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Ebook Product Demand Shifts and Wage Inequality

Submitted by puput on Mon, 06/07/2010 - 06:33

Wage inequality increased substantially in the US and UK during the 1980s. College graduates in the US earned 41 percent more than high school graduates in 1980, by 1995 they earned 62 percent more [Autor, Katz and Krueger, 1998]. In the UK, in 1978, median wages of workers who left school after age 18 were 40 percent higher than those who left school at or before 16. By 1995 this differential had increased to over 60 percent [Machin, 1999]. Overall wage inequality also increased sharply. The 90-10 log wage differential for male workers increased from 0.9 to 1.17 from 1979 to 1994 in the UK and from 1.16 to 1.45 in the US [Autor and Katz, 1999]. At the same time the employment shares of college graduates rose from 19.2% in 1980 to 26.7% in 1996 in the US and from 8% in 1980 to 13% in 1997 in the UK. The pattern of the increase in wage inequality and the skill premium in the US and UK during the 1980s has been well documented, yet much disagreement remains about the causes of the changes. All the theories are faced with the challenge of explaining why the demand for skills accelerated and the college premium increased soon after an unprecedented increase in the supply of skills during the 1970s and the 1980s. Several explanations have been proposed to explain the shift of demand against low skilled workers, in particular: skill biased technical change, trade liberalization and deunionization.

In the skill biased technical change literature Katz and Murphy [1992] and Card and Lemieux [2000] claim that a steady growth in the relative demand for skilled workers combined with a slowing supply is at the base of the rise in wage inequality in the 80s and 90s. Other studies argue that there has been an acceleration in the relative demand for skills in the 1980s. The most popular ones are based on skill biased technical change associated with changes in production techniques [Acemoglu, 1998], organizational changes [Acemoglu 1999], the reduction of the relative price of computer services [Krusell et al., 1999] or the non linear diffusion of ”technological revolutions” [Aghion and Howitt, 1998].

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PDF Ebook Does Idiosyncratic Business Risk Matter?

Submitted by antoq on Sat, 03/06/2010 - 02:49

In standard Arrow-Debreu economies with complete markets, idiosyncratic risk can be fully diversified away and it is irrelevant for equilibrium outcomes. But as emphasized by Townsend (1978) and Holmstrom (1979), among others, full risk diversification is costly and much theoretical research has analyzed how various forms of financial frictions can prevent it, hampering aggregate productivity, output, and capital accumulation as in, for example, Greenwood & Jovanovic (1990), Bencivenga & Smith (1991), Acemoglu & Zilibotti (1997), and Meh & Quadrini (2006). More recently Angeletos (2007) and Castro, Clementi & MacDonald (2004) have instead shown that the presence of undiversified risk can stimulate savings–because of either precautionary motives, or an increase in entrepreneurial earnings—and can foster growth.

Despite much theoretical interest, there has been little empirical analysis of the effects of idiosyncratic risk on growth. A key issue in identifying the effects of idiosyncratic risk is that the volatility of observed growth or of any other economic outcome (in brief observed risk) could be a (very) imperfect measure of the true underlying risk, which determines institutional arrangements and shapes agents’ decisions. For example principal agent models as in Holmstrom & Milgrom (1987) show that a trade off generally exists between risk-sharing benefits and provision of incentives and as a result observed risk only indirectly measures underlying risk. More recently, Aghion, Angeletos, Banerjee & Manova (2007), Thesmar & Thoenig (2000), and Thesmar & Thoenig (2004) have also stressed that observed risk is endogenous to the market structure and to the risk diversification opportunities available in the economy, since firms react to changes in the economic environment by modifying their organization structure and their innovation activities. Fischer (2008) provides experimental evidence that financial arrangements directly affect entrepreneurs’ risk taking behavior.

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Ebook Employment contribution of Private Equity and Venture Capital in Europe

Submitted by puput on Mon, 03/08/2010 - 04:13

Over the past ten years, private equity and venture capital have played an increasingly important role in the European economy. Investments by European private equity and venture capital funds have increased by more than six times from €5.5bn in 1995 to a record of €36.9bn in 2004. Correspondingly, the number of companies receiving private equity or venture capital was 5,000 in 1995 and has increased to 7,000 in 2004.

In 2004, two thirds of the €36.9bn invested by European private equity and venture capital players was invested in companies at the buyout stage (€26.6bn), with the remaining €10.3bn invested in companies in the venture stage. As companies at the buyout stage are more mature, the average investment size is normally larger.

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