Distribution of Export Price Risk in a Developing Country
We address the issue of social distribution of an aggregate risk (on agricultural export price), from a macroeconomic perspective. Individual incomes in representative social groups are computed as a function of export prices, which are assumed to be stochastic, using an applied general equilibrium model of an archetype developing economy. The statistical properties of the resulting distribution of individual incomes are then examined. We consider a mapping of different policies on agricultural prices (stabilization or complete pass-through), monetary rules (accommodating or not) and exchange rate regimes (fixed versus flexible).
What Drives Public Employment in Developing Countries?
An excessive level of employment is a frequent complaint made about public-sector governance in developing economies. The explanation typically offered is that governments use public-sector employment as a tool for generating and redistributing rents. This article suggests an alternative hypothesis: relatively safe government jobs represent partial insurance against undiversifiable external risk faced by the domestic economy. I show that countries that are greatly exposed to external risk have higher levels of government employment and have experienced faster rates of growth of government consumption. The basic finding on this (partial) correlation is robust against the hypotheses typically offered. Copyright 2000 by Blackwell Publishing Ltd
Efficient Public Sector Downsizing
Most downsizing operations show high financial returns, but their economic returns depend crucially on their design. After comparing public sector employment across countries, the author analyzes the optimal design of downsizing operations from a microeconomic perspective. The author discusses how to identify redundant workers when individual productivity is observable, as is often the case in state enterprises. Comparisons of productivity and labor costs are misleading because overstaffing is only one among several distortions. The author proposes using a shadow cost of labor, much the same as in standard investment projects. The author then discusses how to identify redundancies when individual productivity cannot be observed, as in government administration. Voluntary separations in exchange for severance pay create an adverse selection problem, whereby the best workers leave the public sector and the worst workers stay. The author discusses other self-selection methods more likely to create an incentive for the best workers to stay rather than quit. Most offers of severance pay tend to overcompensate workers. The author analyzes how labor data can be used to predict the loss replaced workers will experience and to tailor compensation to their individual characteristics. Finally, the author discusses the appropriate sequence of downsizing and privatization, the consequences of early retirement programs, and the usefulness of training programs and other active labor policies.