05.11.2014   Hendrik Hakenes, University Bonn

Financial Stability in Uneven Banking Systems

In many countries, banks, or parts of banks, are treated uneven because of specific subsidies or tax advantages for specific services or bank products. Examples are the recent announcement of the European Commission to found a subsidized European bank account or considerations to ring-fence retail banks' demand deposits from other activities. The demand deposit contract offered by banks increases welfare but makes banks inevitably fragile to bank runs. The extent of the fragility of a bank depends - among others - on its deposit base: the stock of demand deposits that is not withdrawn at any point in time. Such an uneven banking system leads to an implicit seniority of demand deposits for subsidized banks. Using the standard global games approach, we show that subsidized banks are less prone to panic runs, but aggregate stability decreases.


12.11.2014   Gonzague Vannoorenberghe, University Tilburg

Inter-sectoral labor reallocation in the short-run

The adjustment to changing economic conditions typically requires a reallocation of labor across sectors. We show that the extent to which this reallocation can happen in the short-run depends on the availability of the occupations that an industry needs in the regions where it is located. Our analysis runs at three levels. First, we develop a theorybased measure of occupational similarity between industries and show that the geographic proximity to industries using similar occupations raises the ability of an industry’s employment to respond to aggregate shocks. Second, using data on the employment growth of region-industry pairs in the U.S., we confirm empirically that an industry’s employment responds more to nationwide shocks in regions where other industries using similar occupations are located. Third, we compute an industry-specific measure of employment sensitivity to economic shocks for the U.S. and document substantial cross-industry differences, running from a low sensitivity in agriculture and food services to a high sensitivity in wholesale trade.


07.01.2015   Hannes Müller, Institute of Economic Analysis (CSIC), Barcelona

Feeling Useless: The Effect of Unemployment on Mental Health in the Great Recession

This article documents a strong connection between mental disorder and unemployment using data from the Spanish Health Survey. We use employment in construction in 2006 as an instrument for unemployment in 2011 to show that there is a strong causal effect of unemployment on health. Our results suggest that about one fifth of individuals exposed to unemployment due to collapse of the construction sector developed a mental disorder. Data shows that a possible explanation for this large effect is the particularly dire labour market situation of those affected by the employment shock.


14.01.2015   Nadja Kairies-Schwarz, University Duisburg-Essen

Information and Quality: Designing Non-monetary Performance Incentives for Physicians

In recent years, several countries have introduced non-monetary performance incentives for health care providers to improve the quality of medical care. Evidence on the effect of non-monetary incentives, predominantly in the form of public quality reporting, on the quality of medical care is, however, ambiguous. This is often because empirical research to date has difficulties in isolating the non-monetary incentive effect. Therefore, we use a controlled laboratory experiment: subjects take on the role of physicians and make treatment decisions for patients, receiving varying information on the relative quality of their treatment. Real patients' health is affected by subjects’ decisions. By providing differing amounts of performance information either in private or in public, we are able to disentangle the motivational effects of self-esteem and social image. Our results show that revealing certain public information has a significant and positive effect on the quality of care provided. Private information disclosure, on the other hand, has no significant impact on treatment quality. These results hold for medical students and for other students.


21.01.2015   Mario Gilli, University of Milano-Bicocca

Accountability in Autocracies with Multidimensional Policies

The purpose of this paper is to explore the joint work of two mechanisms that might constrain autocratic rulers: the threat of a coup by the political elite and of a revolution by the citizens. We analyze this problem within a new setting with multidimensional policies, where we model the players’ de facto power as the probability of succeeding in coups or in revolutions. Our results will not only explain a well-established and crucial fact, that is, autocracies are far more likely to be either the best or the worst performers in terms of growth, but also that dictatorships are usually more prone to underperform on some policy dimension, e.g. they are often aggressive on foreign policies even when it is not the most effective choice. Our results connect the dictator’s and citizens’ de facto power to many different policy outcomes highlighting the hidden reason of the different policy dynamics.


28.01.2015   Stella Capuano, IAB

Offshoring and firm overlap

We set up a model of offshoring with heterogeneous producers, in which firms differ in the mass of tasks they perform and the share of tasks they can offshore to a low-cost host country. The model captures the empirical regularity that larger, more productive firms are more likely to make use of the offshoring opportunity and that only a fraction of firms of a specific type engages in offshoring. This gives rise to an overlap of firms, which is type-specific and, in the aggregate, non-monotonic in the costs of offshoring. In an empirical exercise, we use firm-level data from Germany to structurally estimate the key parameters of the model. These parameters are then used for counterfactual analyses, in which we quantify the role of overlap for welfare and study the consequences of a reduction in offshoring costs for the extent of overlap and welfare.


04.02.2015   Hale Utar, University Bielefeld

Workers beneath the Floodgates: The Impact of removing trade quotas for China on Danish workers

Using the dismantling of trade quotas on Chinese textile and clothing products in conjunction with China's accession to the WTO and an employer-employee matched data-set for the period 1999 to 2010, workers' adjustments to intensi ed low-wage competition is analyzed. Utilizing within-industry heterogeneity in workers' exposure to this trade shock, results reveal negative and signi cant impact of the low-wage import shock on workers' future earnings and employment trajectories. The abolishment of quotas leads to higher likelihood of unemployment and shorter future tenure for workers. While most workers employed by rms exposed to low-wage competition are influenced negatively to a similar extent at the exposed employer, the degree of adjustment to the initial shock varies greatly across di erent types of workers. In particular less-educated, older and those who had elementary occupations or occupations that require industry-specific training at the exposed firms had the worst adjustment experience. The results suggest that adjustment costs are very important and heterogeneous across di fferent types of workers and highlight the need for targeting specific groups in assistance and adjustment schemes.


11.02.2015   Timo Baas, University Duisburg-Essen

Labor market reforms and current account imbalances - beggar-thy-neighbor policies in a currency union?

Member countries of the European Monetary Union (EMU) initiated wide- ranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbor policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyze the impact of labor market reforms on the transmission of macroeconomic shocks in both, non-reforming and reforming countries. By analyzing the impact of reforms on foreign debt, we contribute to the debate on whether labor market reforms increase or reduce current account imbalances.