TFP Decline and Japanese Unemployment in the …econseminar/Old/Esteban-Pretel...Ryuichi Tanaka...
Transcript of TFP Decline and Japanese Unemployment in the …econseminar/Old/Esteban-Pretel...Ryuichi Tanaka...
Ryuichi Tanaka東京大学
Tokyo, June 27, 2008
Julen Esteban-Pretel筑波大学
GRIPS
Ryo Nakajima東京工業大学
TFP Decline and Japanese Unemployment in the 1990s
Motivation Model Parameterization Results Conclusions
Japan in the 1990s
“The performance of the Japanese economy in the 1990s was less than stellar”
Hayashi, F. and E. C. Prescott, 2002 “1990s in Japan: a lost decade” Review of Economic Dynamics 5 (1), 206-235.
2
Motivation Model Parameterization Results Conclusions
The 1990s: Output
Average annual growth rate of GNP per capita 1991-2000• Japan: 0.5%• U.S.: 2.6%
3
-0.8
-0.6
-0.4
-0.2
0
0.2
1960/Q1 1964/Q1 1968/Q1 1972/Q1 1976/Q1 1980/Q1 1984/Q1 1988/Q1 1992/Q1 1996/Q1 2000/Q1
Log of Real GNP (1990=1)
U.S.Japan
Motivation Model Parameterization Results Conclusions
80
85
90
95
100
105
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Detrended Real GNP
The 1990s: Detrended Output
1980s: Economy grows more than the benchmark 2%. 1990s: Trend reversal. 2003 is 90% of that of 1990 had it grown at
a 2% rate per year.
4
Motivation Model Parameterization Results Conclusions
The 1990s: Unemployment
1980s: 2.5% unemployment rate. 1990s: Big increase in unemployment. 5.4% unemp. rate. in 2002.
5
0
1.5
3.0
4.5
6.0
1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Unemployment Rate
Perc
ent
Motivation Model Parameterization Results Conclusions
Forces Behind Unemployment Increase
6
ntut
Creation
Destruction
Motivation Model Parameterization Results Conclusions
Probability of Finding Job
1990: 40% of unemployed workers found job within 1 quarter. 2000: Probability reduced to 30%.
7
25
30
35
40
45
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Quarterly Prob. of Finding Job
Perc
ent
Motivation Model Parameterization Results Conclusions
Probability of Losing Job
1990: 0.8% of workers lost job every quarter. 2000: Probability increased to 1.8%.
8
0
0.5
1.0
1.5
2.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Quarterly Prob. of Losing Job
Perc
ent
Motivation Model Parameterization Results Conclusions
Number of Jobs Created and Destroyed
Over the 1990s creation and destruction increased. Destruction was higher than creation.
9
0.5
1.0
1.5
2.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Jobs Created and Destroyed as Fraction of Labor Force
Perc
ent
of L
abor
For
ce
DestructionCreation
Motivation Model Parameterization Results Conclusions
Lost Decade Labor Market Facts
Detrended output decreased.
Unemployment increased.
• Increase in destruction.
• Increase in creation, but lower than destruction.
Hours of work decreased.
Detrended wages decreased.
10
Motivation Model Parameterization Results Conclusions
What Drove the Lost Decade?
Possible explanations: Krugman (1998), Caballero et al. (2007)
• Bad fiscal policy.• Liquidity trap.• Depressed investment (over-investment during bubble period).• Credit constraints.
Hayashi and Prescott (2002)
• TFP slowdown.
11
Motivation Model Parameterization Results Conclusions
TFP
12
0.006
0.008
0.010
0.012
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Total Factor Productivity
where!t = !1!!!!t!1e
"tAt = !tzt
zt = zt!1e!
Motivation Model Parameterization Results Conclusions
TFP Growth ( )
13
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
TFP Growth
1970-1990: 2.1% growth.
1991-2000: 0.2% growth. 1998-2003: 1.2% growth.
!
Motivation Model Parameterization Results Conclusions
Detrended TFP (φ)
14
85
90
95
100
105
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Detrended TFP
Detrended TFP drops below 90% of the 1990 level.
Motivation Model Parameterization Results Conclusions
This Paper
Can the decline in detrended TFP generate the increase in unemployment
observed in Japan over the 1990s?
15
Motivation Model Parameterization Results Conclusions
What We Do
We build:• Neo-Classical growth model with search frictions in the labor
market.
Calibrate it to match the Japanese economy in 1990.
Simulate it using TFP data and compare results with data.
16
Motivation Model Parameterization Results Conclusions
Model Model
• General structure
• Main equations
Outline
17
Parameterization
Results
Conclusions
Motivation Model Parameterization Results Conclusions
General Structure
Cass-Koopmans type model with labor market search frictions. Two types of agents:
• Households: - Consume.• - Save.• - Supply labor to firms.
• Firms: - Hire labor and rent capital to produce output.• - Atf(kt), where At : TFP.• kt : Detrended capital per worker.
Labor market: • Search and Matching.
• Endogenous destruction.
18
Motivation Model Parameterization Results Conclusions
Household’s Problem
Economy composed by a big family – perfect self insurance. Firms are own by the Family. The Family chooses to max
FOC:
19
{Ct+i,Kt+i+1}!i=0
s.t Ct+i + Kt+i+1 =Wt+i+!t+i + (1+ rt+i ! !)Kt+i + (1! nt+i) bzt+i
C!1t = !Et
!(1+ rt+1 ! ") C!1t+1
"
Et
!!
i=0
! i log (Ct+i)
Motivation Model Parameterization Results Conclusions
Labor Market
Search and matching labor market. Unemployed workers and vacancies meet randomly according to
CRS matching function m(ut,vt)= m(θt)ut, where θt = vt/ut.
• Prob. for an unemp. worker to match with a firm: qt = m(θt)/θt.
• Prob. for firm to match with unemp. worker: pt = m(θt).
Production function: At ktα .
• At : TFP - At =φtzt , zt = zt-1eγ ,
- γ ≡ Growth rate of TFP, φ ≡ SS detrended TFP.
Idiosyncratic cost, xt , - i.i.d with dist. fn: G : [0,xmax]→[0,1]. Endogenous destruction: depends on value of xt . Free entry of firms. Nash bargaining for wages.
20
!t = !1!!!!t!1e"t
Motivation Model Parameterization Results Conclusions
Problem of the Firm
Value of a vacancy:
Value of filled job:
• Optimal capital:
21
Vt = !!zt + "!qtmax
"EtJt+1, Vt+1
#+ (1! qt) Vt+1
$
Vt = !!zt + Et"t
!
"#qt
xt+1$
0
Jt+1 (xt+1) dG (xt+1) + (1! qtG (xt+1)) Vt+1
%
&'
0 = !!zt + Et"tqt
xt+1!
0
Jt+1 (xt+1) dG (xt+1)
Jt (xt) = Atf (kt)! rtztkt ! xtzt ! wt (xt) + !tmax!EtJt+1, Vt+1
"
rt = f ! (kt)
Jt (xt) = Atf (kt)! rtztkt ! xtzt ! wt (xt) + Et!t
xt!
0
Jt+1 (xt+1) dG (xt+1)
Motivation Model Parameterization Results Conclusions
Problem of the Worker
22
Value of unemployment:
Value of employment:
Nt (xt) = wt (xt) + !max {EtNt+1,Ut+1}
Ut = bzt + !t [ptmax {EtNt+1,Ut+1}+ (1! pt)Ut+1]
Ut = bzt + Et!t
!
"#pt
xt+1$
0
Nt+1 (xt+1) dG (xt+1) + (1! ptG (xt+1))Ut+1
%
&'
Nt (xt)wt (xt) + Et!t
!
"#
xt+1$
0
Nt+1 (xt+1) dG (xt+1) + (1! G (xt+1))Ut+1
%
&'
Motivation Model Parameterization Results Conclusions
Wage, Surplus and Threshold
Wages are determined as the Nash solution to a bargaining problem, where η is the bargaining power of the worker.
This problem delivers:
where
Wage:
Destruction threshold:
23
maxwt(xt)
(Nt (xt)! Ut)! (Jt (xt)! Vt)1!!
Nt (xt)! Ut = !St (xt) Jt (xt) = (1! !) St (xt)
St (xt) = Jt (xt) + Nt (xt)! Ut
St (xt) = 0
wt (xt) = ! [Atf (kt)! ztrtkt ! xtzt + "zt#t] + (1! !) bzt
Motivation Model Parameterization Results Conclusions
Flows:
Flows and Timing
24
t - 1t
t + 1ut Matching
At+1 , xt+1 Destruction of jobs Production
ut+1
nt+1nt
ntut
1 = nt + ut
ut =!1! pt!1G (xt)
"ut!1 + [1! G (xt)] nt!1
[1! G (xt+1)]
ptG (xt+1)
Motivation Model Parameterization Results Conclusions
Aggregation
Aggregate output:
Aggregate capital (capital market clearing condition):
Economy resource constraint:
25
Yt = ntAtk!t
Kt = ntAtkt
Yt + (1! nt) bzt = Ct + Kt+1 ! (1! !)Kt + "ztvt + nt!xtzt
Motivation Model Parameterization Results Conclusions
Stationary Competitive Equilibrium
A stationary competitive equilibrium in this economy is a set of:• unemployment rate, employment rate and vacancies, ut, nt, vt;• value for the firms and workers, Jt(xt), Nt(xt),Ut;
• wages, wt(xt);• intermediate input cost threshold,• interest rate, and detrended cons., output and capital (agg. and per
worker), which satisfy:
• flow equations of the labor market;• optimal values for firms and workers, and optimal capital condition; • Nash bargaining for wage determination;• zero surplus condition;• households optimization condition;• economy resource constraint, capital market clearing condition.
26
xt;
rt,!Ct,!Yt, !Kt, yt, kt.
Motivation Model Parameterization Results Conclusions
Parameterization Parameterization
Model
Outline
27
Results
Conclusions
• Choose functional forms.
• Fix a set of parameters exogenously.
• Calibrate other parameters to match Japanese data in 1990.
Model
Motivation Model Parameterization Results Conclusions
Functional Forms
Matching function: m(u,v) = µ uξ v1-ξ
Idiosyncratic productivity distribution:
• Exponential: - mean: µn
28
Motivation Model Parameterization Results Conclusions
Exogenous Parameters
A subset of parameters are fixed using values in other studies or in an ad-hoc manner.
29
Exogenously fixed parameters
Discount factor β = 0.98Elasticity of matching with respect to unemp. ξ = 0.5
Bargaining power of the worker η = 0.5
Exponent of capital in prod. function α = 0.365
Capital depreciation δ = 0.022
Motivation Model Parameterization Results Conclusions
Calibrated Parameters
Calibration is done to match the Japanese economy in 1990.
30
Calibrated parameters
Parameters (4) Moments Matched (4) Source
ϕ : Cost of posting vacancy Unemployment rate (1990)
2.1%
総務省統計局「労働力調査年報」
b : Flow value of unemp. Prob. of leaving unemp. (1990)
0.42
Kuroda (2003)
µ : Scaling param in match. fn Ratio of unemp. benefit to output 0.4
Shimer (2004)
µn : Mean of G( ) Market tightness, θ, set to 1 Shimer (2004)
Motivation Model Parameterization Results Conclusions
• Feed detrended FTP from the data.
• Terminal detrended TFP is 88% that of 1990.
• Compare the changes between steady states.
• Simulate path to new SS using perfect foresight shooting algorithm.
Parameterization Parameterization
Results Results
Outline
Model
31
Conclusions
Motivation Model Parameterization Results Conclusions
Detrended TFP
32
1990: 100. 2003: 88.
85
90
95
100
105
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Detrended TFP
Motivation Model Parameterization Results Conclusions
Changes in SS of Output & Unemployment
33
Unemployment:• Data: 1990 - 2.1% 2003 - 5.2%
• Model: 1990 - 2.1% 2003 - 4.7%
Output (detrended):• Data: 1990 - 100 2003 - 87
• Model: 1990 - 100 2003 - 83
Motivation Model Parameterization Results Conclusions
Unemployment
Path of Unemployment to the new SS
34
5.2%
4.7%
0
1.5
3.0
4.5
6.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Perc
ent
2.1%
Data Model
Motivation Model Parameterization Results Conclusions
Detrended Output
Path of Output to the new SS
35
90
83
75
80
85
90
95
100
105
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
100
Data Model
Motivation Model Parameterization Results Conclusions
Total Jobs Destroyed per Quarter
Destruction of Jobs
36
1.8
1.3
0.5
0.8
1.1
1.4
1.7
2.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Perc
ent
of L
abor
For
ce
0.8
Data Model
Motivation Model Parameterization Results Conclusions
Total Jobs Created per Quarter
Creation of Jobs
37
1.4
1.25
0.7
0.9
1.1
1.3
1.5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Perc
ent
of L
abor
For
ce
0.88
Data Model
Motivation Model Parameterization Results Conclusions
Total Jobs Destroyed and Created per Quarter
Destruction vs Creation of Jobs
38
0.7
0.9
1.1
1.3
1.5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Perc
ent
of L
abor
For
ce
Destruction Creation
Motivation Model Parameterization Results Conclusions
Detrended Wages
Detrended Wages
39
81.5
75
80
85
90
95
100
105
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
100
Data Model
81.7
Motivation Model Parameterization Results Conclusions
Conclusions
We build a Neo-Classical Growth Model with search frictions in the labor market.
We show that decreases in detrended TFP can account for a big part of the behavior over the 1990s of:
• Output. • Unemployment.• Creation and destruction of jobs.
• Wages. Future work:
• Add hours of work.• Add government expenditure.
40