Vol. 13, No. 2

Mika Vaihekoski:
Unconditional international asset pricing models: empirical tests (pp. 71–88)


Single and multifactor unconditional international asset pricing models are tested for the real and excess returns on Finnish size and industry portfolios using the traditional alpha intercept tests. The results support the efficiency of the global equity market portfolio, although the explanative power of the model remains low. The results also give evidence for the relevance of the global interest rate and Fama-French notion of value premium risk factors. The “pure” local market risk is also able to explain a large part of the asset returns but it does not drive out the global market riskfactor. This suggests that a segmented asset pricing model could be more appropriate for the pricing of Finnish stocks.

(JEL: F30, G12, G15)

Jukka Lassila:
Wage formation by majority voting and the incentive effects of pensions and taxation (pp. 89–115)


We study median voter wage-setting and its dependence on pensions and taxation in a centralized monopoly union framework using a dynamic computable general equilibrium model with overlapping generations structure. We show that the higher is the earnings-related PAYG pension benefit level, the lower is the wage the voter chooses, for two reasons. Firstly, if the voter claims high current wages his lifetime wage income falls, which will lead to lower pensions, and the advantages of lower pension contributions go to future working generations. Secondly, the median voter has to pay higher contributions both because the current wage bill falls and because current pensions may increase due to indexation. Both these generational effects lead the median voter to choose lower wages, which leads to higher employment. When we compare median voter wage setting with labour markets where wages adjust to equate supply and demand, the difference is bigger when the incentives to work are stronger in the market equilibrium, and gets smaller when the incentives are weaker. When e.g. the pension benefits and the corresponding payroll tax are increased, the voting equilibrium wage level approaches the market equilibrium wage. Similar results are obtained with respect to labour and consumption taxes.

(JEL: J51, H55, D58)

Sajid Anwar:
Protection, international factor mobility and monopolistic competition (pp. 116–128)


This paper utilises a model of a small open economy that produces two traded goods by means of primary factors and a large number of varieties of a non-traded intermediate good. Unlike the traded goods, the production of each variety of the non-traded good is subject to internal economies of scale and monopolistic competition prevails in the intermediate good sector. The presence of internal economies in the intermediate good sector gives rise to external economies in the production of the final good sector. Within the context of the present study, interindustry and intra-industry trade takes place side by side. The model is used to examine the impact of tariffs and changes in factor endowments on allocation of resources and welfare.

(JEL: F12, F20, F21)

Maria Teresa Gonzalo and Jan Saarela:
Gender differences in exit rates from unemployment: evidence from a local Finnish labour market (pp. 129–139)


Exit rates from unemployment are analysed by distinguishing two destinations: employment and non-participation. Unlike most of the earlier empirical Finnish studies of transitions from unemployment, we allow for different behaviour of males and females. A database constructed from three register data files of the Employment Service of Vasa in 1996 is used. Results of the estimated duration models suggest that gender differences are foremost due to the closer attachment of men to the labour market, the family responsibilities affecting women, and the traditional gender structure of the Finnish labour market. Our results show that drawing conclusions when gender differences are not considered can lead to misperceptions.

(JEL: J64, J70, C41)

Finnish Economic Papers 2/2000