Peter Sanfey

Scarring: The Psychological Impact of Past Unemployment

This paper provides some of the first empirical evidence on the psychological impact of past unemployment. Using eleven waves of the German socio-economic panel (GSOEP) data set, we show, as is now standard, that those currently unemployed have far lower life satisfaction scores than do the currently employed. We also show that, over the whole sample, well-being is lower the greater has been the past experience of unemployment. In this sense, unemployment scars. However, an interaction term between current and past unemployment attracts a positive coefficient. This suggests a habituation effect whereby the negative well-being effect of unemployment is much lower for those who have been unemployed more often in the past. We also use the panel aspect of our data to present some evidence that those who suffer greater falls in well-being on entering unemployment are less likely to remain unemployed one year later. Together these findings offer a psychological explanation of persistent unemployment.

Wages, Profits, and Rent-Sharing

The paper uses CPS data from 1964 to 1985 to test for the existence of rent-sharing in US tabor markets, Using an unbalanced panel from the manufacturing sector, and random-effects and fixed-effects specifications, the paper finds that changes in wages are explained by movements in lagged levels of profitability and unemployment. The results appear to be consistent with rent-sharing theory (or a labor contract framework with risk-averse firms) and to be inconsistent with the competitive labor market model. The paper estimates the unemployment elasticity of pay at approximately -0.03, and the profit elasticity of pay at between 0.02 and 0.05.

Does transition make you happy

This paper analyses life satisfaction in transition countries using evidence from the World Values Survey. The paper demonstrates that individuals in transition economies on average record lower values of self-reported satisfaction with life compared with those in non-transition countries. A comparison across time for a smaller sample of countries shows that life satisfaction levels have returned close to pre-transition levels in most cases, after a dip in the mid-1990s. The socio-economic groups that exhibit relatively higher levels of happiness include students, people with higher levels of education and those on higher incomes. Happiness declines with age until the early-50s and is slow to recover afterwards. Self-employed people in transition countries show a level of satisfaction as high as, or higher than, full-time employees, in contrast to evidence from non-transition countries. In addition, satisfaction levels are highest in those countries where standards of economic governance are most advanced and where inequality is lower.

Taxes, Competition and Finance for Albanian Enterprises: Evidence from a Field Study

This paper analyses the results from a survey, carried out in 1999, of more than 100 enterprises in Albania. The main finding of the survey is that registered businesses regard competition from the informal sector as the most important problem they face in doing business. Unregistered firms have a significant advantage because they are able to evade the relatively high tax burden. Poor access to loans is also a significant obstacle. Enterprises tend to rely on own sources of funds for business start-up expansion. Larger enterprises are more likely to apply for loans than smaller ones, but having applied, are no more likely to be successful.

On the interaction between efficiency wages and union firm bargaining models

Even when efficiency wage considerations are taken into account, firms may have no incentive to pay wages above the competitive minimum. The total value of output therefore may be increased if workers in the efficiency wage sector also possess bargaining power. Efficiency wage and insider-outsider models may also reinforce each other.

Inflation and Stabilisation in Albania

This article analyses the determinants of inflation in Albania during the transition period. We attempt to explain why Albania was successful in reducing inflation, by the end of 1995, to a level comparable to many countries in the European Union. We discuss the relative importance of monetary, fiscal and external variables, and we highlight the role of remittances by emigrants. Using vector autoregression analysis, we demonstrate how shocks to money growth and remittances affect the subsequent paths of inflation and the exchange rate. Our main conclusion is that, while there are important lessons from the Albanian experience for other ex-communist countries, the presence of large-scale emigration and huge remittance flows makes Albania unique among European countries in transition, in the extent to which these factors aided the anti-inflation programme. However, recent events have demonstrated that political stability and control of the informal financial sector are also crucial for low inflation.

Emigration and the Optimal Speed of Transition

The paper presents a model of labor reallocation in a transition economy and analyzes the determinants of the optimal speed of transition. The model is extended to consider the effect of emigration flows from the transition country. In general, a rapid rather than slow pace of restructuring is preferable in the long run, but an initial period of gradualism may be optimal. The authors conclude that emigration, by improving the rate of job creation in the private sector and by reducing the burden of unemployment on the government, may lead to an earlier switch to rapid adjustment of labor, and hence to a faster transition to a market economy.

How Much Should We Trust Life Satisfaction Data? Evidence from the Life in Transition Survey

We analyse responses to two similar life satisfaction questions asked at different points in the same wave of a major cross-country household survey covering the transition region, Turkey and five Western European countries. We show that while the answers to the two questions are broadly consistent for most people, the responses for some groups differ significantly. Respondents of a lower socio-economic status and with a more favourable parental background show systematically higher levels of self-reported satisfaction in the later question. We also find evidence that responses to the later question are influenced by preceding questions on social capital. Our results have important implications for the design and length of household surveys that contain subjective questions.

European Transition at Twenty Assessing Progress in Countries and Sectors

As Central and Eastern Europe are marking the end of communism and the commencement of the process of transition towards democracy and market economy, it is natural to ask how far they have progressed relative to the objectives set at the time. How different is the transition region still from that of other countries at comparable levels of economic prosperity? Are there major differences within the transition region in this regard? In which countries and sectors, in particular, does the transition agenda remain incomplete? What should be the main priorities for future reforms?

Commodity Taxes, Wage Determination, and Profits

We examine the effects of two different types of commodity taxation, specific and ad valorem, on wages and profits. We analyze two models of wage determination, one with efficiency wage setting and one with union-firm bargaining. In the former, a (locally) revenue-neutral shift from specific to ad valorem taxation leads to an increase in both employment and wages and a reduction in profitability. In the latter, the effect on wages and profits may be reversed: predominantly ad valorem taxation raises employment but lowers wages, and under certain circumstances, the net effect is an increase in profits. Copyright 2001 by Blackwell Publishing Inc.