Gábor Kézdi

Robust Standard Error Estimation In Fixed-Effects Panel Models

The paper focuses on standard error estimation in FE models if there is serial correlation in the error process. Applied researchers have often ignored the problem, probably because major statistical packages do not estimate robust standard errors in FE models. Not surprisingly, this can lead to severe bias in the standard error estimates, both in hypothetical and real-life situations. The paper gives a systematic overview of the different standard error estimators and the assumptions under which they are consistent (in the usual large N, small T asymptotics). One of the possible reasons why the robust estimators are not used often is a fear of their bad finite sample properties. The most important results of the paper, based on an extensive Monte Carlo study, show that those fears are in general unwarranted. I also present evidence that it is the abolute size of the cross-sectional sample that primarily affects the finite-sample behavior, not the relative size compared to the time-series dimension. That indicates good small-sample behavior even when N and T are of similar magnitude. I introduce a simple direct test analogous to that of White (1980) for the restrictive assumptions behind the estimators. Its finite sample properties are fine except for low power in very small samples.

How are Firms' Wages and Prices Linked: Survey Evidence in Europe

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

Trade in university training: Cross-state variation in the production and stock of college-educated labor

The question of this analysis is how the production of college graduates at the state level affects the stock of college-educated workers in the state. The potential mobility of skilled workers implies that the number of college students graduating in an area need not affect the number of college graduates living in the area. However, the production of relatively large numbers of college graduates in a state may lead to increases in the employment of university-trained manpower if industries expand production of goods and services that use college-educated workers intensively. We find at best only a modest link between the production and stock of baccalaureate degree recipients.

Who Becomes a Stockholder? Expectations, SUbjective Uncertainty, and Asset Allocation

We develop a model of portfolio selection with subjective uncertainty and learning in order to explain why some people hold stocks while others don’t. We model heterogeneity in information directly, which is an alternative to the existing explanations that emphasized heterogeneity in transaction costs of investment. We plan to calibrate the model to survey data (when available) on people’s perception about the distribution of stock market returns. Our approach also leads to a model of learning with new implications such as zero optimal risky assets, or ex post correlation of uncorrelated labor income and optimal portfolio composition. It also points to two factors in probabilistic thinking that should have a major impact on stock ownership. These are the level and the precision of expectations. We construct proxy measures for the two parameters from the 1992-2000 waves of the Health and Retirement Study (HRS). We use a large battery of the subjective probability questions administered in each wave of HRS to construct an overall “index of optimism” (the correlated factor between all subjective probabilities) and “index of precision” (the fraction of nonfocal probability answers, following Lillard and Willis, 2001). We also construct measures for how people forecast the weather, their cognitive capacity, wealth, and basic demographics. Our results indicate that stock ownership and the probability of becoming a stockholder are strongly positively correlated with the indices of the level and precision of expectations. Interpretation of the former is quite challenging and further research is needed to understand its full content.

Roma Employment in Hungary after the Post‐Communist Transition

We analyse the magnitude and the causes of the low formal employment rate of the Roma in Hungary between 1993 and 2007. The employment rate of the Roma dropped dramatically around 1990. The ethnic employment gap has been around 40 percentage points for both men and women and has remained remarkably stable. Differences in education are the most important factor behind the gap, the number of children is important for female employment and geographic differences play little role once education is controlled for. Conditional on employment, the gap in log earnings is 0.3, and half of it is explained by educational differences.

Two Phases of Labor Market Transition In Hungary: Inter-Sectoral Reallocation and Skill-Biased Technological Change

Hungary has been a front-runner in the transition to capitalism. It has also experienced exceptionally radical changes in employment and relative wages. One main feature of these changes is an enormous increase in the returns to skill. This paper argues that it is instructive to divide the process into two periods, divided by around the year 1995. The first period experienced major destruction of low-skilled jobs and large inter-sectoral reallocation, partly toward skill-intensive industries. Employment started to rebound in the second period, which has also seen a pervasive skill upgrade in all sectors. The skill premium in earnings started to grow even faster in the second stage because increasing demand for skill met a more and more inelastic supply in the short run. Long-run supply effects have been, however, strong as college enrollment rates soared. Introduction of new (foreign) capital seems to be a major factor behind increasing demand for skill. Foreign direct investment into Hungary was by far the largest among the transition countries until the late 1990s, but other Central-Eastern European countries started to catch up since. This suggests that the Hungarian experience might be helpful to predict labor market trends in other transition economies, especially those that attract significant foreign capital.

Economic Adjustment of Recent Retirees to Adverse Wealth Shocks

Since the mid-nineties, the stock market has had an unprecedented impact on the wealth of current and future retirees. Using data from the Current Population Survey and the Health and Retirement Study, this report estimates consumption and labor supply responses of individuals in their 50s and 60s to the recent stock market downturn. We estimate an elasticity of consumption with respect to wealth changes ranging from five to seven percent. This implies that households respond to a decline in wealth by reducing their consumption by 5 to 7 percent of the wealth decline. For example, if a households wealth declined by

The effects of child-related benefits and pensions on fertility by birth order: A test on Hungarian data

100,000, this estimate suggests they would reduce their annual consumption by

On the Test Score Gap between Roma and Non‐Roma Students in Hungary and Its Potential Causes

5,000 to

Jackknife minimum distance estimation

7,000. Among retirees, we do not observe any re-entry into the labor force in response to wealth losses due to stock market declines. This suggests that retirement is more or less an absorbing state, for either supply or demand reasons: once an individual retires, it is very difficult to become employed once again.