Syllabus:

Labor Economics

at the

Bonn Graduate School of Economics

SS 1999

Prof. Dr. Klaus F. Zimmermann

Prof. Dr. Gerard Pfann

 

 

The course in Labor Economics at the Bonn Graduate School consists of two lectures, Labor Economics I and Labor Economics II which will be held from April 1998 to June 1999. Within Labor Economics I, we will cover recent global debates in Labor Economics. The topics are chosen in a way that all aspects of Labor Economics are covered, i.e. we will deal with theoretical models, empirical analysis and labor market policy. Labor Economics II will be given by Prof. Gerard Pfann from the Maastricht University. Details will be provided separately.

Everyone who wants to take part has to apply for the course by e-mail (Thalmaier@iza.org) until March 31st, 1999. After deadline, participants will get a final outline of the course and a reading list.

 

1. Prerequisites:

A good knowledge in micro- and macroeconomics and a basic knowledge of econometrics. Good introductory textbooks at the undergraduate level are:

- Borjas, G. (1996): Labor Economics, New York: McGraw-Hill Companies.
- Filter, R. K., D. S. Hamermesh and A. E. Rees (1996): The Economics of Work and Pay, 6th edition, New York: HarperCollins College Publishers.

A more sophisticated text is:
- Snower, D. J. and G. de la Dehesa (1996): Unemployment Policy: Government Options for the Labour Market, Cambridge: Cambridge University Press.


 

2. Labor Economics I

2.1 Content
 

Date

Time

Topic

 
A. The Macroeconomics of Unemployment
A.1 03.05.99 9.30 - 11.00 Demand and Unemployment Wendelin Schnedler
  03.05.99 11.00 - 11.15 Break  
A.2 03.05.99 11.15 - 12.45 Capital shortage and Unemployment Stephan Kohns
B. The Microeconomics of Unemployment
B.1 03.05.99 16.00 - 17.30 Immigration and Unemployment Birgit Schmitz
  03.05.99 17.30 - 17.45 Break  
B.2 03.05.99 17.45 - 19.15 Employment Effects of Minimum Wages Andreas Roider
C. Human Capital
C.1 04.05.99 9.30 -
11.00
The Labor Market Assimilation of Immigrants Lieselotte Locher
D. Labor Market Policy
D.1 05.05.99 9.30 - 11.00 Subsidizing Employment Uwe Sunde
  05.05.99 11.00 - 11.15 Break  
D.2 05.05.99 11.15 - 12.45 Active Labor Market Policy: The Effects of Training Programs René Fahr

 

There will be in total four three hours sessions. In each session two students will be assigned to present a survey of the respective literature on one of the topics outlines above. Both presentations will be discussed by all participants.

 

2.2. Examination

The examination for Labor Economics I consists of your presentations and your participation in the discussions in the course. Furthermore, you have to write a short term paper (about 10 pages in English) on one of the topics discussed in the lectures. The paper has to be written individually and must be submitted at the end of the semester.

 

2.3. Reading List

A copy of all articles and of the respective books will be provided on open shelves in the library of IZA and in the office of Bonn Graduate School. This literature is only introductory and not sufficient.

A.1 Demand and Unemployment

· Bean, C. R. (1996): "The Role of Demand-management Policies in Reducing Unemployment," in Snower, D. S. and G. de la Dehesa (eds.), Unemployment Policy: Government Options for the Labour Market, Cambridge.

· Snower, D. J. (1996): "Evaluating Unemployment Policies: What do the Underlying Theories tell us?," in Snower, D. S. and G. de la Dehesa (eds.), Unemployment Policy: Government Options for the Labour Market, Cambridge.

· Bean, C. R. (1994): "European Unemployment: A Survey," Journal of Economic Literature, 32, 573- 619.

· Bruno, M. and J. D. Sachs (1985): Economics of Worldwide Stagflation, Cambridge.


A.2 Capital shortage and Unemployment

· Arestis, P. and I. B. F. Mariscal (1997): "Conflict, Effort and Capital Stock in UK Wage Determination," Empirica, 24, 179- 93.

· Drèze, J. H. and C. R. Bean (1990a): "European Unemployment: Lessons from a Multi-country Study," Scandinavian Journal of Economics, 92, 135- 165.

· Drèze, J. H. and C. Bean (1990b): Europe’s Unemployment Problem, Cambridge.

· Lambert, J.-P. (1988): Disequilibrium Macroeconomic Models, Cambridge.

· Burda, M. C. (1988): "Is There a Capital Shortage in Europe?," Weltwirtschaftliches Archiv, 124, 38- 57.


B.1 Efficiency Wages

· Campell, C. M. (1993): "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, 11, 442- 470.

· Capelli, P. and K. Chauvin (1991): "An Interplant Test of the Efficiency Wage Hypothesis," Quarterly Journal of Economics, 106, 769- 87.

· Katz, L. F. (1986): "Efficiency Wage Theories: A Partial Evaluation," in S. Fischer (ed.), NBER Macroeconomics Annual, Cambridge.

· Shapiro, C. and J. E. Stiglitz (1984): "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, 74, 433- 444.

· Schlicht, E. (1978): "Labour Turnover, Wage Structure and Natural Unemployment," Zeitschrift für die gesamte Staatswissenschaft, 134, 337- 346.


B.2 Immigration and Unemployment

· Friedberg, R. M. and J. Hunt (1995): "The Impact of Immigrants on Host Country Wages, Employment and Growth," Journal of Economic Perspectives, 9(2), 23- 44.

· Borjas, G. J. (1994): "The Economics of Integration," Journal of Economic Literature, 32, 1667- 1717.

· Schmidt, C. M., A. Stilz and K. F. Zimmermann (1994): "Mass Migration, Unions, and Government Interventions," Journal of Public Economics, 55, 185-210.

· Hunt, J. C. (1992): "The Impact of the 1962 Repatriates from Algeria on the French Labor Market," Industrial and Labor Relations Review, 43, 556- 572.

· Greenwood, M. J. and J. M. McDowell (1986): "The Factor Market Consequences of U. S. Immigration," Journal of Economic Literature, 24, 1738- 1772.


C.1 The Wage Curve

· Blanchflower, D. G. and A. J. Oswald (1995): The Wage Curve, Cambridge.

· Blanchflower, D. G. and A. J. Oswald (1990): "An Introduction to the Wage Curve," Journal of Economic Perspectives, 9(3), 153- 168.

· Card, D. (1995): "The Wage Curve: A Review," Journal of Economic Literature, 33, 785- 799.

· Blanchflower, D. G. (1993): "International Wage Curves," in: L. F. Katz and R. B. Freeman (ed.), Differences and Changes in Wage Structures, Chicago.


C.2 Employment Effects of Minimum Wages

· Card, D. and A. B. Krueger (1995): Myth and Measurement. The New Economics of the Minimum Wage, Princeton.

· Ehrenberg, R. G., C. Brown, R. B. Freeman, D. Hamermesh, P. Osterman and F. R. Welch (1995): "Review Symposium: Myth and Measurement: The New Economics of the Minimum Wage by David Card and Alan. B. Krueger," Industrial and Labor Relations Review, 48, 827- 850.

· Kennan, J. (1995): "The Elusive Effects of Minimum Wages," Journal of Economic Literature, 33, 1949- 1965.

· Neumark, D. and W. Wascher (1992): "Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws," Industrial and Labour Relations Review, 46, 55- 81.

· Brown, C. (1988): "Minimum Wage Laws: Are they overrated? Journal of Economic Perspectives, 2(3), 133- 145.


D.1 Loss of Human Capital and Long-Term Unemployment

· Layard, R. (1996): "Preventing Long-Term Unemployment: An Economic Analysis," in Snower, D. S. and G. de la Dehesa (ed.), Unemployment Policy: Government Options for the Labour Market, Cambridge.

· Layard, R. (1994): The Unemplyoment Crisis, Oxford.

· Mühleisen, M. und K. F. Zimmermann (1994): "A Panel Analyses of Job Changes and Unemployment," European Economic Review, 38, 793- 801.

· Pissarides, C. (1992): "Loss of Skill during Unemployment and the Persistence of Unemployment Shocks," Quarterly Journal of Economics, 107, 1371- 1391.

· Winter-Ebner, R. (1991): "Some Micro-Evidence on Unemployment Persistence," Oxford Bulletin of Economics and Statistics, 53, 27- 43.


D.2 The Labor Market Assimilation of Immigrants

· Bauer, T. and K. F. Zimmermann (1997): "Unemployment and Wages of Ethnic Germans," Quarterly Review of Economics and Finance, 37, 361- 378.

· Schmidt, C. M. (1997): "Immigrant Performance in Germany: Labor Earnings of Ethnic German Migrants and Foreign Guest-Workers," Quarterly Review of Economics and Finance, 37, 379- 397.

· Borjas, G. J. (1994): "The Economics of Integration," Journal of Economic Literature, 32, 1667- 1717.

· Duleep, H. O. and M. G. Regets (1992): "Some Evidence of the Effects of Admission Criteria on Immigrant Assimilation," in B. R. Chiswick (ed.), Immigration, Language and Ethnicity: Canada and the U.S., Washington.

· Chiswick, B. R. (1978): "The Effects of Americanization on the Earnings of Foreign-Born Men," Journal of Political Economy, 86, 897- 921.


E.1 Subsidizing Employment

· Phelps, E. S. (1995): "Wage Subsidy Programmes: Alternative Designs, in Snower, D. S. and G. de la Dehesa (eds.), Unemployment Policy: Government Options for the Labour Market, Cambridge.

· Snower, D. J. (1995): "The Simple Economics of Benefit Transfers," in Snower, D. S. and G. de la Dehesa (eds.), Unemployment Policy: Government Options for the Labour Market, Cambridge.

· Phelps, E. S. (1994): "Eonomic Justice to the Working Poor through a Wage Subsidy," in D. Papadimitriou (ed.), Aspects of the Distriution of Wealth and Income, New York.

· Snower, D. J. (1994): "Converting Unemployment Benfits into Employment Subsidies," American Economic Review, 84, 65- 70.

· Akerlof, G. A., A. K. Rose, J. L. Yellen and H. Hessenius (1991): "East Germany in from the Cold: The Economic Aftermath of Currnency Union," Brookings Papers on Economic Activity, 1-105.


E.2. Active Labor Market Policy

· Layard, R. (1996): "Preventing Long-Term Unemployment: An Economic Analysis," in Snower, D. S. and G. de la Dehesa (eds.), Unemployment Policy: Government Options for the Labour Market, Cambridge.

· Saint-Paul, G. (1998): "A Framework for Analyzing the Political Support for Active Labor Market Policy," Journal of Public Economics, 67, 151- 65.

· Schmid, G., B. Reissert and G. Bruche (1992): Unemployment Insurance and Active Labor Market Policy – An International Comparison of Financing Systems, Detroit.

· Björklund A. (1991): "Evaluation of Labour Market Policy in Sweden, in OECD (ed.), Evaluation Labour Market and Social Programmes – The State of a Complex Art, Paris.

· Freeman, R. B., Topel, R. and B. Swedenborg (eds.) (1997): The Welfare State in Transition: Reforming the Swedish Model, Chicago.

  

3. Labor Economics II

 

Optimal Employment Plans under Uncertainty

by Gerard A. Pfann

in cooperation with

Business Investment Research Center

at Maastricht University

Optimal employment decisions are made under uncertainty. If a firm faces costly adjustment of its workforce, it must evaluate future costs and benefits when determining its current optimal level of productive labour input. If workers think of changing from one employer to another search, mobility and adjustment costs play a crucial role as well as uncertianty of future perspectives for both employers. In this course we start from the assumption that, as a result of adjustment costs and uncertainty, choices to change the employment decision can be considered as a dynamic investment decision for both the employer and the employee. First, we will introduce the notion of adjustment costs and explain why this renders the employment decision dynamic. Next, we will discuss the difference between neoclassical adjustment models and irreversible models, and how waiting time models derived from the assumption that adjustment costs are fixed or sunk and costly reversibility can be combined. In a final lecture we consider a real world example of the decision to quit in a case of corporate downsizing. The case is about the employment decisions of former employees of Fokker Aircraft after 1995 announcement of structural reorganization and the displacement of workers. The course is meant to be a mini-tour through the complex world of dynamic employment decision making. The courses’ contents are formulated in cooperation with the Business Investment Research Center at Maastricht University.

 
Lecture 1: Wednesday, June 30th (afternoon)
  Optimal Employment Decisions and the Role of Adjustment Costs
  · D. S. Hamermesh and G. A. Pfann (1996), "Adjustment Costs in Factor Demand", Journal of Economic Literature 34, pp. 1264-1292.
   
Lecture 2: Thursday, July 1st
  The Employment Decision under Adjustment Costs Regimes:
  Costly Reversibility and Net Present Value
  · T. J. Sargent (1978), "Estimation of Dynamic Labor Demand Schedules under Rational Expectations", Journal of Political Economy 86, p1009-1044.
  · A. B. Abel and O. J. Blanchard (1986), "The Present Value of Profits and Cyclical Movement in Investment", Econometrica 54, pp. 249-273.
   
Lecture 3: Friday, July 2nd (morning)
  Irreversibility and the Role of Fixed and Sunk Costs
  · R. S. Pindyck (1991), "Irreversibility, Uncertainty and Investment", Journal of Economic Literature 29, pp. 1110-1152.
   
Lecture 4: Wednesday, July 7th (afternoon)
  A Unified Model of Investment under Uncertainty
  · A. B. Abel and J. C. Eberly (1994), "A Unified Model of Investment under Uncertainty", AER 84, pp. 1369-1384.
   
Lecture 5: Thursday, July 8th (morning)
  Empirical Example: The Case of Fokker Aircraft
  · G. A. Pfann (1999), "Optimal Quitting and Corporate Downsizing", BIRC Working Paper.
 
Timetable:      
       
Wednesday June 30th: 16.00 - 19.00
  Thursday July 1st: 09.00 - 12.00
  Friday July 2nd: 09.00 - 12.00
Thursday July 8th: 11.00 - 14.00
Friday July 9th: 11.00 - 14.00