Showing papers by "Institute for the Study of Labor published in 1986"

Search Method Use by Unemployed Youth

Abstract: In this paper I investigate the use of different search methods by unemployed youth. I present a job search model which shows that search method choices should be related to their costs and expected productivities, as well as other factors such as nonwage income and wage offer distributions. I then present empirical evidence on the use of these methods and their effects on employment outcomes. These results show that the most frequently used search methods, which are friends and relatives and direct applications without referral, are also the most productive in generating job offers and acceptances. Econometric evidence then shows that the number of methods used is affected by factors which presumably reflect market opportunities as well as income sources and needs. While the use of specific search methods respond differently to these factors, they are chosen in a manner which generates positive average effects on employment outcomes for those who use them. The results are thus consistent with the search model presented here.

Informal Job Search and Black Youth Unemployment

Abstract: In this paper I analyze how young black and white unemployed jobseekers use various methods of search, and the employment outcomes which result from their use.The focus is on distinguishing informal search methods (i.e.,friends and relatives or direct application without referral) from more formal ones in analyzing racial differences.The results show that the two informal methods of search account for about 90% of the difference in employment probabilities between white and black youth. This also accounts for 57-71% of the difference in unemployment rates between the two. Furthermore, most of these results reflect differences in the ability of these methods to generate job offers, as opposed to differences in search effort or job acceptance rates. However, our ability to explain these differences through personal, family, and household characteristics was generally quite limited.

Reflections on the Inter-Industry Wage Structure

Abstract: This paper reviews available evidence on the inter-industry wage structure. The inter-industry wage structure is remarkably similar in different eras, in different countries, and among different types of workers. Industries with high capital-to-labor ratios, monopoly power and high profits pay relatively high wages. We conclude that the competitive model cannot without substantial modification provide an adequate explanation of theinter-industry wage structure. The implications of this finding for micro and macro economic theory and policy are examined.

Compensating Wage Differentials and the Duration of Wage Loss

Abstract: Several reasons are offered why workers will receive larger compensating wage differentials for increases in the duration of wage losses than for increases in the probability of loss that produce the same expected loss. A formal model of occupational choice is developed that shows the extent to which the compensation for increased duration exceeds that for increased risk. Using Panel Study of Income Dynamics data linked to industry data on injuries and unemployment, we find:1) Nearly all the compensating wage differential for losses due to workplace injuries is compensation for increases in the duration of loss; 2) Similarly, nearly all the compensation for losses due to cyclical unemployment is compensation for increases in duration, especially for increases in duration beyond the 26 weeks of unemployment that are usually compensated by unemployment insurance. The compensating differentials for risk of injury are larger for union than for nonunion workers, while those for cyclical unemployment are smaller for union workers.

Efficiency Wages and the Wage Structure

Abstract: This paper examines differences in pay for equally skilled workers indifferent industries The major finding is that there is substantialdispersion in wages across industries, even after allowing for measured andunmeasured labor quality, working conditions, fringe benefits, transitorydemand shocks, threat of unionization, union bargaining power, firm size andother factors Some direct evidence in favor of efficiency wage theories ispresented The evidence suggests that industry wage differentials aresuccessful in eliciting better performance through reduced turnover andincreased effort

The Demand for Workers and Hours and the Effects of Job Security Policies: Theory and Evidence

Abstract: There has been a wide variety of research on worker-hours substitution and the effects of various costs on the speed and extent to which labor demand adjusts Much of this literature, though, confuses various types of fixed costs and fails to provide a guide for identifying how changes in labor-cost structures affect static relative demands for workers and hours and the paths by which they adjust This study presents a typology of labor cost market policies in OECD countries are pigeonholed by their effects on labor costs are view of the evidence indicates clearly that there is some slight substitution between workers and hours along a constant effective-labor isoquant The evidence is clear that employers adjust the demand for hours more rapidly than that for workers and that both adjust fairly rapidly It also shows that a major effect of cost-increasing policies designed to induce substitution from hours to workers is a reduction in the total amount of worker-hours demanded Original analysis demonstrates that lags in the adjustment of employment in response to changes in demand lengthened in most OECD countries during the 1970s

Testing the Response of Consumption to Income Changes with (Noisy) Paneldata

Abstract: This paper tests the rational expectations lifecycle model of consumption against (1) a simple Keynesian model and (ii) the rational expectations lifecycle model with imperfect capital markets. The tests are based upon the relative responsiveness of consumption to income changes which can be predicted from past information and income changes which cannot be predicted. Since there is strong evidence that panel data contains substantial measurement error, the tests are especially constructed to allow for measurement error in the income process. They also allow for more general income processes than have been considered to date in the literature. The results reject the Keynesian model and generally support the lifecycle model, although the tests are not sufficiently precise to rule out the possibility that some households are liquidity constrained. Measurement error does have a strong influence on the relationship between consumption and income. When it is ignored our tests do not reject the Keynesian model. We show that consideration of measurement error may also reconcile differences in the results of Hall and Mishkin (1982) and Bernanke(1984). Nevertheless, our most important conclusion is that Hall and Mishkin's, Bernanke's, and Hayashi's (198 ) qualitative finding that the vast majority of households obey the lifecycle model is not an artifact of failure to account for measurement error in the income data.

The Youth Labor Market in the 80s: Determinants of Re-Employment Probabilities for Young Men and Women

Abstract: This paper presents an analysis of the determinants of re-employment probabilities for young workers in the U.S. Using data from the new National Longitudinal Survey youth cohort a model is developed to analyze the transition probabilities from nonemployment to employment. The key factors examined include personal characteristics, unemployment income, local demand conditions, and duration dependence. There are significant differences between the labor market experiences of whites and nonwhites, and males and females. High school dropouts have many more difficulties in the labor market than those who remain in school longer and/or receive other types of training. Local demand conditions are a strong determinant of the duration of spells of nonemployment and there appears to be strong evidence of negative duration dependence in re-employment probabilities for both young males and young females.

Why Have Unemployment Rates in Canada and the U.S. Diverged

Abstract: Throughout the post-war period, U.S. and Canadian unemployent rates moved in tandem, but this historical link apparently ended in 1982. During the past three years, Canadian unemployment rates have been some three percentage points higher than their U.S. analogues, and this gap shows no sign of diminishing. This paper is an empirical evaluation of a variety of explanations for this new unemployment gap. We first show that the demographic and industrial composition of the two countries is remarkably similar, so that no simple mechanical hypothesis explain the basic puzzle. It is also evident that the increase in Canadian unemployment relative to U.S. unemployment can not be fully attributed to output movements. We find that the gap between actual and predicted Canadian output, based on U.S. output, has fallen dramatically since 1982 while the unemployment gap has widened. We also find that unemployment in Canada was 2 to 3 percentage points higher in 1983 and 1984 than predicted by Canadian output. We have investigated a variety of hypotheses to explain the slow growth of employment in Canada after 1982. These hypotheses attribute the slow growth of employment to rigidities in the labor market that raise employers' costs and restrict the flow of workers between sectors. The evidence does not support the notion that the growth in relative unemployment in Canada is due to differences in the regulation of the labor market in the two countries. Minimum wage laws and unemployment benefits are fairly similar in Canada and the U.S., and neither has changed relative to the other in the last decade. Unionization rates have increased in Canada relative to US. since 1970. Most of this divergence occured before 1980, however, and does not seem to have created an unemployment gap prior to 1980. Finally,the hypothesis that differential real wage rates are a major determinant of relative employment in the U.S. and Canada is soundly rejected by the data. Real wage rates have been essentially uncorrelated with employment movements within each country and between the two countries.

Inflation and Wage Dispersion

Abstract: A large body of empirical work has demonstrated that higher inflation, especially when it is unexpected, leads to greater dispersion in the distribution of price changes across subaggregates. A sparse and more recent literature suggests exactly the opposite effects on the distribution of wage changes. This study first reconciles these apparently opposite results using a model in which shocks to the economy can affect both wages and prices and the demand for indexing. If the positive effect of shocks on the demand for indexing is sufficiently large, the dispersion of changes in wages or prices will be reduced even though the shocks' direct effect is to increase this dispersion. Implicitly from the evidence, this offset is large enough in wage-setting, but not so large in price determination. Additional evidence on the relationship between inflation and the dispersion of wage changes is provided by empirical work for 14 Israeli manufacturing industries, 1956-82. The results suggest that in Israel, just as in the United States (on which previous work has been conducted) with its much less rapid and variable inflation, dispersion also decreased with unexpected price inflation.

Merit Pay for School Superintendents

Abstract: Given the important role that school district administratorsplay in the educational process, one might expect their"performance" to be of fundamental importance in determining bothhow much students learn and the cost of public education totaxpayers. Yet, while public debate has considered the issue ofmerit pay plans for teachers, virtually no attention has beendirected to the methods by which school administrators arecompensated.This paper provides evidence on whether school superintendentsare explicitly or implicitly rewarded for their"performance" by higher compensation and/or greater opportunitiesfor mobility. We analyze panel data from over 700 school'districts in New Ycrk State during the 1978-79 to 1982-83 period.Measures of performance are defined and then entered into salarylevel, salary change, and mobility equations. While evidence isprovided that school superintendents are rewarded for"performance", the magnitude of the rewards appear to be quitesmall.

Employed and Unemployed Job Search: A Comparison of Choices and Outcomes among Youth

Abstract: This paper presents evidence that young unemployed job seekers choose higher levels of search effort (as measured by numbers of methods used and time spent per method) and lower relative reservation wages than do comparable employed seekers. The unemployed also have higher probabilities of gaining new employment, which reflect higher probabilities of receiving offers and especially higher probabilities of accepting them; as well as slightly lower wages.These differences in outcomes between the two groups are at least partly explained by differences in their respective search choices.The evidence thus suggests that unemployed job seekers have higher costs of search (from foregone earnings) than do the employed, causing the former to seek new jobs more eagerly.

Plant Closings, Labor Demand and the Value of the Firm

Abstract: This study postulates an internal labor market in which workers accumulate firm-specific human capital that raises the value of the firm and insulates it to some extent from the vagaries of product demand that might result in its closing. Negative product-market shocks reduce wage growth and increase the probability of the firm closing. The model also predicts a U-shaped relation between the probability of the plant closing and the length of a worker's tenure, a proxy for firm-specific human investment. PSID data for 1977 through 1981 are used to produce weighted-probit estimates of the parameters of an equation describing the probability of displacement. The results support most of the predictions of the model, but similarly specified equations describing the probability of permanent layoff indicate that a theory of plant closings must differ from that of layoffs. The parameter estimates are used to infer an analogue to the firm's elasticity of demand for labor and to deduce the wage reduction necessary to avoid an increase in the probability of a plant closing when a negative demand shock occurs.