Calmfors Driffill hypothesis

The Calmfors–Driffill hypothesis is a macroeconomic theory in labour economics that states that there is a direct relationship between the degree of collective bargaining in an economy and the level of unemployment. Specifically, it states that the relationship is roughly that of an ‘inverted U’: as trade union size increases from nil, unemployment increases, and then falls as unions begin to exercise monopoly power. It was advanced by Lars Calmfors and John Driffill.[1]

The rationale is related to Mancur Olson’s idea, from The Rise and Decline of Nations, that organised interests are at their most harmful when they do not internalise significant amounts of the costs they impose on society, but become less harmful as their interest becomes encompassing enough to suffer the costs.

References

  1. ^Calmfors, Lars; Driffill, John (1988). “Bargaining Structure, Corporatism and Macroeconomic Performance”. Economic Policy. 3 (6): 13–61. JSTOR 1344503.

Capital outflow

Capital outflow is an economic term describing capital flowing out of (or leaving) a particular economy. Outflowing capital can be caused by any number of economic or political reasons but can often originate from instability in either sphere.

Regardless of cause, capital outflowing is generally perceived as always undesirable and many countries create laws to restrict the movement of capital out of the nations’ borders (called capital controls). While this can aid in temporary growth, it often causes more economic problems than it helps.

  1. Massive capital outflow is usually a sign of a greater problem, not the problem itself.
  2. Countries with outflow restrictions can find it harder to attract capital inflows because firms know if an opportunity goes sour they won’t be able to recover much of their investment.
  3. Governments that institute capital controls inevitably send a signal to their citizens that something might be wrong with the economy, even if the laws are merely a precautionary measure.

Argentina experienced rampant and sudden capital outflows in the 1990s after its currency underwent dramatic pressure to adjust in light of the fixed exchange rate, leading to a recession. Modern macro-economists often cite the country as a classic example of the difficulties of developing fledgling economies.

References

  • Blustein, Paul. And the Money Kept Rolling In (And Out)

Ofer Abarbanel – Executive Profile

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library