Faculty of Business - Economics Working Papers

The Effect of Motherhood on Wages and Wage Growth: Evidence for Australia

Tanya Livermore — Thu, 06 Dec 2012 14:18:28 PST

Labour market theory provides several reasons why mothers are likely to earn lower hourly wages than non-mothers. However, the size of any motherhood penalty is an empirical matter and the evidence for Australia is limited. This paper examines the effect of motherhood on Australian women’s wages and wage growth using a series of panel-data models which control for other relevant factors, both observed and unobserved. Using data from the Household, Income and Labour Dynamics in Australia (HILDA) survey, an unexplained motherhood wage penalty of around four per cent for one child, and eight per cent for two or more children, is found. Further analysis suggests that the wage penalty emerges over time through reduced wage growth, rather than through an immediate wage decline after the birth of a child. This reduction in wage growth is consistent with discrimination but also with a reduction in mothers’ work effort.

Employment Effects of Army Service and Veterans’ Compensation: Evidence from the Australian Vietnam-Era Conscription Lotteries

Peter Siminski — Thu, 06 Dec 2012 14:18:26 PST

Exploiting the Australian National Service lotteries of 1965-72, I estimate the effect of Army service on employment outcomes. Population data from military personnel records, tax returns, veterans’ compensation records and the Census facilitate a rich and precise analysis, identified by 53,000 compliers. The employment effect is confined to men who served.

The Role of Education in Economic Growth

Arusha Cooray — Thu, 06 Dec 2012 14:18:22 PST

This study examines the effect of the quantity and quality of education on economic growth. Using a number of proxy variables for the quantity and quality of education in a cross section of low and medium income countries, this study finds that education quantity when measured by enrolment ratios, unambiguously influences economic growth. The effect of government expenditure on economic growth is largely indirect through its impact on improved education quality.

Human capital externalities, departmental co-authorship and research productivity

Frank Neri — Thu, 06 Dec 2012 13:42:26 PST

Lucas (1988) hypothesised that human capital externalities explain persistent productivity growth and become manifest via interactions between workplace colleagues. Consistent with the first part of this hypothesis, Fox and Milbourne (2006) concluded that an increase in the average level of human capital in Australian economics departments raised the research productivity of departmental members. This paper tests the robustness of this finding by using a direct, rather than a proxy, measure of human capital and confirms the existence of human capital externalities within Australian economics departments. But we go further by investigating the second part of Lucas’ hypothesis. Whilst there are numerous ways in which departmental colleagues may interact, we investigate whether the externality becomes manifest via co-authorship. We find no evidence that this type of interaction significantly enhances research productivity, especially for higher quality outputs.

I Was Only Nineteen, 45 Years Ago: What Can we Learn from Australia’s Conscription Lotteries?

Peter Siminski — Thu, 06 Dec 2012 13:42:25 PST

The Australian conscription lotteries of 1965-1972 are a unique and underutilised resource for studying the effects of army service and veterans’ programs. Drawing on many data sources and 25 years of related US literature, we present a comprehensive analysis of this natural experiment, examining indicators of health, personal economic outcomes, family outcomes and educational attainment. We discuss the numerous potential mechanisms involved and the limitations of available data.

The effect of female and male health on economic growth: cross-country evidence within a production function framework

Gazi Hassan — Thu, 06 Dec 2012 13:42:23 PST

Adopting a production function based approach we model the role of health as a regular factor of production on economic growth. Additionally we disaggregate the measures of human capital by including male and female life expectancy and school enrolments. Allowing for the dynamics of TFP to be embedded in the production function we estimate it in growth form using various estimators appropriate for our data. Our main finding is that male life expectancy has a positive effect on the growth of income while female life expectancy has a negative effect, controlling for unobserved time and country effects in a panel of 83 countries from 1960 - 2009. We use lag differences of life expectancy and school enrolments and lagged growth rates of other inputs as instruments for controlling the endogenity of health in the growth regressions. We check for the robustness of the results with use of ‘deletion diagnostics’ to identify influential observations and outliers. The results continue to show that male life expectancy has a positive effect on income growth while that of female has a negative effect.

Who is responsible for the CO2 emissions that China produces?

Ying (Angela) Liu — Thu, 06 Dec 2012 13:42:22 PST

Most climate scientists around the world are concerned about global warming. These concerns have resulted in calls for reductions in CO2 emissions over time. If these calls are to be heeded, an appropriate emissions accounting method must first be agreed upon by CO2 emitting countries, none of which are more important than China. This paper estimates China’s CO2 emissions in 2002 and in 2007 using firstly a production-based, and then a consumption-based, accounting method, both in aggregate and at the sectoral industry level. Our objectives are firstly to investigate the recent trends in Chinese emissions of CO2, and secondly to reveal the extent of the differences in the estimates produced by these two methods. Our estimates confirm what others have found, namely that Chinese emissions of CO2 increased substantially over this relatively short time period. Furthermore, the consumption-based method results in China being responsible for 38% fewer emissions in 2007 than would be the case with the production-based method. Problems caused by global warming will only be ameliorated if an acceptable worldwide distribution of responsibilities for emissions reduction efforts can be found. We believe that the consumption based method is more appropriate because it allocates responsibilities according to final consumption.

Modelling Australia’s Retail Mortgage Rate

Abbas Valadkhani — Thu, 06 Dec 2012 13:25:12 PST

There is an ongoing controversy over whether banks’ mortgage rates rise more readily than they fall due to their asymmetric responses to changes in the cash rate. This paper examines the dynamic interplay between the cash rate and the variable mortgage rate using monthly data in the post-1989 era. Unlike previous studies for Australia, our proposed threshold and asymmetric error-correction models account for both the amount and adjustment asymmetries. We found that rate rises have much larger and more instantaneous impact on the mortgage rate than rate cuts, suggesting an urgent need for monitoring the banks’ lending behaviour in Australia.

How to capture the full extent of price stickiness in credit card interest rates?

Abbas Valadkhani — Thu, 06 Dec 2012 13:25:09 PST

We present a new approach to evaluate the full extent of price stickiness in credit card interest rates by modifying the existing asymmetric models so that they can be adopted for testing both the amount and adjustment asymmetries as well as the lagged dynamic inertia. Consistent with similar studies, banks behave asymmetrically in response to changes in the Reserve Bank of Australia’s (RBA) target interest rate. Rate rises are passed onto the consumer faster than rate cuts and the credit card interest rate showed a very significant degree of downward rigidity. Based on the magnitude of the pass-through parameters obtained from short-run dynamic models, rate rises had a full one-to-one and instantaneous impact on credit card interest rates. However, in absolute terms the short-run effects of rate cuts were not only less than half of the rate rises but also were delayed on average by three months.

Technical Efficiency of Thai Manufacturing SMEs: a Comparative Study of North-eastern Provinces

Teerawat Charoenrat — Thu, 06 Dec 2012 13:25:06 PST

A major motivation of this study is to examine factors that are most important in contributing to the relatively poor efficiency performance of Thai manufacturing SMEs. The results obtained will be significant in devising effective policies aimed at tackling this poor performance. This paper uses data on manufacturing SMEs in the North-eastern region of Thailand in 2007 as a case study, by applying a stochastic frontier analysis (SFA) and technical inefficiency effects model. The empirical results obtained indicate that the mean technical efficiency of all categories of manufacturing SMEs in the North-eastern region is 43 percent, implying that manufacturing SMEs have high levels of technical inefficiency in their production process. Manufacturing SMEs in the North-eastern region are particularly labour intensive. The empirical results of the technical inefficiency effects model suggest that skilled labour, municipal area and ownership characteristics are important firm-specific factors affecting technical efficiency. The paper argues that the government should play a more substantive role in developing manufacturing SMEs in the North-eastern provinces through: providing training programs for employees and employers, encouraging greater usage of capital and technology in the production process of SMEs, enhancing the efficiency of state owned enterprises, encouraging a wide range of ownership forms and improving information and communications infrastructure.

The Dynamics of Resource-Based Economic Development: Evidence from Australia and Norway

Simon Ville — Thu, 06 Dec 2012 13:25:04 PST

Australia and Norway have achieved modern levels of development as resource-based economies, thus avoiding the so-called resource curse. Their ability to achieve this rested heavily upon diversification into new resource products and industries. These processes relied heavily on innovation, confirming the close ties that have existed between resource-based industries and knowledge-producing and disseminating sectors of society. We develop a resource-based diversification model that analyses the interaction between ‘enabling’ sectors and resource industries and apply it to the historical experience of the two countries.

Determinants of the Long-Run Growth Rate in the South-Asian Countries

B Bhaskara Rao — Tue, 04 Dec 2012 15:52:20 PST

This study uses the extreme bounds analysis of Leamer (1983) to identify some robust determinants of the long-run growth rate in seven South-Asian countries. The relationships between the two are estimated using panel data. We also consider some methodological issues concerning the specification. It is argued that the frequently used specification of the growth equation by the cross-country studies is inappropriate for estimating the long-run or steady state growth effects of variables such as the investment ratio. We use an alternative specification. Since the steady state growth rate in theoretical growth models depends on total factor productivity (TFP), we estimate the long-run growth effects of variables by analysing the determinants of TFP. This approach is suggested by a few influential economists and has been used by Senhadji (2000).

Dynamics, Structural Breaks and the Determinants of the Real Exchange Rate of Australia*

Korshed Chowdhury — Tue, 04 Dec 2012 15:48:29 PST

This paper examines the dynamics, structural breaks and determinants of the real exchange rate (RER) of Australia derived from an inter-temporal general equilibrium model. Autoregressive Distributed Lag (ARDL) modelling results show that a one per cent increase in: (1) terms of trade appreciates the RER by 0.96 to 1.05 per cent in the long-run; (2) government expenditure appreciates the RER by 0.53 to 0.46 per cent in the long-run; (3) net foreign liabilities appreciates the RER by 0.18 to 0.22 per cent in the long-run; (4) interest rate differential depreciates the RER by 0.007 to 0.01 per cent in the long-run; (5) openness in trade depreciates the RER by 1.15 to 1.31 per cent in the long-run; and (6) per-worker labour productivity depreciates the RER by 0.38 to 0.55 per cent in the long-run. The two endogenously determined structural breaks are positive but are statistically insignificant. The speed of adjustment towards equilibrium is high with short-run disequilibrium correcting by nearly 39 to 47 per cent per quarter. These results add new insights to the literature on the determinants of RER in Australia. Apart from the terms of trade, the effects of other determinants of RER are contrary to the results obtained in previous studies.

Are Low Skill Public Sector Workers Really Overpaid? A Quasi-Differenced Panel Data Analysis

Peter Siminski — Tue, 04 Dec 2012 15:38:44 PST

Public-private sectoral wage differentials have been studied extensively using quantile regression techniques. These typically find large public sector premiums at the bottom of the wage distribution. This may imply that low skill workers are ‘overpaid’, prompting concerns over efficiency. We note several other potential explanations for this result and explicitly test whether the premium varies with skill, using Australian data. We use a quasi-differenced GMM panel data model which has not been previously applied to this topic, internationally. Unlike other available methods, this technique identifies sectoral differences in returns to unobserved skill. It also facilitates a decomposition of the wage gap into components explained by differences in returns to all (observed and unobserved) skills and by differences in their stock. We find no evidence to suggest that the premium varies with skill. One interpretation is that the compressed wage profile of the public sector induces the best workers (on unobserved skills) to join the public sector in low wage occupations, vice versa in high wage occupations. We also estimate the average public sector premium to be 6% for women and statistically insignificant (4%) for men.

A Stock Targeting International Carbon-Tax Rule with Uncertainty and Diminishing Compliance

Amnon Levy — Tue, 04 Dec 2012 15:35:37 PST

This paper develops a rule for setting periodically and internationally a carbon-dioxide atmospheric stock limiting tax in a world inhabited by expected utility maximizing stakeholders facing diminishing mean and increasing variance of their output level due to climate change. The stakeholders are classified as poor, hence unable and/or unwilling to pay, countries and rich countries. Due to ideological and cultural differences, the rich countries' willingness to pay the tax is not identical. Consequently, the number of complying rich countries diminishes with the tax level.

Emission-Photosynthesis Imbalance and Climate Change: Forest Land under Intensified Uncertainty and Expected Utility Maximization

Amnon Levy — Tue, 04 Dec 2012 15:33:16 PST

This paper introduces photosynthesis into the motion-equation of the atmospheric stock of carbon-dioxide as a counterpart endogenous factor to emissions of this principal greenhouse gas from lands occupied by humans. By doing so, the paper links the stock of atmospheric carbon-dioxide, hence climate-change and uncertainty, to the allocation of usable land to humans and forest. The public planners can control this allocation and, consequently, the atmospheric stock of carbon-dioxide, climate-change and future usable land by setting land-rates in accordance with use. The analysis considers two types of land-use for expected utility maximizing humans and derives

An Integrative Model of Rational Diet and Physical Activity: Physiological, Gastronomic and Budgetary Aspects

Amnon Levy — Tue, 04 Dec 2012 15:18:00 PST

This paper constructs a model for analyzing the deviations of consumers’ diet and physical activity from their physiologically optimal ones with distinction between a nutritionally and digestively superior food and a taste and price superior food. The consideration of both diet and physical activity and the inclusion of cause-and-effect relationships of the deviations from their physiological optimal ones with ageing, craving, digestive discomfort, health-dependent budget, and non-food consumption and the consideration of intertemporarily bounded rationality adds realistic features to the analysis of rational eating.

Introduction to the Economics of Atmospheric Carbon-Dioxide Control

Amnon Levy — Tue, 04 Dec 2012 15:17:59 PST

The objective of this paper is to provide an introduction to the economics of controlling the stock of carbon-dioxide in the atmosphere. The paper starts with a brief summary of the arguments against a wait-and-see strategy and in favour of controlling carbon emissions. It then provides a basic analysis of the effect of carbon tax on net-cash flow maximising agents’ emissions and offers two possible ways for setting the tax rate. The first one computes an atmospheric carbon-dioxide stocktargeting tax rate with abstinence of some agents, whereas the second considers universal cooperation and computes a welfare-maximising carbon-tax rate. While these computations assume a fixed rate of depletion of the atmospheric stock of carbon dioxide, the last section takes the depletion rate to be dependent on the distribution of the usable land between plants and humans and the change in the usable land to be dependent on the change in the atmospheric carbon-dioxide stock. The usable land allocation required for achieving a target stock of atmospheric carbon dioxide is subsequently computed.

A Fair and Equitable Method of Recruitment? Conscription by Ballot into the Australian Army during the Vietnam War

Simon Ville — Tue, 04 Dec 2012 15:02:49 PST

Australia’s commitment to the Vietnam War drew on the selective conscription of additional manpower through 16 biannual ballots. 20-year-old men were liable to serve if their date of birth was drawn out. The random nature of the ballot was seen as an equitable method of selection for a system of labour coercion that was potentially life-threatening. We investigate the various stages of conscription of these ‘national servicemen’ to undertake service in Vietnam throughout the war and evaluate the extent to which the processes provided for fair and equitable selection. Comparisons are drawn with a similar process of Vietnam-War era conscription in the United States.

The Social Cost of Blackmail

Oleg Yerokhin — Tue, 04 Dec 2012 14:57:19 PST

Despite the fact that blackmail constitutes a voluntary transaction between two parties, it is deemed to be a criminal offence in most legal systems. Traditional economic approach to this so-called ‘paradox of blackmail’ emphasizes welfare loss generated by the costly rentseeking activities of potential blackmailers as the primary justification for its criminalization. This argument however does not extend to cases in which potentially damaging information about the victim was acquired by the blackmailer at no cost. It also does not seem to shed light on a related puzzle: why is it legal for a potential victim to bribe the other party with the purpose of achieving the same final outcome (suppression of information) as in the case of blackmail? This paper addresses these questions in a simple model of bargaining under asymmetric information which is used as a unified framework for studying both blackmail and bribery. Under asymmetric information the bargaining outcome is not efficient regardless of the distribution of the bargaining power. However, when the blackmailer is the monopolist seller of the information inefficiency results from his demands being too high relative to the social optimum, providing justification for the practice of penalizing blackmail. On the other hand, when a victim is the monopolist buyer of the information the equilibrium offer is inefficiently low implying that its punishment would be counterproductive. These arguments provide further support for the claim that under reasonable assumptions criminalization of blackmail can be justified on efficiency grounds.