Waterloo economics series | 1998

Abstracts of working papers

#9801 -- Kevin T. Reilly and Tony S. Wirjanto (September 1997)

Does more mean less? The male/female wage gap and the proportion of males to females at the establishment level


This paper examines the effect of the proportion of females in the establishment on the male/female wage gap and the effectiveness of an affirmative action program in reducing this gap. A unique data set makes this paper possible since it has information on both individuals and the establishments they work for. The paper documents a significant difference in the sex composition of the establishment in which males and females work. Further, it is shown that the proportion of females in the establishment is negatively related to the wages of both males and females and accounts for 26 percent of the gap in log wages between men and women. Due to an inadequacy of the traditional method of decomposing wages when examining an affirmative action program, a new method of decomposition is developed: the characteristic wage decomposition. The results suggest that an employment equity programme will reduce the male/female wage gap by 20 percent.
(This journal was published in Canadian Journal of Economics, 1999, Vol. 32(4), 906-929.)

#9802 -- Robert A. Amano and Tony S. Wirjanto (November 1997)

Government expenditures and the permanent-income model

(Accepted for Publication - Review of Economic Dynamics, Vol 1, 1998, pp. 719-730)


Building on recent advances in the theory of the optimal timing of investment under uncertainty, this paper proposes a stylized theoretical model to study an individual's optimal migration strategy. It shows that, as a result of following the optimal strategy, the individual may choose to delay the migration when the condition appears to be favourable, giving rise to so-called waiting phenomenon observed in the data for Germany following the unification. Using the closed-form solution obtained, it also examines how the duration of the waiting phenomenon is affected by a number of economic factors such as uncertainty with respect to income in Western Germany, the individual's attitude toward risk, etc.

#9804 -- Tan Wang and Tony S. Wirjanto (November 1997)

On the existence and duration "wait" migration in a generalized model


Recently Wang and Wirjanto (1997) proposed a simple dynamic model to study the optimal timing strategy for an individual's migration decision, using the theory of the optimal timing of investment under uncertainty, reviewed in Dixit (1992), Dixit and Pindyck (1994), and Pindyck (1991). It is shown that as a result of the individual's following the optimal timing strategy, there is a "waiting" phenomenon on the part of the potential migrant, giving rise to so-called wait migration observed in the data for Germany following the unification, and that the duration of this waiting behavior is affected by a number of economic factors such as uncertainty with respect to income in Western Germany, the individual's attitude toward risk, etc.
In this note we extend the model in Wang and Wirjanto (1997) by generalizing the form of the individual's utility function and the stochastic processes of the wage income in Eastern and Western Germany respectively. In particular, we only restrict the utility function to be continuous in its argument without specifying a particular functional form, and allow the wage incomes to be characterized by general diffusion processes with possibly correlated Brownian motions. In this general setting we establish the existence of wait migration, and obtain an analytic expression for an optimal stopping strategy that yields the shortest waiting time among all optimal stopping strategies.

9805 -- David Andolfatto and Glenn M. MacDonald (January 1998)

Technology diffusion and aggregate dynamics (PDF)


This paper develops and analyzes a macroeconomic model in which aggregate growth and fluctuations arise from the discovery and diffusion of new technologies; there are no exogenous aggregate shocks. The temporal behavior of aggregates is driven by individuals' efforts to innovate and/or make use of others' innovations. Parameters describing preferences, production possibilities and learning technologies are estimated using post-war U.S. data. The model delivers predicted aggregates that grow and fluctuate much like the data. The key features of post-war growth are explained by new technologies that differ in terms of the magnitude of their improvement over existing methods and the difficulty of acquiring them. The model implies a negative trend in technological dispersion, and that the generally lower growth witnessed during the last two decades is the result of new technologies offering comparatively minor or less broadly-applicable improvements. Data on the growing and fluctuating share of engineering PhDs support the model's technological interpretation of the growth facts, and data on patent applications and adult schooling are consistent with the notion that newer technologies are more specific and proprietary.

9806 -- David Andolfatto and James Redekop (May 1998)

Redistribution policy in a model with heterogeneous time preference (PDF)


We examine how redistribution policy affects the distribution of labour income when human capital accumulation is endogenous and the fundamental source of heterogeneity in the economy stems from varying degrees of time-preference across members of the population.
In comparing the steady states of a dynamic general equilibrium model calibrated to the Canadian economy, we find that progressively more generous income transfer programs (financed with a flat income tax) lead to only modest decreases in income inequality, but significant increases in earnings inequality and large losses in per capita output.
With the exception of the bottom income quintile, individuals display a strong preference for the long-run situation associated with the absence of government redistribution policy. Nevertheless, taking into account transition dynamics, a majority of individuals would likely vote in favour of implementing a Canadian style redistribution policy. The distribution of time-preference plays a critical role in generating this last result.

9807 -- Michael A. Busseri, Herbert M. Lefcourt and Robert R. Kerton (1998)

Locus of control for consumer outcomes: predicting consumer behaviour


Are there some consumers who believe that deliberate decision-making can lead to improved outcomes while others believe that outcomes are beyond their control? To predict which consumers take a strategic approach to shopping, we constructed a measure of locus of control focused specifically on consumer behaviors and outcomes. Psychometric evaluations of the 14-item Consumer Locus of Control scale indicated that it was a reliable instrument whose characteristics were replicated in two separate samples. The scale was used to predict shopping behavior ranging from impulsive to strategic.
The measure of consumer locus of control was significantly related to consumer behavior, whereas measures of economic and generalized locus of control proved to be unrelated to shopping effort, planning, and product knowledge. The more internal their consumer control beliefs, the more likely were subjects to be planful and purposive in the act of shopping.