Publications

1657 publications found

• Working Paper No.288 01 November 1999

  Is There a Wage Payoff to Innovative Work Practices?

  Maury Gittleman
  Abstract

  During the 1980s, wage inequality increased dramatically and the American economy lost many high wage, low- to medium-skill jobs, which had provided middle class incomes to less skilled workers. Increasingly, less skilled workers seemed restricted to low wage jobs lacking union or other institutional protections. Although “good” jobs for less skilled workers are unlikely to return in their previous form, a number of sociologists, economists, and industrial relations scholars have suggested that a new paradigm of work, often called “high performance,” is emerging, which offers such workers more skilled jobs and higher wages. Using a unique national data set we find little evidence that high performance work systems are associated with higher wages.

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• Working Paper No.287 01 November 1999

  Functional Finance

  Stephanie A. Kelton
  Abstract

  The purpose of this paper is threefold. First, the theory of functional finance, as explicated by its originator, Abba Ptachya Lerner, is put forward; second, the reader is introduced to the use, standard in money and banking texts, of T-account balance sheet entries. Although no important conclusions will rest solely on the reader’s ability to cope with these entries, comfort with their use will ease the exposition. An appendix therefore is provided to assist those not yet exposed to this method of recording balance sheet changes and for those who merely wish to refresh themselves. The third purpose of the paper is to demonstrate the need for policies governed by the principles of functional finance.

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• Working Paper No.286 01 November 1999

  The History of Wage Inequality in America, 1820 to 1970

  Robert A. Margo
  Abstract

  In recent decades the United States has experienced a pronounced widening of its wage structure. For the most part, analysis of the recent rise in wage inequality has taken place with the benefits of hindsight—that is, without placing recent changes in the wage structure in historical context. This paper presents such an historical context, by summarizing what is currently known about the evolution of the wage structure from 1820 to 1970. I argue that this evolution was characterized by both episodic change and secular trends. Perhaps the most important secular trend is a long-term rise in the returns to educated labor beginning before the Civil War and continuing until the turn of the 20th century, followed by a decline over the 1900 to 1940 period. In the 1940s substantial further erosion in wage differentials took place, primarily as a consequence of various government policies and increases in the relative demand for less-skilled labor associated with World War II. Although wage inequality today is high by post–World War II standards, it is not particularly high when measured against the pre–World War II experience. As far as government policy is concerned, there is compelling historical evidence that long-term expansion of educational opportunity has been a potent force in narrowing wage differentials.

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• Working Paper No.289 01 November 1999

  New Perspectives on the Guaranteed Income

  Karl Widerquist
  Abstract

  Renewed interest in a guaranteed income is evident from the number of books that have been published on the topic in the 1990s. This paper compares seven of those books. They are: Arguing for Basic Income: Ethical Foundations for a Radical Reform, edited by Philippe Van Parijs; Real Freedom for All: What (If Anything) Can Justify Capitalism? by Van Parijs; Public Economics in Action: The Basic Income/Flat Tax Proposal, by Anthony Atkinson; The $30,000 Solution, by Robert Schutz; The Benefit of Another’s Pains: Parasitism, Scarcity, Basic Income, by Gijs Van Donselaar; “And Economic Justice for All”: Welfare Reform for the 21st Century, by Michael Murray; and The National Tax Rebate: A New America with Less Government, by Leonard Greene.

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• Working Paper No.285 01 October 1999

  Computers and the Wage Structure

  Michael J. Handel
  Abstract

  A leading explanation for the rapid growth in wage inequality in the United States in the last 20 years, consistent with both human capital and postindustrial theories, is that advanced technology has increased job skill requirements and reduced the demand for less skilled workers. Krueger’s 1993 study showing a wage premium associated with using computers at work is one of the few that seems to provide direct supportive evidence. In this paper I use previously unexamined data to suggest that measured returns to computer use are upwardly biased. In addition, I find that most of the growth of inequality since 1979 occurred in the early 1980s, which is inconsistent with a primary role for computers. Finally, computer use at work had equalizing impacts on the gender wage gap and elsewhere in the wage distribution, as well as disequalizing impacts on the wage gaps between education groups. When the contribution of computer use to all components of the variance of wages is taken into account, computers seem to have had a net equalizing impact in the period Krueger studied. This casts significant doubt on this technology-based explanation of the growth in wage inequality.

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• Working Paper No.284 01 October 1999

  The Distribution of Wages

  Conchita D’Ambrosio
  Abstract

  This paper presents a non-parametric procedure to analyze the effects of different factors on observed movements in any distribution. These effects are estimated by applying kernel density methods to weighted samples in order to obtain counterfactual distributions. The advantage of this approach is that it provides a direct means of investigating if these factors have an impact and where in the density they do so, and it offers a new decomposition method of within and between group components. The approach to the decomposition analysis applied in this paper differs from the classical one of additively decomposable inequality indexes. If the purpose of the analysis is to understand what determined the variation in relative inequality, there is no doubt that the decomposition of the indexes belonging to the generalized entropy family is the best method. If, instead, the aim is to monitor what factors modified the entire distribution, where precisely on the distribution these factors had an effect, and what determined the variation in the level of polarization observed, then that method is useless. The non-parametric method proposed is the one to use, but with one caveat: All the results assume that there are no general equilibrium effects. The paper contains summary statistics of the observed movements and of distance and divergence among the estimated and counterfactual distributions; an original modification of an index of polarization; and an application of the method to the Italian distribution of wages.

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• Working Paper No.283 01 October 1999

  Financing Long-Term Care

  Walter M. Cadette
  Abstract

  The nation is ill-prepared to finance the quantum jump in long-term care spending that is on its way as the baby boom ages. By default rather than by design, Medicaid has become the main source of funds for long-term care. But reliance on Medicaid has fostered the institutionalization of the disabled elderly, has given rise to a two-tier care system, and has yielded the bizarre outcome of use of limited welfare funds by middle- and even high-income Americans who have succeeded in sheltering assets from Medicaid’s spend-down requirements. Insurance would be a greatly better answer to the nation’s long-term care needs. But the market will remain small and underdeveloped as long as Americans can make easy claim on Medicaid. The paper puts forth a plan for universal long-term care insurance, supported by income-scaled tax credits, to replace Medicaid in its current role. That would make for “honest government”–one that not only does not fund inheritance protection but also genuinely protects those with greatest need.

  Download Working Paper No. 283 PDF (206.20 KB)
• Working Paper No.282 01 October 1999

  The Economic and Monetary Union

  Philip Arestis and Malcolm Sawyer
  Abstract

  The euro was adopted as legal tender, albeit in a virtual form, by 11 countries of the European Union on January 1, 1999. The intention was that notes and coins denominated in euros would be introduced and the national currencies phased out during the first six months of that year, and that the euro would be fully operational by 2002. This paper first reviews the current position of the EMU member states in relation to the convergence criteria under the Maastricht Treaty and finds that there must have been a considerable degree of “fudge” for the criteria to have been met. The paper next looks at the central role of aggregate demand in the EMU and at concerns about unemployment. It then examines the prospects of the current EMU arrangements, concluding that they are highly deflationary. To overcome the deflationary bias of current proposals and as a means to alleviate the serious unemployment problem, the authors recommend that the European Central Bank be enhanced by (1) the development of a new institution, the European Union Development Bank, and (2) a modification of the Stability and Growth Pact.

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• Policy Notes No.10 01 October 1999

  Social Security Privatization

  Walter M. Cadette
  Abstract

  Would privatization yield sufficient benefits to support low-income retirees and satisfy all others? Does a focus on private management of assets take attention away from the real issues in the future of Social Security?

  Download Policy Note 1999/10 PDF (60.06 KB)
• Working Paper No.281 01 September 1999

  Open Economy Macroeconomics Using Models of Closed Systems

  Wynne Godley
  Abstract

  The following paper presents a series of two-country models, each of which makes up a whole world. The models are all based on a rigorous and watertight system of stock and flow accounts and can be used to generate numerical simulations of the way in which of the whole system evolves through time on various assumptions regarding institutions, policies, and behavioral responses. The paper emphasizes that the supply of internationally traded assets is as important as demand in the determination of exchange rates. All the models describe income determination and inflation as well as international trade and intercountry dealings in assets. Apart from deploying a method of analysis believed to be capable of substantial further development, the paper finds that no vestige of the "price-specie flow" mechanism remains once asset demands and supplies are comprehensively represented and inter-related with income flows. It also finds that once the supply of internationally traded assets (for instance, as a result of imbalances in trade) are taken into account, the role of expectations in determining exchange rates—though very important—is exaggerated in much contemporary theorizing.

  Download Working Paper No. 281 PDF (127.76 KB)
• Policy Notes No.9 01 September 1999

  1999 Levy Institute Survey of Small Business

  Jamee K. Moudud
  Abstract

  Modest sales expectations and limited access to bank credit may be curtailing small businesses’ plans for hiring and capital investment.

  Download Policy Note 1999/9 PDF (86.57 KB)
• Working Paper No.280 01 September 1999

  The Rhetorical Evolution of the Minimum Wage

  Oren Levin-Waldman
  Abstract

  The concept of the minimum wage has undergone several rhetorical permutations. Originally conceived as a living wage, which would function as a family wage, it ultimately became a matter of macroeconomic policy, the goals of which were to achieve greater efficiency and in some case economic development. In recent years, the rhetoric has narrowed to a debate that pits a youth disemployment effect against assisting the poor. This paper traces the rhetorical evolution of the minimum wage and shows how the rhetoric employed by various groups has been shaped by the specifics of the political and economic environment.

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• Working Paper No.279 01 September 1999

  Monetary Policy in an Era of Capital Market Inflation

  Jan Toporowski
  Abstract

  The theory of capital market inflation argues that the values of long-term securities markets are determined by a disequilibrium inflow of funds into those markets. The resulting overcapitalization of companies leads to increased fragility of banking and undermines monetary policy and stable relationships between short- and long-term interests rates, such as that postulated by Keynes in his theory of the speculative demand for money. Moreover, while the increased fragility of banking is an immediate effect, capital market inflation also creates an unstable Ponzi financing structure in the capital market as a whole.

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• Policy Notes No.8 20 August 1999

  More Pain, No Gain

  Dimitri B. Papadimitriou and L. Randall Wray
  Abstract

  Neither the Breaux plan nor President Clinton’s proposal for “saving” Social Security promises much gain, but the Breaux plan, unlike the president’s proposal, would inflict real pain in the form of reduced benefits.

  Download Policy Note 1999/8 Revision PDF (72.39 KB)
• Public Policy Brief No.55 02 August 1999

  Does Social Security Need Saving?

  Dimitri B. Papadimitriou and L. Randall Wray
  Abstract

  Projections of an impending crisis in financing Social Security depend on unduly pessimistic assumptions about basic demographic and economic variables. Moreover, even if the assumptions are accepted, the projected gap between Social Security revenues and expenditures would not constitute a “crisis” and could be eliminated with relatively simple adjustments when it occurs. The real issue regarding our ability to provide for retirees throughout the coming century is not the size of Social Security Trust Funds, but the size and distribution of the whole economic pie. When the issue is viewed in this light, it becomes clear that most proposals to “save” the system—locking away budget surpluses, investing the Trust Funds in the stock market, privatization, reduction of benefits—do not address the real problem of caring for future retirees. Solutions consistent with the true nature and scope of the problem lie not within the Social Security system itself but in the realm of a general fiscal policy aimed at ensuring the growth of the economy.

  Download Public Policy Brief No. 55, 1999 PDF (284.91 KB)
• Working Paper No.278 01 August 1999

  Minsky and the Mainstream

  Steven M. Fazzari
  Abstract

  Hyman Minsky’s research emphasized the central role of finance in modern economics at a time when finance was not important in most mainstream macroeconomic research. But in the 1980s, mainstream research began to explore the role of finance in firm and consumer behavior. This paper examines the extent to which this recent mainstream research captures Minsky’s insights and whether it extends his work. I argue that recent work on micro foundations-the link between economic behavior and finance—complements Minsky’s contributions and corresponding empirical research provides strong support for his argument that financial conditions affect expenditures. But large differences remain between Minsky and the mainstream paradigm, especially in the role played by the financial system in macroeconomic fluctuations. Furthermore, there is much in Minsky’s Big Government—Big Bank policy framework that does not appear in recent mainstream work.

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• Working Paper No.277 01 August 1999

  Hyman Minsky’s Theory of Capitalist Development

  Charles J. Whalen
  Abstract

  During the last decade of his life, Hyman P. Minsky drew on insights acquired from Joseph Schumpeter in an effort to explore the long-term development of capitalism. He believed such an exploration would underscore the economic implications of postwar financial-system innovations and could encourage a broad discussion regarding the appropriate structure of the US economy. This paper focuses on the theory of capitalist development that Minsky produced during that decade.

  After describing the purposes of Minsky’s exploration, his theory is outlined both in terms of its essential elements and as it applies to the US economy. In addition to emphasizing the relations between finance and business, Minsky identified a transition through at least five distinct stages of capitalism: from the merchant-capitalist era to a recent period dominated by money managers. A concluding section identifies a number of research directions suggested by Minsky’s analysis.

  Download Working Paper No. 277 PDF (45.39 KB)
• Working Paper No.276 01 August 1999

  Lessons from the Asian Crisis

  Laurence H. Meyer
  Abstract

  This paper presents a central banker’s perspective on the Asian crisis. Central banks have two core missions: the pursuit of monetary policy to achieve broad macroeconomic objectives and the maintenance of financial stability, including the management of financial crises. The management of financial crises is closely connected to the regulation and supervision of the banking system, so it, as well as broader issues related to systemic risk in the financial sector, is included as part of the central banker’s perspective. Central banks also often have or share with finance ministries control over exchange rate policy, including the choice of an exchange rate regime and the management of that regime. Therefore, the roles of exchange rate policy, macroeconomic policy, and bank supervision and regulation in the crises are examined and some lessons in each case are suggested. The author’s interpretation of the sources of and appropriate policy responses to the crises among the Asian emerging economies draws heavily upon the work of Hyman P. Minsky.

  Download Working Paper No. 276 PDF (35.87 KB)
• Policy Notes No.7 01 July 1999

  Capital Income Taxes and Economic Performance

  Steven M. Fazzari
  Abstract

  Tax reform that reduces tax rates on capital income, no matter how successful it is in reducing the user cost of capital, will have at best minimal effects on capital formation and output and therefore on the growth of the United States’ economy.

  Download Policy Note 1999/7 PDF (80.22 KB)
• Public Policy Brief No.54 01 July 1999

  Down and Out in the United States

  Marc-André Pigeon and L. Randall Wray
  Abstract

  Despite a long period of strong economic growth, more than 28 million working-age persons were categorized by the Bureau of Labor Statistics as out of the labor force in 1998. A small portion of this population will move into the labor force, but the majority will remain without work. This brief examines the demographics of the out-of-the-labor-force population, their reasons for not working, the likelihood that they will move into the labor force, and the adverse effects on them of prolonged joblessness. Current labor market policies, and especially welfare reform measures, have proved ineffective for the “hard-core” jobless because the policies are predicated on the mistaken notion that the private labor market is dynamic and flexible enough to accommodate anyone who wants to work. A public employment program would complement the operation of the private market, providing those who are able and willing with income, a sense of worth, the opportunity to make a social and economic contribution, and preparation for entry into the labor force.

  Download Public Policy Brief No. 54, 1999 PDF (273.59 KB)
• Working Paper No.275 01 July 1999

  Minsky’s Analysis of Financial Capitalism

  Dimitri B. Papadimitriou and L. Randall Wray
  Abstract

  In this paper, the authors discuss Minsky’s analysis of the evolution of one variety of capitalism—financial capitalism—which developed at the end of the nineteenth century and was the dominant form of capitalism in the developed countries after World War II. Minsky’s approach, like those of Schumpeter and Veblen, emphasized the importance of market power in this stage of capitalism. According to Minsky, modern capitalism requires expensive and long-lived capital assets, which, in turn, necessitate financing of positions in these assets as well as market power in order to gain access to financial markets. It is the relation between finance and investment that creates instability in the modern capitalist economy. Financial capitalism emerged from World War II with an array of new institutions that made it stronger than ever before. As the economy evolved, it moved from this more successful form of financial capitalism to the fragile form of capitalism that exists today.

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• Public Policy Brief No.53 01 July 1999

  Full Employment Has Not Been Achieved

  Dimitri B. Papadimitriou
  Abstract

  Claims that the nation has reached full employment take for granted the need for a reserve pool of labor to maintain price stability and labor market flexibility. But are millions of jobless and underemployed workers the best we can do in these times of economic expansion? And what will happen when the inevitable downturn comes? Reduction of the workweek and employment subsidies have been proposed to achieve higher employment, but neither is sure to raise employment and both may have serious side effects. A public service employment program that offers jobs at a fixed wage to all who are willing and able to work can provide full employment without inflationary pressures and with labor market flexibility, preserve workers’ skills, contribute valuable public services, and be relatively inexpensive.

  Download Public Policy Brief No. 53, 1999 PDF (115.15 KB)
• Working Paper No.274 01 July 1999

  The Independent European Central Bank

  Philip Arestis
  Abstract

  In this paper, Visiting Senior Scholar Philip Arestis questions the assumptions underlying the economic case for the independent European Central Bank (ECB). Arestis argues that although a European Clearing Agency (ECA) of the type Keynes envisaged for the international economy is not a panacea for the economic problems of the European Union (EU), it is nonetheless a better way forward and far superior to the ECB. The paper (1) outlines the theoretical basis of Keynesian monetary and financial theory; (2) aims to ascertain the extent to which credit availability is affected by the creation of an ECB and, on that basis, to offer a critical analysis of current proposals for an ECB; (3) looks closely at the case for the ECA, seen as performing a range of functions rather than having a remit defined simply in terms of strict monetary control, including a commitment to providing the necessary finance for full employment and a responsibility for ensuring that the burden of balance-of-payments adjustment falls upon both deficit and surplus countries.

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• Public Policy Brief No.52 01 July 1999

  Government Spending in a Growing Economy

  Jamee K. Moudud
  Abstract

  Based on neoclassical theory, cutting budget deficits has come to be seen as a principal way to increase long-run growth, but the empirical evidence is ambiguous on the outcome of this macropolicy. A new model, the classical growth cycles (CGC) model, offers an alternative theoretical framework for analyzing the complex effects of fiscal policy. The CGC model holds that the impacts of fiscal policy on growth are transmitted through its effects on business profitability and the business saving rate. Investigation of both short-run and long-run effects of government spending and of the distinctive long-run effects of different types of government spending suggests that indiscriminate deficit cutting will not lead to a rise in the long-run profit rate and may exacerbate poverty and inequality in the short and the long run.

  Download Public Policy Brief No. 52, 1999 PDF (267.44 KB)