2012 Working Papers (AU-CAS-ECON)

9/11, FOREIGN THREATS, POLITICAL LEGITIMACY, AND DEMOCRATIC SOCIAL INSTITUTIONS
This article reassesses the political reaction in the United States to the September 11, 2001 terrorist attacks in terms of economics and evolutionary biology. The fact that war and its threat were ever-present in human evolution resulted in two social propensities that render society vulnerable to political manipulation. External threats dramatically heighten social cohesion as well as loyalty to leaders. In pre-state social groupings, all members could clearly witness and judge the nature of an external threat. And because leaders had to spearhead any response, they were most vulnerable to injury or death. In modern highly complex societies, by contrast, the nature of threats is less transparent, and leaders can command far from immediate danger. Consequently, in modern times, leaders can be tempted, especially in times of economic dysfunction, to generate fear of an external threat to rally support and detract attention from otherwise inadequate leadership. This paper explores these dynamics in the context of post-9/11. It concludes with reflections on the potential of democratic institutions and practices to lessen the potential for political leaders to exploit their advantages by trumping up external threats.
Can the United States Expand Apprenticeship?
Can expanded apprenticeship reduce the concerns about the U.S. workforce? The U.S. labor market faces a rise in unemployment rates, sharp declines in the employed share of U.S. adults, extremely high youth unemployment, high wage inequality, and low or stagnant wage growth for workers below the BA degree. Currently, the primary solution advanced by policymakers—helping more people go to college—is both expensive and of limited effectiveness. Unfortunately, the U.S. policy debate is rarely informed by international experience with systems that prepare young people for careers, especially for technical occupations. Few if any cite the experience in Germany, Switzerland, and Austria in achieving high levels of income and relatively low levels of earnings inequality without a college graduation rate above the OECD average. Americans know little about the success of apprenticeship systems abroad nor are they or their political leaders aware of the growth of apprenticeship programs in Australia, England, and other advanced economies. Given the potential for expanded apprenticeship to deal effectively with skill mismatches, wage inequality, declines in manufacturing employment, and high youth unemployment, why has the U.S. failed to mount a significant apprenticeship initiative? A number of reports, including the Organization for Economic Development and Cooperation (OECD 2009) review of youth employment, have recommended expanding apprenticeship training yet failed to stimulate significant action. Apprenticeship training would seem consistent with American values of pragmatism and extensive use of the market and publicprivate collaborations, and a limited role for government. The paper begins by describing the existing U.S. apprenticeship system, how the system evolved, and measures of its effectiveness. The next sections examine the multiple barriers to expanding apprenticeship in the U.S., highlighting both ideological and practical obstacles. The final section describes how best to take advantage of the opportunities for expansion.
Combination of “Combinations of P-values”
We investigate the impact of an uncertain number of false individual null hypotheses on commonly used p-value combination methods and find that the performance of these methods varies substantially under such uncertainty. These variations yield conflicting results in meta-analysis, motivating the development of a new, reconciling test. We consequently develop a combination of “combinations of p-values” (CCP) test that maintains good power properties across such uncertainty. We base the CCP test on a simple union of rejections decision rule that exploits the similarity between any two p-value combination methods. Monte Carlo simulations show that our test controls size and closely tracks the power of the best individual methods.
Crises of Environment and Social Reproduction
This paper explores the interconnections between the crisis of care, the deepening ecological crisis and growth and accumulation processes. They are critical challenges that mainstream economics fail to comprehensively address, thus resulting in growing tensions between the incessant pursuit of economic growth and material consumption on one hand and the ability of societies to care for their people and for the ecosystems upon which they live. The paper argues that the crucial interdependence between the market economy and the care/reproductive economy and between the entire human (economic) system and the ecosystems must be recognized in economic thinking and policymaking. Building on the work of several feminist economists and ecological economists, it demonstrates that an obsessive preoccupation with material economic growth in the economic paradigm not only undermines the care requirements of human maintenance, social reproduction and the sustainability of the ecosystem, but also actively contributes to crisis creation and intensification. The paper also examines the impacts of rising inequality on the care economy and carrying capacity of the ecosystem. Finally, it provides some building blocks for developing a new economic paradigm leading to gender-sensitive and environmentally-aware economic policies.
Determinants of cross-border merger premia
Firms have a broad range of rationales for engaging in cross-border mergers and other forms of foreign direct investment (FDI); while some companies are in search of the cost advantages provided by foreign resources, other firms are primarily interested in gaining access to new markets. Although a significant amount of research has explored the patterns of FDI, little work has been done to assess what influences the value of cross-border mergers and, in particular, what determines why some cross-border mergers are expected to result in higher synergies when compared to others. This paper explores what characteristics of a merger are expected to increase the synergies that a firm will accrue from a cross-border merger by testing how a variety of factors impact the premia paid to effectuate a cross-border merger. We find that firms are willing to pay a higher premium to obtain greater control over foreign firms, and that this control is even more important in mergers involving firms in emerging markets. We also find that the factors affecting deal premia in cross-border mergers differ based on whether the acquirer has a high or low intangible asset intensity level., Dev World Econ (2014) 150: 173-189
Does the Balance of Payments Constraint Explain the Slowdown in Mexican Economic Growth after Trade Liberalization?
This paper investigates why the average growth rate of the Mexican economy has been so disappointing since the trade liberalization of the late 1980s. Some previous work has argued that the growth slowdown can be attributed to a tightening of the balance of payments constraint on Mexico’s growth, due to a rise in the income elasticity of import demand that outweighed the increase in export growth after trade liberalization. However, such an aggregative approach ignores the distinction between imports of final goods and intermediate goods, which is important in Mexico due to the high intermediate import content of manufactures—especially those produced for export. To address this issue, this paper presents a disaggregated model of the balance of payments constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). The empirical results show that the balance of payments constrained (equilibrium) growth rate did not fall, but instead rose slightly post-liberalization, so this model cannot account for the actual growth slowdown. Instead, the analysis points to an important role for the real exchange rate, which is overlooked in the balance of payments constrained growth model, as well as internal obstacles and policies.
GROWTH TRAP, ECOLOGICAL DEVASTATION, AND THE PROMISE OF GUARANTEED EMPLOYMENT
The legitimacy of governments in all wealthy countries critically depends upon generating employment. The most widely embraced strategy for doing so is to induce more robust economic growth. Pressure to stimulate growth at practically any cost has been greatly augmented by the current crisis. Tragically, this relentless pursuit of growth is occurring when significant coordinated international responses to the threat of ecological catastrophe are urgently needed. Humanity is institutionally and ideologically trapped in the view that not only is growth necessary for creating employment, it is the panacea for most of our problems. There is a way out of this trap: Guaranteeing employment and where necessary reskilling all capable of work. The immorality of consigning a portion of the workforce to the degradation of unemployment would be eliminated. So too would welfare and its debasement of those able to work. Guaranteed employment would also reduce inequality, the second major force behind the compulsion of growth at any cost. Freed from the social compulsion to pursue growth, humanity could more readily coordinate to address ecological devastation, perhaps the greatest challenge humanity has ever collectively faced.
How Well have Social Protection Schemes in Chile Reduced Household Vulnerability?
This paper empirically investigates the impact of Chile‟s social protection programs called Red de Protección Social on household vulnerability during 1996-2006. It makes use of the CASEN (Encuesta de Caracterización Socioeconómica Nacional) panel household survey data involving 10,287individuals respondents, aged 15 years and older who were surveyed in the 1996, 2001 and 2006. It adopts the Chaudhuri et al (2002). method for estimating vulnerability and uses the difference-in-difference approach. Since access to the monetary transfers is not random, we use propensity score matching technique to address the problem of selection bias in testing the effect of the monetary transfers provided to targeted recipients under the social protection program. The effect of the programs are also examined on two household groups namely, the transitory poor and the chronic poor. Our results suggest that the impact of the monetary transfers on vulnerability is mixed. It seems to help lower the vulnerability of the transitory poor, but has little impact on the chronic poor. The results are also sensitive to the type of estimation method and difference-in-difference technique used.
Information Environment and the Cost of Capital
Sheng and Thevenot (2011) develop a new measure of uncertainty which is a modification of the uncertainty measure advanced by Barron, Kim, Lim and Stevens (BKLS 1998), and they find this new uncertainty measure to be superior to the BKLS measure in certain settings. We follow Sheng and Thevenot’s suggestion for modifying other measures of the information environment, and we demonstrate that our new measures are superior in another setting. We also find that cost of equity capital increases greatly with our new measures of information asymmetry and average information precision even after controlling for the level of market competition. Our regression estimates suggest that information asymmetry and average information precision are more important factors than equity beta and firm size in determining firms’ cost of capital, and that the seemingly great importance of these new measures is not apparent using the prior BKLS measures of information asymmetry and precision.
Political Economy of Antidumping Reviews
U.S. antidumping law allows foreign firms to choose to either (1) pay an antidumping duty or (2) increase their price in order to lower (or eliminate) their antidumping duty through the administrative review process. Although foreign firms would obviously enjoy higher profits if they increase their price, thereby eliminating the duty, only 37 percent of firm-specific antidumping tariffs are ever reviewed and those that are reviewed have a lifetime average duty rate of 30 percent. The domestic industry should request a review of the antidumping margin only if the review would result in an increase in protection, but over 90 percent of the reviews undertaken at the behest of the domestic industry result in a decrease in the antidumping margin. In this paper, we illustrate that these empirical regularities could be driven by both the high cost of the review process as well as the level of discretion that the ITA has in setting antidumping margins. Preliminary evidence suggests that the net benefit of the administrative review process is significantly different depending on the country targeted by the antidumping margin and the method in which the initial margin was calculated., Working Paper Series January 2012 No. 2012-15
RISING JOB COMPLEXITY AND THE NEED FOR GOVERNMENT GUARANTEED WORK AND TRAINING
In pre-modern agricultural society, practically all education and training occurred in the household and on the job. Only a thin elite received formal education. With the rise and expansion of capitalism, human capital became more important and a demand for publically provided education came forth, first from a rising middle class, and then from the working class. However, relatively little progress was made in extending educational opportunity to the working class before the end of the nineteenth century when they became capable of threatening the elites’ state with violence. Thereafter, significant advances were made during periods when workers retained relatively more political power. Guaranteed years of schooling expanded to a full 12 years, and eventually even low cost post-secondary schooling was greatly expanded. However, the erosion of working class power in the U.S. since the mid1970s has not only dramatically increased inequality, but also slowed the improvement of educational opportunities for their children. Meanwhile, the pace of change within capitalist societies has been ever increasing such that the formal education that society provides to some of its future workers is not adequate for the demands of the job market. Further, in an evermore-complex economy, the training many receive when young is not adequate for their full work lives. More will need continual retraining. While much of this training has been, and will continue to be on the job, some workers will lose their jobs and for lack of necessary skills, not find comparable new ones. Although publicly provided formal schooling might provide some of the necessary re-skilling, some workers who perform poorly in school settings learn well when training is part of their jobs. To maintain adequate skills and full employment in increasingly complex workplaces, a new model is needed, one that provides those who do poorly in school with adequate skills while continually retraining those who become and remain unemployed because of inadequate skills. This article argues that it is not only in the best interest of workers, but of society generally that a critical component of an adequate new model be a government employer of the last resort program that not only insures continuous employment, but also the necessary skills for workers to successfully enter and re-enter the private labor market.
STOLPER-SAMUELSON REVISITED
This paper investigates the distributional impact of international trade when goods markets are oligopolistic and firms partially pass-through changes in tariffs into prices and factor costs for differentiated products. Trade liberalization raises mark-ups and profit shares in the export industry and lowers them in the import-competing industry, while Stolper-Samuelson effects on real prices of primary factors are attenuated or possibly reversed. An extended model shows how “offshoring” (trade in intermediate goods) can potentially increase mark-ups for oligopolistic producers of final goods. The analysis illuminates why business interests generally support trade liberalization policies today, regardless of their countries’ factor abundance.
TRADE AND THE DEVELOPMENT GAP
Chapter forthcoming in Andrew Selee and Peter H. Smith, eds., Mexico and the United States: Strengthening the Partnership, Boulder, CO: Lynne Rienner, 2012., In this chapter, we analyze the realities of U.S.-Mexican trade and its impact on Mexico in terms of economic convergence, foreign investment, employment, wages, and income distribution since Mexico began to liberalize its trade in the late 1980s and subsequently joined NAFTA. We show that, up to the present, liberalized trade in general and NAFTA in particular have failed to fulfill the promise of closing the Mexico-U.S. development gap, and we argue that this was partly a result of the lack of deeper forms of regional integration or cooperation between Mexico and the United States. We also explore other factors that could explain this negative outcome, and we briefly discuss the opportunities for both Mexico and the United States to mutually benefit from a further economic integration process.
Two sides of envy
The two sides of envy, destructive and competitive, give rise to qualitatively different equilibria, depending on economic, institutional, and cultural environment. If inequality is high, property rights are poorly protected, and social comparisons are strong, the society is likely to settle in the “fear equilibrium,” in which better endowed agents restrain their efforts to prevent destructive envy of the relatively poor. In the opposite case, the standard “keeping up with the Joneses” competition arises, and individuals satisfy their relative standing concerns through suboptimally high efforts. The different nature of these equilibria leads to starkingly contrasting effects of envy on economic performance. From welfare perspective, adoption of better institutions may not be Pareto improving, since positional externality is curbed in the low-output fear equilibrium. The theory is consistent with broad empirical facts from social sciences and bridges the gap between separate lines of research on envy.
Use of Maternal Health Care in Tajikistan
Post-socialist economic declines have included declines in women’s use of maternal health care. This paper examines the use of maternal health care in Tajikistan, where such declines have occurred. The findings support previous evidence that women’s use of services depends on women’s education, household income, and proximity of services. Previous models have not specified who makes the care decision. Using education as a proxy for preferences, the findings show that women share decisionmaking with their spouse and the eldest female in the household. However, the data provides limited evidence that traditional proxies for bargaining power affect outcomes. The authors conclude that measures of bargaining power require tailoring to local conditions. Surveys evaluating the value of women’s assets and their services in the home, as well as questions about decision-making, will allow researchers to more effectively measure bargaining power across contexts. The paper concludes with policy recommendations., Draft. Resubmitted to Feminist Economics, March 2011