Professor Dr. Dr. h. c. Heinz Konig Klaus F. Zimmermann (Ed.) Output and Employment Fluctuations With 25 Figures Springer-Verlag Berlin Heidelberg GmbH Editorial Board Wolfgang Franz, University of Konstanz, FRG Baldev Raj, Wilfrid Laurier University, Waterloo, Canada Andreas Worgotter, Institute for Advanced Studies, Vienna, Austria Editor Professor Dr. Klaus F. Zimmermann SELAPO Universitiit Munchen D-80539 Munchen, Germany and CEPR 23-25 Old Burlington Street London WIXILB, United Kingdom First published in "Recherches Economiques de Louvain", VoI. 58, No. 3-4, De Boeck Wesmael S. A., Brussels, Belgium 1992 ISBN 978-3-642-63426-0 CIP-Titelaufnahme der Deutschen Bibliothek Output and employment fluctuations / Klaus F. Zimmermann (ed.). - Heidelberg : Physica-VerI., 1994 (Studies in empirical economics) ISBN 978-3-642-63426-0 ISBN 978-3-642-57989-9 (eBook) DOI 10.1007/978-3-642-57989-9 NE: Zimmermann, Klaus F. [Hrsg.] This work is subject to copyright. Ali rights are reserved, whether the whole or part ofthe material is concemed, specifically the rights oftranslation, reprinting, reuse ofillustrations, recitation, broadcasting, reproduction on microfilms or in other ways, and storage in data banks. Duplication ofthis publication or parts thereof is only permitted under the provisi ons ofthe German CopyrightLaw ofSeptember9, 1965, in its version ofJune 24, 1985, anda copyright fee must always be paid. Violations fall under the prosecution act ofthe German Copyright Law. © Springer-Verlag Berlin Heidelberg 1994 Originally published by Physica-Verlag Heidelberg in 1994 Softcover reprint ofthe hardcover Ist edition 1994 The use ofr egistered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. 88/2202-543210 -Printed on acid-free paper CONTENTS Klaus F. ZIMMERMANN Prefatory Note 1 Introduction 3 Part I: Labour Demand and Supply Gebhard FLAIG Demand Uncertainty and Labour Input in a Bivariate ARCH-M Model 9 Friedheim PFEIFFER and Winfried POHLMEIER Income, Uncertainty and the Probability of Self-Employment 23 Lucie MERKLE and Klaus F. ZIMMERMANN The Demographics of Labour Turnover: A Comparison of Ordinal Probit and Censored Count Data Models 41 Part II: Productivity Slowdown and Innovative Activity Klaus CONRAD and Helmut SEITZ The "Public Capital Hypothesis": The Case of Germany 67 Fran~ois LAISNEY, Michael LECHNER and Winfried POHLMEIER Semi-Nonparametric Estimation of Binary Choice Models U sing Panel Data: An Application to the Innovative Activity of German Firms 87 Part III: Disequilibrium and Business Cycle Analysis Wolfgang FRANZ and Gustav HEIDBRINK The Importance of Rationing in International Trade: An Econometric Analysis for Germany 105 Horst ENTORF Overtime Work, Lack of Labour, and Structural Mismatch: Some Extensions of the "European Unemployment Programme" Framework 131 Juergen KAHLER and Volker MARNET International Business Cycles and Long-Run Growth: An Analysis with Markov-Switching and Cointegration Methods 157 VI Part IV: Time Series Analysis of Output and Employment Jiirgen WOLTERS Persistence and Seasonality in Output and Employment of the Federal Republic of Germany 179 Rolf TSCHERNIG and Klaus F. ZIMMERMANN Illusive Persistence in German Unemployment 199 Werner GAAB and Olaf LIEDTKE On the Long-run Relationship Between Money, Output and Interest Rates: A Cointegration Analysis for West Germany 213 Horst KRAGER Modelling Cyclical Asymmetry in a Production Series Using Threshold Autoregressive Models 231 Summary of Articles 245 Selected Publications of Heinz Konig 251 PREFATORY NOTE Klaus F. Zimmermann Universittlt Munchen & CEPR. London This volume reprints the special issue No. 3-4 of Recherches Economiql/es de LOl/vain, Vol. 58, 1992, on "Output and Employment Fluctuations" to make the articles accessible to a larger audience. Since the book celebrates Heinz Konig's lifetime of achievement, it also contains his picture and a selected list of publications. I wish to thank the editors of the book series "Studies in Empirical Economics" and the editor of Recherches Economiques de Louvain, Michel De Vroey, for their encouragement and the De Boeck corporation for the permission to pu blish the book. MUnchen, December 1993 Klaus F. Zimmermann OUTPUT AND EMPLOYMENT FLUCTUATIONS Introduction Klaus F. Zimmermann Universitdt Munchen & CEPR, London The papers contained in this special issue of Recherches Economi ques de Louvain on Output and Employment Fluctuations» are de « voted to Heinz KONIG to celebrate a lifetime of achievement. Professor Dr. Dr. h. c. Heinz KONIG holds a chair at the University of Mannheim, Germany in Economics and Econometrics and is the Director of the Zentrum fUr Europiiische Wirtschaftsforschung, Mannheim, a large centre of European economic research. He is an outstanding social sci entist with an impressive personality, and has a strong publication record and a large international reputation. His collaborators hold his encouragement and his cooperative and demanding nature in high es teem. He has also served the scientific community in many manag ing positions, among those currently, he is the President of the Verein fur Socialpolitik, the German Economic Association. On December 25, 1992, Heinz Konig celebrates his 65th birthday. Heinz KONIG has always emphasized the importance of empirical testing in economics, and most of his work ( see W. FRANZ, W. GAAB and J. WOLTERS, Eds., Theoretische und angewandte Wirtschaftsforschung, Berlin et at, Springer-Verlag 1988, for a selected bibliography) con tains an econometric application. Specifically, he was among the first economists in Germany to use econometrics as a scientific tool. His in terests are wide-spread, and within the field of econometrics, from the estimation of single macroeconomic functions to large-scale economet ric models, time-series and spectral analysis as the analysis of quali tative data and limited-dependent variable models. Among the many economic topics he has investigated, issues in labour economics and output determination have played a prominent role. All papers in this issue follow this line of research. The emphasis is on careful econometric applications in a micro-econometric or a time series (macro) framework, and the key variables of interest are output and employment. The time-series literature recently has emphasized the careful testing for stationarity and nonlinearity in the data, and 4 the importance of cointegration theory. A substantial part of the papers make use of parametric and non-parametric methods developed in this literature and mostly connect their findings to the hysteresis discus sion about the existence of fragile equilibria. A second set of macro approaches use the disequilibrium framework that has found so much interest in Europe in recent years. The other papers use newly de veloped methods for microdata, especially qualitative data or limited dependent variables to study microeconomic models of behaviour that explain labour market and output decisions. The first three papers study issues of demand and supply of labour. Gebhard FLAIG finds evidence of the relevance of input uncer tainty for labour demand using an ARCH-M model. FriedheIm PFEIFFER and Winfried POHLMEIER apply a random effects panel probit estimator with unrestricted autocorrelation structure in a structural model of dis crete choice under uncertainty. Lucie MERKLE and Klaus F. ZIMMERMANN compare censored count data models with ordinal probit models in their analysis of demographic determinants of frequency of unemployment and job changes. The following two papers are concerned with the productivity slow down and innovative activity. Klaus CONRAD and Helmut SEITZ use an extended cost function including public capital and a panel approach and show that public infrastructure contributes to the productivity of the private sector. Francois LAISNEY, Michael LECHNER and Winfried POHLMEIER present an extension of the Chamberlain approach to ac count for correlated random effects in a dichotomous model estimated with panel data on innovative activity. The next three papers are devoted to disequilibrium and busi ness cycle analysis. Wolfgang FRANZ and Gustav HEIDBRINK study the importance of rationing for international trade flows in the context of a macroeconomic disequilibrium model using business survey data as proxies for rationing barriers. Horst ENTORF uses the same framework but extends it to cover the effects of changes in the number of working hours. Jiirgen KAHLER arid Volker MARNET apply the Markov switching model and cointegration analysis to study the international transmis sion of macroeconomic shocks finding large dependencies in economic activity. The last four papers are on time series analysis of output and employment. Jiirgen WOLTERS uses parametric and non-parametric time series models to measure the persistence and seasonality of output and employment showing that the results are sensitive to the seasonal adjustment methods applied to the data. Rolf TSCHERNIG and Klaus F. ZIMMERMANN investigate the existence of a unit root and long memory in 5 German unemployment and find that using a fractionally integrated ARMA model exhibits no unit root but rather long memory. Werner GAAB and Olaf LIEDTKE examine the existence of a long-run equilibrium between real money balances, real output and the interest rate in the face of a changing money policy regime using cointegration methods. Horst KRAGER finds non-linearities in output time series on the basis of various tests and estimates a SETAR model that is able to account for these problems. The articles in this issue have passed the standard refereeing pro cess, and I am strongly indebted to the referees for their high-quality work. I also would like to thank the Editorial Board of Recherches Ecnnnmiques de Lnuvain, especially its Managing Editor Michel DE VROEY, for the encouragement to publish this special issue.