Vol. 3, No. 1

Anders Björklund:
Evaluations of Swedish labor market policy (pp. 3–13)


Sweden has for a long time spent large resources on labor market policies targeted to the unemployed. In the Anglo-Saxon labor economics literature new methods have been developed for the purpose of estimating the effects of such policies. This paper presents the new methods in this field and describes the main studies of Swedish labor market policies. The conclusion is that in spite of new methodological insight there remains much uncertainty about the effects of the Swedish policy experiment.

Thrainn Eggertsson:
Repressed financial systems as intruments of taxation: evidence from Iceland (pp. 14–25)


The paper discusses how inflation and direct government intervention in the financial sector can be used as a substitute for tax revenue and as a means for redistributing resources. Five stages of financial repression are identified and data presented which suggest that the post-war economy of Iceland has belonged to the fifth and highest stage. The industrial organization of a repressed financial system is examined along with the forces that undermined the Icelandic financial system. The final section introduces the dilemmas of financial liberalization.

Jaakko Pehkonen:
Do trade unions care about employment? Reduced-form test results from the Finnish paper and textile industries (pp. 26–40)


This study reports the results of testing the seniority model of trade union behaviour using data on two Finnish industries. We found that; (i) the empirical results do not support the idea that the aim of trade unions is merely to push their members’ wages as high as possible; (ii) the relationship between the real consumption wage and aggregate unemployment is non-linear in such a way that the unemployment elasticity of the real consumption wage rises in absolute terms with the unemployment rate; and (iii) the unemployment elasticity of the real consumption wage differs significantly across the industries studied.

Kari Takala and Matti Tuomala:
Housing investment in Finland (pp. 41–53)


The high volatility of both housing investment and housing prices has raised questions about the determinants of housing investment in Finland. In this paper we estimate investment equations for the period 1972 -1987. The exceptional durability of houses makes housing investment sensitive to interest rates as well as to changes in the liquidity constraints due to money market liberalization during the 1980’s. Here, we confirm the applicability of Tobin’s q theory of investment as an explanation for housing investment. Therefore housing investment can be successfully and sufficiently explained with the ratio of nominal housing prices to their construction costs. However, we observed structural changes in the model of housing investment and the q theory gives a better description for supply of houses in the latter half of the estimation period 1980-87.

Mikael Linden:
Some small sample properties of cointegrated labour demand models (pp. 54–60)


The small sample properties of the cointegrated labour demand models are studied with some Monte Carlo experiments. The results indicate that the Engle-Granger two-step estimation procedure gives biased OLS-estimates in small samples for the cointegrated vector and the error correction parameters. Much better OLS-estimates are found with long run restrictions proposed by economic theory.

Heikki P. Niemeläinen:
A note on-the-job amenities and supply of labor: the Cobb-Douglas case (pp. 61–63)


In an article published by Decker (1988) it is demonstrated that the effect of earnings taxation on the compensated labor supply is ambiguous. In this paper I demonstrate that with Ihe Cobb-Douglas utility function an unambiguous result is attainable. In this case, the compensated tax effect on desired work hours is negative even if the on-the-job amenities are endogenous.

Bruce J. Caldwell:
Does methodology matter? How should it be practiced? (pp. 64–71)


In the first section five criticisms of methodological work are presented and analyzed. It is argued that, though many of the objections contain elements of truth, the study of methodology is still a worthwhile activity. In the next section three alternative approaches to the practice of methodology are critically evaluated. In the conclusion the author discusses the future direction of his own work.

D. Wade Hands:
Thirteen theses on progress in economic methodology (pp. 72–76)

Uskali Mäki:
Methodology of economics: complaints and guidelines (pp. 77–84)

Finnish Economic Papers 1/1990