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ERIK LUETH

With pay as you go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay as you go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations’ inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency. [JEL H55, E62, D58]

Anne Romanis

THIS PAPER describes the nature of cost inflation in industrial economies pursuing full-employment policies. Its purpose is to indicate why the underlying tendencies to internally generated cost inflation are likely to be stronger in some economies than in others, when a certain moderate rate of unemployment is maintained, and to draw some conclusions concerning the scope for incomes policy. The strength of upward pressure on costs in an economy is broadly determined by the relation between the rates at which money wages and productivity tend to rise at a given level of unemployment. It will be argued that the rate at which money wages rise is likely to be influenced (1) by the underlying flexibility of the labor market situation and (2) by the degree of “organization” which prevails in product and labor markets. Such features of the labor market as the rate of growth of the population of working age, possibilities of increasing participation in the active labor force, and the scope for reducing underemployment in technically backward sectors, such as peasant agriculture and small-scale distribution, condition the bargaining power of the unions and determine the likelihood of wages and prices being bid up by scarcities. The degree of “organization,” which comprehends such features of the economy as the extent of unionization of labor, the extent to which the pricing policies of employers are deliberately or spontaneously coordinated, and the extent to which firms are subject to competition from foreign concerns whose costs do not move in line with domestic wage increases, strongly influence the likelihood of widespread cost pressure eventuating in an economy. Productivity growth is also likely to vary considerably as between countries, depending on the state of technology and the resources becoming available for investment. The economies which, by reason of the circumstances just described, are most likely to experience quite rapid increases in money wages are probably not those in which the underlying conditions are most conducive to rapid increases in productivity.

IQBAL M. ZAIDI

WILLIAM. white, who joined the International Monetary Fund in 1948, spent his entire professional life in the Research Department. Present and past staff members, many of whom benefited from his advice, have asked that his contribution-to the work of the Fund should receive recognition in Staff Papers. This appreciation draws on excerpts from written recollections of some of his colleagues.

MICHAEL SAREL

This paper examines the effects of demographic dynamics on the measured rates of economic growth. It develops a model of production with labor productivity that varies with age. Macroeconomic and demographic data are used to estimate the relative productivity of different age groups. A panel database of effective labor supply is constructed in order to reflect the changing age structure of the population. The historical measured growth rates are then deconstructed into effects of demographic dynamics and into “real” growth rates, net of demographic effects.

BEN J HEIJDRA and JENNY E. LIGTHART

The paper studies the employment effects of a deposit-refund scheme on labor in a simple search-theoretic model of the labor market. It is shown that if a firm pays a deposit when it fires a worker, to be refunded when it employs the same or another worker, the vacancy rate increases and the unemployment rate declines. The scheme introduces rigidities in the labor market, however, which may be undesirable in countries wanting to liberalize their labor markets.

Gilles Saint-Paul

The distributional effects of the minimum wage are analyzed in a model where skilled and unskilled labor are inputs into the production function. It is argued that distributional goals are best achieved by letting the labor market clear itself and achieving redistribution through taxes and transfers. The results stand up to the imposition of the additional constraint of political viability, although skilled workers may be harmed by excessive equilibrium tax rates under the second system. [JEL E24, E6, H21, H23, H55, J3]

BERGER HELGE and STEPHAN DANNINGER

This study explores the effects of labor and product market deregulation on employment growth. Our empirical results, based on an Organization for Economic Cooperation and Development country sample from 1990 to 2004, suggest that lower levels of product and labor market regulation foster employment growth, including through sizable interaction effects. Based on these findings, the paper discusses a theoretical framework for evaluating deregulation strategies in the presence of reform costs. Optimal deregulation takes various forms depending on the deregulation costs and the strength of reform interactions. Compared with the first-best policy, decentralized decision making can lead to excessive or insufficient deregulation.

International Monetary Fund. Research Dept.

This paper examines effects of economic growth and speed of adjustment on openness, human development, and fiscal policies. The model developed in this paper postulates that learning through experience raises labor productivity with three major consequences. First, the steady-state growth rate of output becomes endogenous and is influenced by government policies. Second, the speed of adjustment to steady-state growth increases and enhanced learning further reduces adjustment time. Third, both steady-state growth and the optimal net rate of return to capital are higher than the sum of the exogenous rates of technical change and population growth.

Mr. Robert P Flood
This paper presents details of a symposium on forecasting performance I organized under the auspices of the IMF Staff Papers. The assumption that the forecaster's goal is to do as well as possible in predicting the actual outcome is sometimes questionable. ln the context of private sector forecasts, this is because the incentives for forecasters may induce them to herd rather than to reveal their true forecasts. Public sector forecasts may also be distorted, although for different reasons. Forecasts associated with IMF programs, for example, are often the result of negotiations between the IMF staff and the country authorities and are perhaps more accurately viewed as goals, or targets, rather than pure forecasts. The standard theory of time series forecasting involves a variety of components including the choice of an information set, the choice of a cost function, and the evaluation of forecasts in terms of the average costs of the forecast errors. It is generally acknowledged that by including more relevant information in the information set, one should be able to produce better forecasts.
International Monetary Fund. Research Dept.
This paper examines the role of the labor market in the transmission process of adjustment policies in developing countries. It begins by reviewing the recent evidence regarding the functioning of these markets. It then studies the implications of wage inertia, nominal contracts, labor market segmentation, and impediments to labor mobility for stabilization policies. The effect of labor market reforms on the flexibility of the labor market and the evidence regarding the wage and employment effects of trade reform are discussed next. The last part of the paper identifies a variety of issues that may require further investigation.