Urban Sila

Windfall gains and labour supply: evidence from the European household panel

We investigate whether workers adjust hours worked in response to windfall gains using data from the European Household Panel. The results suggest that a rise in unearned income has a negative (although small) effect on working hours. In particular, after receiving a windfall gain, individuals are more likely to drop out of the labour force and the effects become larger as the size of windfall increases. Furthermore, the empirical findings show that the impact of windfall gains on labour supply: (i) is more important for young and old individuals, (ii) is most negative for married individuals with young children, (iii) but can be positive for single individuals without children at the age of around 40 years. The latter effect can be explained by individuals using the windfall gain to set up their own business and become self-employed.JEL classificationD12, J22.

Wage setting in Slovenia: interpretation of the Wage Dynamics Network (WDN) survey findings in an institutional and macroeconomic context

This paper examines responses to questions on wage setting features in Slovenia’s Wage Dynamics Network (WDN) survey in the institutional and macroeconomic context of the Slovene economy. The question on collective wage agreement did not capture the prevailing institutional arrangement of multi-level agreements, and the responses on wage indexation were seemingly at odds with institutional features of wage setting. Labor cost adjustments during the financial crisis were primarily in variable pay components and employment but not in base wages. Minimum wage policy contributed to downward wage rigidity.JEL codesD22, J31, J38, J50

Greater Wage Inequality Reduces Average Hours of Work

I argue that rising inequality in offered wages lowers average working hours. If labour supply is concave in wages, a decrease in the working hours of low‐paid workers is greater than an increase in working hours of high‐paid workers. Furthermore, due to low market opportunities, some low‐paid workers may leave the labour force. Using CPS‐MORG data for prime‐age men, I find evidence in support of this explanation. I establish empirically the concavity of the labour supply and find evidence that after controlling for the average wage, wage inequality has a negative effect on labour supply.

The Sovereign Debt Crisis in Europe: How to Move from Bad to Good Equilibrium?

We develop a stylised model for public-debt and growth dynamics with two equilibria, a “good” and a “bad” one. The “bad equilibrium” is characterised by the simultaneous occurrence, and adverse feedbacks between, high and growing fiscal deficits and debt, high risk premia on sovereign debt, slumping economic activity and plummeting confidence, whereas a “good equilibrium” is characterized by stable growth and debt and low risk premia. We believe the southern euro area countries are caught in a bad equilibrium and use this framework to identify policies that can help them to recover. The analysis shows that despite some output loss in the short run fiscal consolidation can help these countries escape from the bad equilibrium trap. More broadly, we find that a combination of financial backstops, structural reform and fiscal consolidation is most effective in helping these countries getting onto a sustainable path (JEL codes: E62; C33; C62).