Journal Articles
Addessi W. and F. Sallusti (forthcoming) “Consumer preferences and changes in labour market ”, in Handbook on labour market transformations, Chapter 11, Edward Elgar.
Changes in per-capita income and demographic structure, intensification of cultural and product interchanges, increase in the variety of products, and new ways of experiencing consumption are a few of the phenomena that have significantly reshaped households’ consumption preferences for the different types of goods and services. These changes, affecting the composition of final consumption expenditure, contribute to determining the allocation and organisation of production processes and labour forces. For this reason, in this chapter, we explore the possible connections between changes in consumer preferences and the evolution of employment in terms of sectoral allocation and required skills. We show how consumer preferences can be elicited at the macroeconomic level, to what extent they influence consumption expenditure composition and, through this channel, the sectoral allocation of employment. Furthermore, we highlight in which sectors and for which skills consumer preference shifts might contribute to increase skill imbalances.
Addessi W. and I. Etzo (2023) “International immigration and final consumption expenditure composition”, Review of World Economics. https://doi.org/10.1007/s10290-023-00501-9
Focusing on EU countries, we analyze the influence of immigration flows on the demand for different aggregate categories of final consumption goods. Using the cross-country heterogeneity in immigration flows and preference structures, we find that when people move from a country to another, the sectoral preferences characterizing the origin country affect the preference structure of the host country. Furthermore, we find evidence that the transmission mechanism is reinforced by both the intensity of the immigration flows and the share of immigrants already living in the host country, suggesting a higher propensity to assimilate different consumption standards in more pluralistic countries. Our contribution is twofold. First, differently from most of the literature that analyzes the supply-side consequences of immigration, this study focuses on the impact of immigration on the demand side at the aggregate level. Second, we show that sectoral consumer preferences, even if elicited only residually, represent aggregate variables that can be transferred across countries.
Addessi W., Brandano M.G., and B. Biagi (2019) “Evaluating the effect of the introduction of the euro on tourist flows: A synthetic control approach”, The World Economy; 00:1-22. DOI: 10.1111/twec.12763
The purpose of this paper is to investigate the effect of the introduction of the euro on bilateral outflows of tourism among European Monetary Union (EMU) countries in the period 2002–2013. Descriptive statistics indicate heterogeneous paths in tourism flows, arising from several potential drivers. In order to analyze this observed heterogeneity, we use the synthetic control method, which does not require a large set of independent variables and allows for the development of separate analyses for each country. Results indicate that the introduction of the euro favored tourism flows within EMU countries compared to flows between EMU and non-EMU countries in 3 (Belgium, Italy, and Spain) out of the 10 considered countries. These findings underline the presence of significant heterogeneity and emphasize the importance of non-parametric methods in understanding the effect of EMU.
Addessi William (2018) “Population Age Structure and Consumption Expenditure Composition: Evidence from European Countries”, Economics Letters, 168, 18-20.
This paper aims at evaluating the effect of population age structure on households’ aggregate preferences and, through this channel, on the sectoral composition of the final consumption expenditure. The analysis of European COICOP 2-digit data shows that the contribution of demographic dynamics to model fit is highly relevant, only slightly lower than the contribution of the income effect.
Addessi W., Pulina M., and F. Sallusti (2017) “Impact of Changes in Consumer Preferences on Sectoral Labour Reallocation: Evidence from the Italian Economy". Oxford Bulletin of Economics and Statistics, 79 (3), 348-365.
This study empirically investigates the impact of changes in consumer preferences on labour reallocation across the Italian economic sectors. For this purpose, coherent sectoral time series of consumer preferences and labour units are constructed from Italian national accounts and consumption expenditure data. In line with recent firm-level evidence, empirical findings indicate a positive and significant effect of preference changes on labour reallocation. Results are robust to several econometric specifications, different procedures to elicit preference changes, as well as the introduction of time-varying price coefficient and sector-specific effects of total consumption expenditure.
Addessi William (2014) “Preference shifts and the change of consumption composition”, Economics Letters, 125, 14-17
While most of the literature explaining the change in consumption composition has focused on the role of relative prices and non-homothetic preferences, this paper examines the importance of preference shifts. I introduce dynamics in preferences and find that they play a relevant role and that their exclusion worsens model performance at least as much as the exclusion of allowing non-homothetic preferences.
Addessi William (2014) “The Productivity Effect of Permanent and Temporary Labor Contracts in the Italian Manufacturing Sector”, Economic Modelling, 36, 666-672
This paper studies the effect of permanent and temporary labor contracts on both labor-augmenting and TFP-augmenting technological factors using a panel dataset of Italian manufacturing firms. The empirical analysis applies a structural approach in which firm TFP follows a controlled Markov process that is affected by the relative use of labor contracts, and labor services are perfect substitutes but with different labor-augmenting factors. The empirical results show that when including labor-contract composition in the TFP process: i) the difference between permanent and temporary contracts in the labor-augmenting productivity factor is not significant and ii) the incidence of permanent contracts in total contracts has a positive effect on TFP dynamics.
Addessi W., Saltari E., and R. Tilli (2014) “R&D and Innovation Activities and the Use of External Numerical Flexibility". Economic Modelling, 36, 612-621
We study the impact of R&D and innovation on the use of external numerical flexibility. The engagement in R&D and innovation is generally associated with both higher expected value and higher volatility of firm productivity and returns. These changes in the firm productivity distribution are expected to affect the choice of using temporary labor contracts in opposite directions. Indeed, the comparative advantage of employing temporary workers, with respect to permanent workers, is positively affected by the probability of dismissals, because the latter implies higher firing costs. The probability of dismissals should fall when the expected productivity grows, but it could increase if the tails of the distribution function become thicker, because the probability of incurring low levels of productivity goes up. The ambiguous effect on the probability of paying firing costs implies an ambiguous effect on the preference for using external numerical flexibility. We investigate which effect prevails in two steps. First, we use a simple model to show that a first-order stochastic dominance shift in the distribution function increases the probability of hiring workers with a permanent contract, while a second-order shift has ambiguous effects. Next, using a dataset based on a survey of Italian manufacturing firms, we run logit regressions to estimate the effect of R&D and innovation on the probability of employing a fixed-term or a temporary agency worker, finding a positive and always significant effect. We also estimate the effect of different types of R&D and innovation. Results show that both intra and extra muros R&D activities have a positive effect, while the influence of innovation depends on the type of innovation activity.
Addessi W., Saltari E. (2012), “The perverse effect of debt tax benefit on firm investment decisions”, Economic Notes, 41, 3, 101-114.
In this paper we question the idea that the deduction of debt interest is always an effective policy instrument to spur firm investment. We analyze the investment decision in presence of a borrowing constraint on the amount of the debt that the firm can raise. We show that if the debt interest rate is decreasing in the firm capital accumulation and it is available another financial resource more expensive than debt (at least for levels of debt lower than the upper bound), then the deduction of the debt interest from taxes on capital income may reduce firm investment. This theoretical result should be considered when financial intermediaries are not willing to finance beyond a certain threshold but firms have access to other sources of finance
Addessi W., Busato F. (2011) “Preference shifts between consumption goods and sectoral changes”, Economics Letters, 111, p. 213-216.
This paper analyzes under which conditions a shift in the relative preferences between consumption goods may induce a change in the equilibrium values of the sectoral variables in the same direction, compared with the previous static equilibrium.
Addessi W., Busato F. (2010) “Relative-Preference Shifts and Business Cycle”, The B.E. Journal of Macroeconomics: Vol 10: Iss 1(Topics), Article 37.
This paper develops a two-sector dynamic general equilibrium model in which intertemporal fluctuations (and sectoral co-movement) are driven by idiosyncratic shocks to relative preferences among consumption goods. This class of shocks may be interpreted as shifts in consumer tastes. When shifts in preferences occur, consumers associate a new and different level of satisfaction to the same basket of consumption goods according to their modified preferences. This paper shows that, if the initial composition of the consumption basket is sufficiently asymmetric, then a shift in relative preferences produces "perception effect" strong enough to induce both intersectoral and intrasectoral positive co-movement of the main macroeconomic variables (i.e., output, consumption, investment, and employment). Furthermore, by extending the theoretical framework to a multisector model and introducing a more flexible structure for the relative-preference shock, we show that the parameter restrictions needed to observe sectoral co-movement after a relative-preference shock are much less severe. In particular, co-movement among most of the sectors emerges under general conditions, without requiring high levels of asymmetry in the consumption basket's composition and/or high aversion to risk. It is a welcome result that these findings are reached without introducing aggregate technology shocks, input--output linkages, or shocks perturbing the relative preference between aggregate consumption and leisure.
Addessi W., Busato F. (2009), “Fair wages, labor relations and asset returns”, Journal of Financial Stability, 5, p. 410-430.
The paper investigates the nexus between labor and financial markets, focusing on the way the interaction between the labor union's attitude in the wage setting and the firm's investment strategy affect asset returns. We assume that the labor union's relative preferences between wage and employment depend on selected financial performances of the firm. We show that if the labor union links the preference for wage to the firm's dividends (or available liquidity) then the volatility of the firm's returns increases. Consequently, equities have to grant high expected returns in order to remunerate the strong volatility. This mechanism offers an explanation for the equity premium (that is the difference between the equity return rate and the risk free rate). It is a welcome result that the simulated excess return is about the empirical estimate and that it is obtained with a plausibly low parameterization of the shareholders' risk aversion.
Addessi W., Di Cosmo V. (2010) “Capital Structure and Quality of Service in Regulated Firms”, IUP Journal of Entrepreneurship Development, VII, 38-48.
This paper analyzes the optimal choices of an entrepreneur who operates in a regulated sector under uncertainty and asymmetric information. The entrepreneur chooses the firm's capital structure and the provision of effort, while the regulator sets a price rule that establishes the firm's revenue according to the quality of the service provided by the firm. The expected quality of the service is positively related to the entrepreneur' s exerted effort. This paper investigates how the firm's capital structure and the level of effort provided by the entrepreneur vary according to the price rule. In particular, we show that an increase in the firm's returns when the quality of the service is high, prompts to an equilibrium with higher indebtedness and higher effort. On the contrary, an increase in the firm's return when the quality of the service is low, induces ambiguous effects on debt and effort.
Results can be interpreted as follows. Since indebtedness implies higher entrepreneur's ownership, it is reasonable that the provision of effort and indebtedness move in the same direction. Such relationship clearly emerges when the regulator increases the returns for the provision of high quality service. However, as the payoff associated to the bad state of nature increases, the incentives to provide effort fall despite the convenience to increase the ownership share. These effects contrast each other and, then, the signs of the final changes are not obvious. Such results have important implications concerning the predictable effects of different price rules. In particular, it emerges that an increase in the price of the low quality service may induce higher effort by a change in the capital structure.
Addessi W., Tilli R. (2009), “Labor Market Reforms as a Source of the Recent Italian Puzzle”, Journal of European Economy, 8, p. 5-20.
In this paper we investigate some changes in the Italian economy over the last two decades. Stylized facts show a marked decrease in the unemployment rate starting from the end of the Nineties, and, at the same time, a significant increase in the firms’ market power. Moreover, notwithstanding the decreasing unemployment rate, the real wage has grown less than labor productivity. The institutional reforms of the Italian labor market have mostly influenced recent performance of the Italian economy since they are able to conciliate the increase in mark-up, the decrease in the unemployment rate and the difference in the growth rate between labor productivity and real wage. Using a simple macroeconomic model, we show that the observed decrease in both unemployment and real wage can be explained by the fact that labor market reforms have been proportionally more incisive than the increase in the firms’ market power.