Cyclical Sensitivity Research Articles

When and why do Austrian companies issue shares?

This paper examines the issuance of share capital via the Vienna Stock Exchange between 1985 and 2004. Evidence is supplied concerning the aggregate factors that help to explain the time-series variation in both the numbers of and proceeds from initial public offerings (IPOs) and seasoned equity offerings (SEOs). Results indicate that there is no cyclical sensitivity of issues, but that firms successfully time their offerings to take advantage of high stock market valuations and the associated low cost of equity capital. Corporate indebtedness and interest rates are significant determinants of SEOs in statistical and economic terms. The proceeds from IPOs, rather than funds raised by firms already listed, are used to finance subsequent investment.

Labour Demand, Flexible Contracts and Financial Factors: Firm-Level Evidence from Spain

We estimate models of labour demand for a panel of 3,400 Spanish manufacturing firms over the period 1985–2001. We examine the roles of fixed‐term contracts, financial factors and a policy reform in 1997 affecting permanent contracts by lowering payroll taxes and dismissal costs. Compared with permanent employment, the demand for flexible labour displays: (i) greater sensitivity to financial factors; (ii) greater cyclical sensitivity; (iii) a larger average wage elasticity; and (iv) less inertia. Our analysis of the 1997 policy reform suggests that a 5 percentage point reduction in the payroll tax is associated with an 8% increase in permanent labour demand.

Integration of the Baltic States into the EU and Institutions of Fiscal Convergence

This paper evaluates the functioning, suitability, and effectiveness of the Maastricht convergence criteria regarding fiscal policy and the Stability and Growth Pact for the Baltic States. We argue that the Maastricht fiscal targets from the Baltic perspective should be considered as long-term goals as opposed to short-run objectives of fiscal policy. Using the European Commission's approach as well as impulse response and variance decomposition techniques, we assess the fiscal discipline and cyclical sensitivity of each state's budget to changes in output gap. Empirical evidence indicates that Estonia and Latvia have been more successful in maintaining fiscal discipline than Lithuania during 1996-2000. We also observe that the Stability and Growth Pact signed in July 1997 would offer enough room for automatic fiscal stabilizers in Estonia and Latvia, but not necessarily in Lithuania. Policy implications of the findings for future perspectives are also discussed.

Romer revisited: long-term changes in the cyclical sensitivity of unemployment

In this paper we employ microeconomic evidence on the unemployment experiences of American males to evaluate the sensitivity of unemployment to business cycle fluctuations in the late nineteenth century as compared to the mid-twentieth century. Our results indicate a substantial decline in the value of the Okun coefficient (from −0.65 to −0.32) between the 1890s and the 1960s. These findings challenge Christina Romer’s interpretation that the measured decline in cyclical volatility of unemployment over the twentieth century was created by improvements in the statistical record. Rather, it was changes in the underlying dynamics of the labor market over the cycle, most notably the transition to procyclical productivity patterns and the shift from an added to a discouraged worker effect among secondary workers, which may be summarized as the development of modern labor market behavior, that account for the declining cyclical sensitivity of employment and the drop in the cyclical volatility of unemployment over the century.

The dynamics of job creation and job destruction in Australia

This paper develops measures of job creation and job destruction (JC&D) based on the methodology initially developed by Davis and Haltiwanger (1990) and using industry employment data from the ABS Survey of Employment and Earnings (SEE), which is available on a quarterly basis between August 1983 and December 2001. It specifically examines the interaction of part‐time and full‐time employment with JC&D processes over the business cycle. Econometric analysis has been conducted to determine the time series properties of cyclical sensitivity and asymmetry. These findings are considered in the context of the likely consequences of the Howard government's Work Choices legislation.

The Canadian Experiment with Voluntary Incomes Restraint, Degree of Labour Organization and Cyclical Sensitivity of Employement

This paper provides a measure of the industrial distribution of the employment impact of monetary and fiscal policies and suggests that organized labour could have expected to have realized very little differential employment benefits from the Commissions package of proposals— prices and incomes restraint in combination with less monetary and fiscal restraint than would otherwise be possible.

Structural Features of Female Employment Status and Earnings Mobility: The Experience in Germany

Structural changes in basic economic indicators, changes in traditional role patterns, and in female employment behavior shed light on the performance of the European labor markets in the 90s. This paper focuses on the cyclical sensitivity of women's employment status and earnings position in Germany. Using data from the German Socio-Economic Panel (GSOEP) we test the hypothesis that labor market adjustments are not gender-neutral but affect women's employment status and women's relative earnings position to a greater extent than those of men. Cross-sectional as well as longitudinal analysis indicate positive effects on female employment status and earnings position during a period with worsening economic indicators. Logistic regression analysis confirms an increasing likelihood of an upward earnings mobility for women in the 90s. Notwithstanding these positive trends the results show that - due to social norms and attitudes - women are still discriminated against in the labor market and in terms of their relative earnings position. Thus social policy is called upon to improve women's social and employment conditions.

What Measure of Inflation Should a Central Bank Target?

This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector's characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives

Weathering Tight Economic Times: The Sales Evolution of Consumer Durables Over the Business Cycle

Despite their obvious importance, not much marketing research focuses on how business-cycle fluctuations affect individual companies and/or industries. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions need not have an equal impact on every industry, nor on all firms in that industry. Using recent time-series developments, we introduce various measures to quantify the extent and nature of business-cycle fluctuations in sales. Specifically, we discuss the concept of cyclical volatility, and derive a dynamic comovement elasticity between the economy as a whole and the cyclical fluctuations in various performance series. To further enhance our understanding of how consumers adjust their purchasing behavior across different phases of the business cycle, two other notable features related, respectively, to the relative size of the peaks and troughs and the rate of change in upward and downward parts of the cycle, are explicitly considered. Of specific interest in this respect are the notion of deepness and steepness asymmetry. We apply these concepts to a broad set (24) of consumer durables, for which we analyze the cyclical sensitivity in their sales evolution. In that way, we (i) derive a novel set of empirical generalizations, and (ii) test different marketing theory-based hypotheses on the underlying drivers of cyclical sensitivity. Consumer durables are found to be more sensitive to business-cycle fluctuations than the general economic activity, as expressed in an average cyclical volatility of more than four times the one in GNP, and an average dynamic comovement elasticity in excess of 2. This observation calls for an explicit consideration of cyclical variation in durable sales. Interestingly, the combined evidence across all durables suggests that asymmetry is present in the speed of up- and downward movements, as durable sales fall much quicker during contractions than they recover during economic expansions. Finally, key variables related to the industry’s pricing activities, the nature of the durable (convenience vs. leisure), and the stage in a product’s life cycle tend to moderate the extent of cyclical sensitivity in durable sales patterns.

Food Stamp Caseloads over the Business Cycle

We use a dynamic model of food stamp caseloads with state‐level panel data to estimate the impact of the business cycle on food stamp caseloads in the era of welfare reform. The macroeconomy has a substantial impact on food stamp caseloads: A one‐percentage‐point increase in the unemployment rate leads to a 2.3% increase after one year. In terms of welfare policy, a 10‐percentage‐point increase in the share of a state's population waived from rules limiting food stamp receipt among able‐bodied adults without dependents (ABAWDs) results in a 0.5% increase in contemporaneous caseloads. States with waivers from the Aid to Families with Dependent Children (AFDC) program in the mid‐1990s had caseloads about 1.9% higher than nonwaiver states. While changes in AFDC caseloads have historically resulted in coincident changes in food stamp caseloads, our results suggest that the link between AFDC caseload and food stamp caseload changes has dissipated substantially after welfare reform. The cyclical sensitivity of food stamp caseloads indicates the importance of food stamps in smoothing consumption during economic recessions.

Food Stamp Caseloads over the Business Cycle

1. Introduction The onset of the current economic downturn following the longest expansion in U.S. history has renewed interest in the role of automatic stabilizers designed to insure households against negative cyclical income shocks. This system of income and consumption stabilizers includes, among others, the individual income tax and the panoply of social insurance programs, such as unemployment insurance and the Food Stamp Program. While the income tax and unemployment insurance have received recent attention (Gruber 1997; Auerbach and Feenberg 2000; Kniesner and Ziliak 2002a, b), little is known about the role of food stamps as an automatic stabilizer even though the program served over 27 million Americans at its peak in 1994. This gap in the literature is particularly acute in light of passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Welfare Reform Act), which introduced new rules on cash-assistance recipients and thus the nearly half of food stamp recipients who also receive cash welfare. Moreover, the 1996 welfare reform also had a direct administrative effect on the Food Stamp Program by ending the eligibility of some recipients, reducing average benefit levels, and requiring states to replace paper coupons with Electronic Benefit Transfer cards. Importantly, the Welfare Reform Act also eliminated the entitlement status of the main cash-welfare program, Aid to Families with Dependent Children (AFDC), thus positioning food stamps as a more prominent countercyclical consumption stabilizer. A first task in assessing the possible stabilization role of food stamps in the era of welfare reform is to identify the cyclical sensitivity of food stamp caseloads. If food stamp caseloads are acyclical, then we would expect no role for food stamps in smoothing consumption over the business cycle. If, however, food stamp caseloads are highly cyclical, then food stamps may function as an important antirecessionary tool. By the same token, the new welfare policies may independently affect food stamp caseload movements and interact with the business cycle, thereby altering the possible stabilization role of the program. In this paper, we specify a dynamic model of food stamp caseloads to estimate the responsiveness of the caseload to the business cycle, to welfare policies, and to interactions between the business cycle and welfare policies. Unlike cash welfare, there has been scant research on the cyclicality of food stamp caseloads.1 Wallace and Blank (1999) are a recent exception in their use of both static annual and dynamic monthly food stamp caseload models based on state-level panel data for the 1980 to 1998 federal fiscal years. With annual data, food stamp caseloads were strongly countercyclical, and reform of AFDC led to weak declines in total caseloads.2 Specifically, they attribute up to 44% of the 1994 to 1998 food stamp caseload decline to economic conditions and about 6% of the decline to welfare reform. They reach broadly similar conclusions with monthly data. However, Wallace and Blank calculate that upward of 85% of the post-1996 decline in food stamp caseloads can be attributed to welfare reform if one is willing to ascribe all the unexplained residual to welfare reform, which as the authors note is undoubtedly an overestimate of welfare reform's effect on food stamp caseloads (p. 85). In their static models, Figlio, Gundersen, and Ziliak (2000) reached conclusions similar to Wallace and Blank's estimates with annual-level data. In their preferred dynamic models, they attribute about 35% of the 1994 to 1998 caseload decline to the macroeconomy and virtually nothing to welfare reform. We improve on this previous research on food stamp caseloads along several dimensions. First, we not only follow other research in estimating the impact of AFDC policy changes on food stamp caseloads but also examine the impact of policies that are focused directly on food stamps. …

What Measure of Inflation Should a Central Bank Target?

This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector's characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages.

Intersectoral labour reallocations and unemployment in Italy

The Italian labour market, like most European labour markets and unlike the US, shows a greater cyclical sensitivity of the service sector with respect to manufacturing and firing costs higher than hiring costs. This accounts for the negative relationship between sectoral employment shifts and Italian unemployment in the post-war period and, correspondingly, for the pro-cyclical pattern of the Lilien index, in contrast with the US experience. By applying the Lilien index to the Italian context, this paper analyses the relative importance of sectoral regional and national factors in the explanation of changes in industrial structure, and their impact on unemployment. The econometric exercise illustrates that, given the structural features of the Italian labour market, the decline in intersectoral and interregional labour reallocations has significantly contributed to the increase of unemployment in Italy. New hires, the pull of new sectors, sectoral shifts and regional mobility can keep unemployment down, while at the same time maintaining some of the structural features of the “European model” (high employment security and stability).

The Heterogeneity and Cyclical Sensitivity of Unemployment: An Exploration of German Labor Market Flows

It is often argued that the labor market outcomes of several ?problem groups? of German workers suffer disproportionately in an economic downturn. These groups are women, the unskilled, and young and old workers, respectively. Using monthly individual-level data for West Germany for the period 1983 to 1994, this paper explores both the demographic heterogeneity of German unemployment in the long term, and the cyclical sensitivity of the unemployment experience across demographic groups. The analysis moves beyond that of unemployment rates to a detailed investigation of transition rates from employment to unemployment and vice versa. While long-term differences across demographic groups are dominating the structure of both job loss and re-employment, estimation of a nonlinear regression model reveals additional aspects of cyclical sensitivity. In particular, young workers experience drastically more pronounced swings in their labor market performance than the average worker, whereas old workers seem basically isolated from the economic cycle. By contrast, in terms of its cyclical sensitivity, the labor market performance of women and of unskilled workers is not dramatically different from that of the average worker.

The cyclical sensitivity of seasonality in U.S. employment

This paper investigates interactions between seasonal and cyclical movements in U.S. payroll employment. Using a multivariate unobserved components model, we test for such interactions and find that they are statistically significant in a number of industries. Still, most industry-level seasonality appears to be idiosyncratic. The model also identifies an unobserved common cycle that exhibits similar business cycle properties, but smaller seasonal variation, than aggregate payroll employment. The overall industry-level seasonal factors generated by our model do not differ much from univariate X-11 seasonals in sample, but some differences arise in out-of-sample experiments.

Cyclicality and Durability: Evidence from U.S. Consumers' Expenditure

In this paper three hypotheses concerning the cyclicality of U.S. consumers' expenditure are proposed. These hypotheses are based upon the distinction between expenditure on durable and non-durable goods. It is argued that durability will lead to increased cyclical sensitivity and that this increased cyclicality will be of an asymmetric nature. The asymmetric adjustment will be of the form of decreases in expenditure on durable goods being more extensive and more rapid during recessionary phases of the business cycle than corresponding increases during expansionary periods. These hypotheses are evaluated using U.S. data on consumer durables and non-durables over the period 1959–1998. Via the use of the Hodrick-Prescott (1997) filter the cyclical elements of these series are derived and subjected to Sichel's (1993) univariate tests of business cycle asymmetry. Overwhelming support is found for all of the hypotheses proposed.

The Cyclical Sensitivity of Seasonality in US Employment

There is a growing recognition in the literature on business cycles that production technologies may give rise to complicated interactions between seasonal and cyclical movements in economic time series, which can distort business inference based on seasonally adjusted data. For the most part, however, the empirical research in this area has relied on standard univariate seasonal adjustment techniques that provide only a partial description of such interactions. In this paper, we develop an unobserved components model that explicitly accounts for the effects of business cycles on industry-level seasonality and for the potential feedback from seasonality to the aggregate business cycle. In particular, the model extracts an aggregate cycle from industry-level data, allows formal statistical testing of seasonal differences in the comovement of an industry with the common cycle, and identifies economy-wide and industry-specific contributions to the seasonal and non-seasonal variation in the data. Applying the model to quarterly US payroll employment data, we frequently find evidence of statistically significant differences across seasons in the comovement between sectoral employment and the common cycle. On the other hand, we also find that seasonal fluctuations in employment at the industry level are largely idiosyncratic and that the proportion of the total variance of the common accounted for by seasonality is much less than for aggregate employment. This suggests that seasonal shocks may have less of a business element to them than one might infer from the seasonal movements in aggregate variables.

The expansion of temporary help employment in the US, 1982-1992: a test of alternative economic explanations

Employment in the temporary help supply (THS) industry more than tripled in the US between 1982 and 1992. During that period, the variability and cyclical sensitivity of THS jobs, their average weekly hours and real hourly earnings were extraordinarily high. In addition, changes in temporary employment levels disproportionately affect aggregate employment flows over this period. One possible explanation of the dramatic rise and variability in THS jobs is demographic changes in the composition of the labour force towards groups believed to prefer impermanent job commitment or temporal flexibility in supplying labour services. A contrasting view considers it part of an explicit human resource strategy increasingly adopted by firms seeking greater 'numerical' or cost flexibility. This strategy may reflect an employer response to greater volatility in demand, intensifying price competition pressures in product markets and rising quasi-fixed costs incurred for permanent employees such as nonwage benefits. A two-sector model is developed that presents permanent and temporary (secondary) sectors as distinct labour market segments. Three-stage least squares estimation of non-nested models of aggregate employment in the help supply industry is conducted. The results more strongly support the hypothesizedeffect of the 'employer strategy/opportunity' set of variables in the model. Specifically, fluctuation in industrial output, intensified foreign competition, the relative magnitude of nonwage labour costs and extent of paid time-off are all positively associated with temporary employment. In addition, the diminished bargaining power of labour has allowed employers to exploit the labour cost savings of temporary hires. The only variable in a 'labour force composition' model at all positively associated with levels of temporary employment is the proportion of married women in the labour force. Implications are then drawn for public policy, given that the rapid rise in temporary jobs reflects labour input strategies adopted by employers more than a growing worker preference for such jobs.

Post-entry behaviour and the cycle: Evidence from Germany

Based on a rich database on establishments in western Germany, the paper aims at characterising the relationship between, on the one hand, growth and exit of entering cohorts and, on the other hand, aggregate business fluctuations. A main finding is that exit is not responsive to the cycle, which is at odds with views of recessions as times of “cleansing’ where creative destruction processes occur. The growth of survivors also displays little cyclical sensitivity, but tends to become more responsive to aggregate business fluctuations as the cohort ages. Two possible explanations for this role of age on the cyclical sensitivity of surviving units are offered in the final section of the paper. The first draws on the product specialisation of young and more established plants, the second on the role of irreversible investment and industry selection.

Male Joblessness and Job Search: Regional Perspectives in the UK, 1981–1993

FORSYTHE F. P. (1995) Male joblessness and job search: regional perspectives in the UK, 1991–1993, Reg. Studies 29, 453–463. Using United Kingdom Labour Force Survey data for the years 1981–93, this paper shows that the UK national pattern of growing joblessness of males aged 18–64 masks important regional differences, both in the composition and cyclical sensitivity of the jobless total over these years. Despite the narrowing of regional unemployment rates within the UK over 1991–93, Labour Force Survey data suggest that the underlying age duration composition of unemployed males aged 18–64 continues to reflect a north–south dimension. The paper also considers the extent to which unfavourable local labour markets in northern UK regions induces low qualified unemployed males to move south in search of employment. FORSYTHE F. P. (1995) Le chomage des hommes et la recherche d'emploi: des perspectives regionales au Royaume-Uni de 1981 a 1993, Reg. Studies 29, 453–463. A partir des donnees provenant d'une enq...