Showing papers by "Institute for the Study of Labor published in 1981"

Family Size and the Distribution of Per Capita Income

Abstract: This paper is another contribution to the vast literature which addresses this issue: comparison of household income per capita among households of different structures requires judgment about the relationship between real income and family size. Our work uses a revealed preference approach in which household size/structure variables are included in empirical demand studies and the estimated coefficients on these variables are used to infer equivalence; it differs from many of the other studies not in basic concept but in its empirical strategy. While most studies build family composition effects into a relatively formal structural model of demand and impose considerable restriction in order to obtain an estimable system, we use a reduced-form approach which requires much less of the data.

Expected Interruptions in Labor Force Participation and Sex Related Differences in Earnings Growth

Abstract: The paper analyzes the joint determination of wives' earnings and labor force participation over the life cycle given the interruptions in wives' work careers. The interruptions affect the profitability of the investment in human capital, which in turn determines earnings. The earnings prospects feed back into the participation decision, namely, the decision whether and for how long to drop out of the labor force. The formal analysis compares the age-earnings profiles of persons who drop out of the labor force with those who do not during the pre- and post-interruption period. The comparison is carried out where interruptions are assumed to be exogenous and when they are endogenous. The effect of productivity at home, the initial stock of human capital and its rental value on the length of the interruption is investigated.

The Effects of Pensions and Earnings on Retirement: A Review Essay

Abstract: Does retirement behavior react predictably to economic incentives? Evidence on this question would be useful to policy makers responsible for work and retirement programs affecting the elderly. This paper reviews the lessons and limitations of recent economics literature on pensions, earnings, and retirement. Section I develops the life cycle context for analyzing this problem. Theoretical literature is examined in Section II, followed by a review of the empirical literature in Section III. Conclusions appear at the end of each Section.

Why Is There Mandatory Retirement

Abstract: This paper offers an explanation of the use of mandatory-retirement clauses in labor contracts. It argues that the date of mandatory retirement is chosen to correspond to the date of voluntary retirement, but the nature of the optimal wage profile results in a discrepancy between spot wage and spot VMP (value of the worker's marginal product). This is because it is preferable to pay workers less than VMP when young and more than VMP when old. By doing so, the "agency" problem is solved, so the contract with mandatory retirement is Pareto efficient. A theory of agency is presented and empirical evidence which supports the hypothesis is provided.

A Competitive Theory of Monopoly Unionism

Abstract: This paper sets up a microeconomic theory of labor unions. It discusses their formation and goals, their hierarchical structure, and the nature of rent distribution. The theory provides predictions for the probability that an industry or occupation will be unionized, the proportion of that industry that will be unionized, and observed wage differentials within that industry. It discusses the way that those values change in response to changes in the supply of labor, demand for labor, cost of organizing the union, and cost of defeating the union. Institutions such as featherbedding, fringe benefits, and seniority are rationalized in this framework. The model is consistent with competitive factor and product markets.

New Measures of Labor Cost: Implications for Demand Elasticities and Nominal Wage Growth

Abstract: This study develops alternative quarterly measures of labor costs that refine the published data on hourly earnings and hourly compensation for the period 1953-1978 These new series account for deviations of hours paid for from hours worked, for the tax treatment of wages under the corporate income tax, and for variations in the user cost of training They generally produce somewhat higher elasticities of labor demand, and explain variations in employment over time slightly better than do the published series They also provide a different view of the recent path of wage inflation in the United States, suggesting that nominal wage growth has been more responsive to variations in the rate of price inflation than the published labor-cost series indicate A data appendix lists the values of these new series; one series (that which adjusts for the hours paid/hours worked distinction) can be updated with readily avail- able data by persons interested in using these more appropriate measures of the cost of labor facing employers

The Interaction between Research and Public Policy: The Case of Unemployment Insurance

Abstract: This essay examines the role of economic research in affecting the recommendations of the National Commission of Unemployment Compensation, and the likely impacts of that Commission and economists' research findings on policy. Using a questionnaire addressed to Commission members, I find that most became quite aware of the results of research on the labor- market effects of unemployment insurance, with the degree of recognition proportional to the strength of the consensus among economists on a particular result; that the members had little awareness of the identity of particular economists who had done the research; and that, though the members claimed their recommendations were influenced importantly by research, that influence is difficult to detect in the Commission's Report. Because that Report goes against the tenor of current labor- market policy, its short-run impact will likely be small; and, because the focus of interest in policy will change over time, its long-term influence may not be great. Economic research, though, is shown to have had an immediate impact in three specific cases; and its long-run effect, by conditioning the policy discussion, has been and will likely be substantial.

Minimum Wages and the Demand for Labor

Abstract: I formulate measures of the effective minimum wage, based on broad definitions of the labor costs that face employers, and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954-78.I then ground the model more closely in the theory of factor demand, first by adding the relative wages of youths and adults to the equation describing their relative employment, and then by specifying a complete system of demand equations for these two types of labor. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of -0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers' ability to substitute other factors for young workers. Using both sets of results, I find that a subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.

Economic Well-Being and Child Labor: The Inter action of Family and Industry

Abstract: How did industrialization in the nineteenth century affect the well-being of children among American working class families? Two revealing surveys from 1890 and 1907 are used to examine the implications of child labor on schooling decisions and on possible offsetting intrafamily transfers, in the form of current "retained" earnings or future asset transfers. Both issues are analyzed within the context of a formal model of family labor supply, in which returns to schooling accrue after the youth has left the household and thus the interests of the parents and the child need not coincide. Parents working in the industries examined did not, it appears, compensate their children for the reduced future earnings implied by child labor, in either the current or in future time periods. But, in addition, the migration of families in which parental altruism was weak may have eliminated much of the apparent increase in family income due to higher child earnings. We end with a note reconciling our findings with the long term trend away from child labor.

Compensating Wage Differentials for Mandatory Overtime

Abstract: Our paper estimates the extent to which employees are compensated for an unfavorable job characteristic, being required to accept mandatory assignment of overtime, by receiving higher straight-time wages. Our estimating equations are derived from a model in which wage rates and the existence of mandatory assignment of overtime are jointly determined in the market by the interaction of employee and employer preferences. While - on average, we do not observe the existence of a compensating wage differential for mandatory overtime, we do observe the existence of such differentials for unionized workers and workers with only a few years experience at a firm. Given any estimated compensating wage differential for an unfavorable working condition, one must decide whether its magnitude is sufficiently large to allow one to conclude that the differential fully compensates workers for the disutility of being subject to the unfavorable working condition. We develop and illustrate a methodology that can be used to answer this question, at least for the case of mandatory overtime provisions and other rules that restrict employees' choice of hours.

Compliance with the Overtime Pay Provisions of the Fair Labor Standards Act

Abstract: Our paper presents a methodology that can be used to estimate the extent of noncompliance with the overtime pay provisions of the Fair Labor Standards Act (FLSA). The methodology is applied to data from the May 1978 Current Population Survey and the 1977 Michigan Quality of Employment Survey. These data suggest that the fraction of covered workers working overtime who fail to receive a premium of at least time and a half, as called for by the legislation, is in the range of 25 percent. They also suggest that the extent of noncompliance is greater in those industries in which size class exemptions to the legislation exist (retail trade and selected service industries). Finally, probit analyses of the determinants of noncompliance suggest that decisions about whether to comply with the overtime provisions of the FLSA are at least partially based on the associated benefits and costs.

Quantity and Elasticity Spillovers onto the Labor Market: Theory and Evidence on Sluggishness

Abstract: Firms' beliefs that they may be unable to sell as much as they would like at the market price leads not only to a quantity spillover (even when prices are flexible) but also to a spillover of product demand elasticity onto the elasticity of labor demand. Hence, optimal firm behavior can be expected to produce a negative correlation between the (absolute value of) the wage elasticity and the unemployment rate. This hypothesis is tested on three sets of data. 1) For low-skilled workers in the United States in 1969 there is weak support for this hypothesis; 2) In time-series data for the U.S. there is no evidence for the hypothesis (there is essentially no cyclical variability in the elasticity); and 3) In time-series data for the United Kingdom there is fairly strong evidence supporting it. We also find that, in both the U.S. and the U.K., the demand elasticity for labor decreased in the 1970s to an extent that does not appear to be explained by changes in other factor prices.

The Effects of Incomes Policies on the Frequency and Size of Wage Changes

Abstract: Along with house rents, wages have frequently been described as the "stickiest" prices in the economy, rarely adjusted more than once a year Because of this stickiness (which arises from the transactions costs involved in changing wages), a distinction exists between the adjustment of wages and the size of that adjustment This distinction has important implications for empirical investigations of the determinants of aggregate money wage changes because the equations fitted in these studies are almost invariably plagued with aggregation bias unless the non-synchronous pattern of wage settlements in different sectors of the economy is taken into account This is a particularly relevant issue when evaluating the effectiveness of incomes policies since some policies have operated by postponing the implementation of new wage settlements (in which case they are directed towards the occurrence of the event) while other policies have taken the form of specifying a permissible ceiling on wage increases (in which case they are designed to affect the extent of occurrence of the event, but not its occurrence) One purpose of this paper is to reevaluate the effectiveness of incomes policies by making use of information from one industry both on the frequency of wage settlements and on the size of wage changes when a settlement takes place Our empirical work leads us to conjecture whether the apparent "statistical significance" reported by researchers with respect to the performance of variables in models of aggregate wage changes reflects primarily the effects of these variables on the probability of wages being adjusted rather than the effects on the magnitude of wage changes conditional upon wages being adjusted