Showing papers by "Institute for the Study of Labor published in 1984"

The Demand for Labor in the Long Run

Abstract: The theory of the demand for labor is presented along with a catalog and critique of methods that are used to estimate the parameters that describe empirical labor-demand and substitution possibilities. A critical survey is presented of studies of own-price demand elasticities for labor as a whole and for workers categorized by demographic group, of substitution parameters among workers of different types, and of workers for capital. The main findings are: 1) The long-run constant-output demand elasticity for labor that istreated as homogeneous is between .15 and .5; 2) Own-price demand elasticities are higher for workers that have less general human capital embodied and them; 3) Skilled labor and physical capital are p-complements; and 4) More tentatively, youths and wornenare q-substitutes in production. The implications and importance for policy of these and other results are discussed. Suggestions for improving the literature and narrowing the range of knowledge of the underlying parameters, especially by concentrating more on disaggregated and even microeconornic data, are presented.

Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs

Abstract: In this paper we set out some methods that utilize the longitudinal structure of earnings of trainees and a comparison group to estimate the effectiveness of training for the 1976 cohort of CETA trainees. By fitting a components-of-variance model of earnings to the control group, and posing a simple model of program participation, we are able to predict the entire earnings histories of the trainees. The fit of these predictions to the pre-training earnings of the CETA participants provides a test of the model of earnings generation and program participation and simple check on the corresponding estimate of the effectiveness of training.Two factors appear to have a critical influence on the size of the estimated training effects: the time of the decision to participate in training and the presence or absence of individual-specific trends in earnings. We find considerable evidence that trainee earnings contain permanent, transitory,and trend-like components of selection bias. We are less successful in distinguishing empirically between alternative assumptions on the timing of the participation decision. If earnings in the year prior to training are the appropriate selection criterion, however, our estimate of the training effect for adult male CETA participants is about 300 dollars per year. Our estimates for female CETA participants are larger, and less sensitive to alternative models of program participation.

Raids and Offermatching

Abstract: Job changes often occur without spells of unemployment. Highly educated workers, for example, rarely suffer unemployment, even though job changes are common. A large proportion of their job switches occur only after the new job is secured. These workers, whose skills and ability levels are less homogeneous, differ from less skilled, perhaps more homogeneous workers who are more likely to experience unemployment in the process of changing jobs. Most research has focused on job changes that imply spells of unemployment. Indeed, the primary rationale behind the earliest papers on search theory was to explain unemployment. But if there exists what some refer to as a "dual labor market," these theories may be most applicable to the secondary workers. This paper attempts to formulate a theory of turnover and wage dynamics that may better describe the primary labor force, defined as those who change jobs without unemployment. In the process, a number of previously unexamined phenomena are explored.

Retail Pricing and Clearance Sales

Abstract: Sellers of new products are faced with having to guess demand conditions to set price appropriately. But sellers are able to adjust price over time and to learn from past mistakes. Additionally, it is not necessary that all goods be sold with certainty. It is sometimes better to set a high price and to risk no sale. This process is modeled to explain retail pricing behavior and the time distribution of transactions. Prices start high and fall as afunction of time on the shelf. The initial price and rate of decline can be predicted and depends on thinness of the market, the proportion of customers who are "window shoppers," and other observable characteristics. In a simplecase, when prices are set optimally, the probability of selling the product is constant over time. Among the more interesting predictions is that women's clothes may sell for a higher average price than men's clothes, given similar cost, even in a competitive market. Another is that the initial price level and the rate of price decline are positively related to the probability of selling the good. Other observable relationships are discussed.

Macroeconomic Analysis and Microeconomic Analyses of Labor Supply

Abstract: This paper reports on the current status of the microeconomic research on labor supply behavior. The purpose is to direct attention to microeconomic research that may be helpful in the continuing evaluation of aggregate models designed to explain the dynamic behavior of wages, employment and unemployment. The approach is hopelessly empirical, and the emphasis throughout is on models specified completely enough to allow confrontation with the kind of data actually available.The first part of the paper is addressed to microeconomists, however. It is a brief attempt to provide a sketch of the stylized facts that aggregate models of the labor market are meant to address. These include (1) the serial "persistence" in the change in unemployment (or employment),(2) the absence of persistence in the change in the real wage rate, and (3) the continued existence of a negative correlation between nominal price changes and unemployment rates.The microeconomic (longitudinal) data turn out to be difficult to square up with the simplest life-cycle models of labor supply. Contrary to the predictions of the models, the data indicate that (1) average hours and average real wages move in the same direction only some of the time, and that (2) the within life-cycle, person-specific correlation between hours and wages is negative. The microeconomic (experimental) data indicate other puzzles. More elaborate models incorporating measurement error, non-separable preferences, and unanticipated wage movements may explain these findings, but they are also likely to contain parameters that are noteasily identified with the kind of data actually available. Perhaps an alternative approach may be more fruitful in reconciling the long run determination of hours worked by worker preferences with the short run interaction of observed employment and earnings.

How Long is a Spell of Unemployment?: Illusions and Biases in the Use of CPS Data

Abstract: Most data used to study the durations of unemployment spells come from the Current Population Survey, which is a point-in-time survey and gives an incomplete picture of the underlying duration distribution. We introduce a new sample of completed unemployment spells obtained from panel data and apply CPS sampling and reporting techniques to replicate the type of data used by other researchers. Predicted duration distributions derived from this CPS-like data are then compared to the actual distribution. We conclude that the best inferences that can be made about unemployment durations using CPS-like data are seriously biased.

Planned and Unplanned Bequests

Abstract: We make the distinction between bequests that are planned as part of some lifetime optimization stemming from a bequest motive, and those that are unplanned and result when the date of death differs from what the consumer might forecast. Lifetime optimization should lead to a negative effect or no effect of the expected horizon on the size of the bequest, and to a negative relation between unexpectedly long life and the bequest. Using data on wealthy decedents and their parents, we form measures of the expected horizon based on parents' longevity. There is no relation between unexpectedly early or late death and the bequest, but a significant positive relation between the bequest and the length of the horizon. Several explanations for this unforeseen result are offered, including the inference that uncertainty about length of life is important in studying bequest behavior.

The Effects of Social Security Reforms on Retirement Ages and Retirementincomes

Abstract: Recent changes legislated in the US Social Security system are changing the economic incentives to work and retire Some older workers will respond to these new incentives by retiring at different ages This paper evaluates the signs and magnitudes of these responses Using a representative sample of male workers, we investigate the pre-reform earnings, private pensions, and Social Security profiles available at alternative retirement ages Then we examine four specific changes in the structure of Social Security benefits: raising the normal retirement age, delaying the cost-of-living adjustment, lowering early retirement benefits, and increasing late retirement payments Behavioral parameters are estimated using an ordered logit model of retirement ages; these are than used to evaluate how retirement behavior might respond to each of the four reformsThe largest retirement age response is observed for the policy change which cuts benefits at the earliest ages and offers larger rewards for continued work This change would delay the average retirement age by about three months The other reforms generate even smaller responses Changes in retirement ages of this magnitude will be to small to compensate retirees for reductions in benefit formulas Thus the Social Security's financial burden will be eased but retiree's incomes will fall on average

Incentives and Wage Rigidity

Abstract: With the growth of the literature on incentive compensation has come the belief by some that incentive pay may be less rigid than pay that is not designed to effect incentives Some have gone so far as to argue that this may explain differences in unemployment rates across countries it is shown that there is no direct link between incentives and wage rigidity Many compensation schemes that provide incentives have the reverse effect: That is, they tend to make wages more rigid than would be the case were incentives not an issue atall This paper explores the relationship between wage rigidity and the provision of incentives in a variety of circumstances

The Costs of Worker Displacement

Abstract: This study defines the nature of worker displacement and develops a mechanism for inferring the amount of losses caused by displacement in away that is tied to economic theory. Data from the Panel Study of Income Dynamics are first used to identify the characteristics of displaced workers. After a demonstration that usual methods of evaluating workers' losses cannot provide correct measures of the cost to society, a game--theoretic model determining the amount of firm -- specific investment in workers is developed. As workers'and firms' horizons decrease, such investment will be reduced; this will be exhibited in a flattening of the wage-tenure profile as the date of displacement approaches. Examination of the profile thus provides a test whether firms and workers have good information about impending displacement. Using the PSID data for workers displaced between 1977 and 1981, the study shows there is no significant flattening of the wage-tenure profile in the entire sample. (However, some flattening does occur among unionized workers, and also among workers who are laid-off permanently from a plant that remains open.) This suggests that workers are surprised by displacement, for they continue investing in firm-specific human capital up to the time of displacement. The present value of the worker's share of the lost returns on this investment is around $7000 (1980 dollars) under intermediate assumptions about the real rate of discount, depreciation on such investment and the effect of tenure on the rate of voluntary separation.

Tied Wage-Hours Offers and the Endogeneity of Wages

Abstract: In the standard model of labor supply, each worker is a price taker,where the relevant price is an hourly wage rate which is fixed in the short run, and which does not depend upon the number of hours supplied. With this basic assumption, the wage can be regarded as exogenous for the purpose of estimating a labor supply function. This paper proposes and implements a pair of tests for the exogeneity of wages in a longitudinal labor supply model, and for the particular failure of exogeneity associated with jobs that offer wage-hour packages.The first test is very simple -- it amounts to a test of whether hours Granger -- cause wages at the individual level. The second test involves a simultaneous estimation of labor supply and wage offer equations. Both tests indicate that the offered wage is related to hours worked, though the offer locus is, for this sample, very flat. The principal conclusion is that labor supply equations cannot properly be estimated in isolation from the process generating wages, even when long time series are available on a sample of individuals.

Social Security and Pensions

Abstract: Recent and proposed changes in the social security statutes can have profound effects on worker behavior and on pensions themselves In the context of an optimal lifetime compensation plan, pensions depend on efficient dates of retirement To the extent that changes in social security affect the efficient date of retirement, both the pension and the wage profile itself will react Four proposed changes in the social security system are analyzedThe cost savings associated with the change, as well as the effect on pensions and worker compensation in general are discussed

Incentive for the Homogenization of Time Use

Abstract: An increasing variety of phenomena involve the mixing of market work and leisure, or market work and home production, both by individuals and across household members The growth of vacations, holidays and days absent from work; the rise in part-time employment and the reduction in moonlighting; and the convergence between the sexes of labor - force participation rates and of time spent in household production, are all demonstrated by data for a number of developed countries This phenomenon, an increasing consumption of mixed leisure, is examined in the context of a model in which the consumption of one commodity reduces the market wage 14 income dominate substitution effects, as time-series evidence on the demand for leisure suggests they do,higher full incomes will increase the demand for mixed leisure Similarly, greater differences between tax rates on market work and on mixed leisure will also increase the demand for the latterWhether the growth of mixed leisure has resulted from changing tax incentives or increased full incomes is not clear, but some weak formal evidence for the latter cause is presented The implications of expanded consumption of mixed leisure for earnings inequality and for the welfare effects of unemployment are discussed, and some approaches to testing the theory of the demand for mixed leisure are suggested

Grenzen einer Bevölkerungspolitik durch Familienpolitik

Abstract: Die Frage nach den Erfolgsaussichten einer auf steuerlichen Entlastungswirkungen basierenden Familienpolitik als Bevolkerungspolitik ist keineswegs neu. So keimte bereits aus Anlass von Planen zu einer Steuerreform, bei der zum 1. Januar 1986 im Rahmen des Familienlastenausgleichs die Kinderfreibetrage erhoht werden sollten, eine lebhafte Diskussion auf. Das Ziel der damaligen familienpolitischen Masnahme war unter anderem, den befurchteten langfristigen Konsequenzen eines Bevolkerungsruckgangs entgegenzuwirken. Heute wissen wir, dass sich der damalige Trend fortgesetzt und die demographische Entwicklung eher noch an Brisanz zugenommen hat: So droht bereits ab dem Jahr 2015 die Demographie endgultig die Gestaltungshoheit zu ubernehmen. Es zeichnet sich ein Szenario ab, in dem das Erwerbspersonenpotenzial jahrlich um 250.000 Personen sinkt. Grund genug, sich die damalige Diskussion erneut zu vergegenwartigen. Denn die Argumente und empirischen Befunde besitzen weiterhin Gultigkeit.

On the Rationality of Black Youth Unemployment

Abstract: In this paper I provide some evidence on the question of whether the behavior of unemployed young blacks, whose reservation wages are relatively high and whose jobless spells are very lengthy, reflect rational maximizing choices. To do this, I use a simple income-maximizing job search model to imply employment probabilities and various elasticities which are compared to those which are actually observed for young blacks.The results show that, for reasonable discount rates, the employment probabilities implied by income-maximization are consistent with those observed for young blacks. The elasticities of reservation wages with respect to nonwage income that are implied by income-maximizing are also consistent with those estimated econometrically for this group. This was true despite the many assumptions embodied in this model whose validity fora sample of low-income youth is highly questionable.The evidence thus suggests that young blacks are making economically rational choices by choosing high reservation wages and lengthy spells without jobs.