Dennis Wesselbaum

Extensive vs. Intensive Margin in Germany and the United States: Any Differences?

This article analyses the role of the extensive vis-à-vis the intensive margin of labour adjustment in Germany and in the United States. The contribution is twofold. First, we provide an update of older US studies and confirm the view that the extensive margin (i.e. the adjustment in the number of workers) explains the largest part in the overall variability in aggregate hours. Second, although the German labour market structure is very different from its US counterpart, the quantitative importance of the extensive margin is of similar magnitude.

The Intensive Margin Puzzle and Labor Market Adjustment Costs

This paper documents a puzzling fact, namely that there is a significant negative relation between employment protection legislation and the usage of the intensive margin of labor market adjustments. We then make use of a Real Business Cycle model and introduce search and matching frictions as well as adjustment costs along the extensive and the intensive labor market margins. We show that the model is able to replicate the observed pattern, if we assume low firing costs and relatively large hours adjustment costs. Furthermore, the model requires those values to replicate the U.S. business cycle statistics.

Firing costs in a business cycle model with endogenous separations

This paper introduces productivity-dependent firing costs into an otherwise standard endogenous separations matching model. We suggest an alternative to the standard fix cost approach and account for empirical evidence emphasizing that firing costs vary across workers. We show that the model with firing costs outperformes the model without firing costs and replicates the empirical facts fairly well. Furthermore, we present cross-country evidence that countries with stricter employment protection have a weaker Beveridge curve relation and surprisingly more volatile job flow rates.

Procyclical Debt as Automatic Stabilizer

This paper shows that government debt creates a so far neglected wealth effect that has sizable effects on business cycle fluctuations. We present a new channel through which governments can influence cyclical fluctuations generated by any type of shock and contribute to macroeconomic stability. We provide evidence for the United States that debt moves procyclical with output. Then, we build a Real Business Cycle model with Non-Ricardian agents and use rules to describe fiscal policy. We show that procyclical debt generates smaller fluctuations compared to countercyclical debt. The striking consequence is that classical Keynesian fiscal policy destabilizes the business cycle in our framework.

Gender-specific differences in labor market adjustment patterns: Evidence from the United States

Abstract Do men and women behave differently while adjusting labor supply over the business cycle? Using data from the United States, we show that women are significantly more likely to adjust along the intensive margin (number of hours), while men adjust more along the extensive margin (employment). Older, single, and divorced/widowed adjust predominantly along the extensive margin.

Happiness over the financial crisis

ABSTRACT This paper adds to the literature on the macroeconomic driving forces of happiness. Using data for 106 countries over the financial crisis (2006–2013), we estimate a dynamic panel data model. We find that there is a strong relation between income and happiness. Further, individuals have a stronger aversion against unemployment than against inflation. We perform various robustness checks including cultural differences and additional driving forces such as gender inequality and macroeconomic policies. Finally, we identify happiness shocks using the performance of ones’ country at the FIFA World Cups. We show that movements in happiness can generate business cycles. Interestingly, happiness shocks increase income on impact but decrease it after 1 year.

The effects of unions on job flows

Purpose The purpose of this paper is to focus on the role of unions for job flow rates. Design/methodology/approach The author uses a longitudinal data set emphasizing the importance of the time dimension. Findings Using the fixed effects estimator, the author finds that unions decrease the job separation rate and the job finding rate. Originality/value The findings support that the implications of the insider-outsider model by Lindbeck and Snower (1986): unions are beneficial for insiders but harm outsiders.

Catastrophe theory and the financial crisis

This paper develops and estimates catastrophe-augmented models of the financial crisis. We employ catastrophe theory to explain discontinuous jumps in state variables of dynamic systems. We estimate an augmented bank failure model showing that the buildup of risk and an increase in the Federal Funds rate combined with low reserves (negative insurance effect) have been the main drivers of the financial crisis. Therefore, macroprudential policy and rating agencies play a key role in preventing the buildup of (systemic) risk and preventing the economy from entering a bifurcation area.

Delays in Public Goods

In this paper, we analyze the consequences of delays and cost overruns typically associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that uncertainty about the arrival of public capital can more than offset its positive spillovers for private-sector productivity. In a decentralized economy, unanticipated delays in the provision of public capital generate too much consumption and too little private investment relative to the first-best optimum. The characterization of the first-best optimum is also affected: facing delays in the arrival of public goods, a social planner allocates more resources to private investment and less to consumption relative to the first-best outcome in the canonical model (without delays). The presence of delays also lowers equilibrium growth, and leads to a diverging growth path relative to that implied by the canonical model. This suggests that delays in public capital provision may be a potential determinant of cross-country differences in income and economic growth.

Socioeconomic Driving Forces of International Migration

Abstract This paper makes a contribution to the literature on the driving forces of international migration. In contrast to the existing literature we consider the effect of socioeconomic variables (population dynamics, education and health, and openness) on migration flows. Especially the effects of openness of a society have not received much attention in the scientific debate.We use a panel data set of bilateral migration flows between 16 destination and 198 origin countries over the time span from 1980 to 2015. Most importantly, we find that our socioeconomic variables significantly affect the migration decision. Including socioeconomic variables does affect the size of the effects of the commonly used variables in the literature.Further, we find robust evidence that the socioeconomic variables at hand have non-linear effects on migration. For example, we find that the effect of human capital on migration follows an inverted U-shaped pattern.