is in sharp contrast with the universal child benefit, which is well targeted to the poorest. The second part explores the likely impact of the introduction of a flat tax, where VAT and PIT rates are set at 20%, and a tax free bracket for low incomes is kept. We show that a budget neutral solution would have a largely regressive effect, where 70% of the population would lose, with a minority on the top of the distribution gaining.
    Keywords: Tax-benefit microsimulation; redistribution; flat tax reform; Hungary
    JEL: D31 I38 C80
    Date: 2007–07–15

This nep-ltv issue is ©2008 by Maximo Rossi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.