Volume 11, Issue 2

In most OECD countries the policy instrument of choice to prevent people from working in the shadows has been deterrence. While deterrence is well founded from a theoretical point of view, the empirical evidence on its success is weak: tax policies and state deregulation appear to work much better. The discussion of the recent literature underlines that in addition to economic opportunities, the overall situation in the labor market and unemployment are crucial for an understanding of the dynamics of the shadow economy.

This paper analyses the duration of child poverty in Germany. Observing the entire income history from the individuals’ birth to their coming of age at age 18, we are able to analyse dynamics in and out of poverty for the entire population of children, whether they become poor at least once or not. Using duration models, we find that household composition, most importantly single parenthood, and the labour market status as well as level of education of the household head are the main driving forces behind exit from and re-entry into poverty and thus determine the (long-term) experience of poverty.

We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1995 and 2001. The database used throughout is the User Data Base of the European Community Household Panel (ECHP). The proposed approach is based on the generalized hyperbolic distribution, which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe.

This paper compares the home-market performance of German multinational enterprises (MNEs) and national firms, both before and after switching from national to multinational activities. Regarding the former case, our results show that future multinationals outperform domestic firms. When assessing the ex post performance of multinationals, selectivity issues must be taken into account. Applying an endogenous treatment model, it turns out that after switching, both productivity and wage growth are higher at newly founded MNEs. While capital intensities increase compared with those of national firms, employment growth rates are negatively related to switching, suggesting that home and foreign employment are substitutes.

Using intraday data, we assess the impact of monetary news on the full length of the euro-area yield curve. We find that the publication of monetary data has a significant impact on interest rates with maturities ranging from one to ten years, with the largest effect on the one- to five-year segment. These results suggest that when gauging the policy-relevant signals, market participants look through short-term movements of annual M3 growth and focus instead on the trend rate of monetary expansion over the medium term.

This paper investigates consumer expenditures of German households pre- and post-retirement. The widely observed distinct drop in spending upon retirement entry poses an empirical puzzle since life cycle theory predicts smoothing of the marginal utility of consumption over time. As one explanation, I explore the role of home production as a substitute for consumer expenses. Taking a combined look at consumer expenditures and time use pre- and post-retirement, I find a significant drop of about 17% of pre-retirement expenses at retirement which coincides with an increase in time spent on home production of an additional 89 minutes per day, accounting for 21% of average home production.