Waterloo economics series | 2019

#19-001 -- Teferi Mergo, Alain-Desire Nimubona, and Horatiu Rus

"Political Representation and the Provision of Public Goods: Theory and Evidence from Ethiopia"

Abstract

While the salience of ethnicity as a factor in ruling coalition formation in African politics has been documented in the literature, less is known about its impact on various ethnic groups' economic outcomes. We construct a simple political economy model to illustrate a way in which investments in public goods in ethnic-based polities may depend on the quality of the ethnic groups' political representation with the federal government. We then exploit a natural experiment that took place in Ethiopia, following the institution of an ethnic federalism in the country in 1995. Using a Difference-in-Difference estimation strategy on repeated cross-sectional data constructed from Censuses and Welfare Monitoring Surveys, we confirm that better political representation improves access to public goods. In Ethiopia's ethnic-based federation, the quality of political representation varies across ethnic regions depending on whether their populations belong or not to the ruling ethnic group at the federal level. Along this line, we found that access to public goods has improved faster in the politically dominant Tigray region than in the other regions. Similarly, the hierarchy of public goods access rates' in different ethnic regions is consistent with the proximity of the political elites from different regions to the center of political power in the country. We also found that the regional disparities in terms of access to public goods are more pronounced in rural areas than in urban areas.

JEL Classification

H41; P16; O10; O55

#19-002 -- Yu Chen, Matthew Doyle, and Francisco Gonzalez,

"Bad Jobs"

Abstract

We propose a definition of bad jobs and a competitive search model that addresses why
workers seek such jobs, why employers create them and why market forces allow bad jobs to
persist. The model features competitive search equilibria in which unemployed workers search
for jobs that are unambiguously bad in a well defined sense. Concretely, these are jobs with
suboptimal career prospects and jobs characterized by employers' underinvestment in labor. Our
theory builds on the insight that when current employers can counter outside offers, potential
employers who do not observe workers' productivity in their current jobs use wages as a signal of
workers' willingness to switch jobs. In turn, this implies that the wage contracts that employers
post in the market for unemployed workers not only direct job search but also signal career
prospects. Bad jobs are a symptom of coordination failure stemming from a conflict between
the signaling and allocative roles of wage contracts. Our analysis brings out potential difficulties
inherent to the economics of bad jobs.

JEL Classification

D82; E24; J31.