Showing papers by "Institute for the Study of Labor published in 1992"

Estimates of the Economic Return to Schooling from a New Sample of Twins

Abstract: This paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels. Multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling. The data indicate that omitted ability variables do not bias the estimated return to schooling upward, but that measurement error does bias it downward. Adjustment for measurement error indicates that an additional year of schooling increases wages by 12-16 percent, a higher estimate of the economic retums to schooling than has been previously found. (JEL J31) This paper uses a new survey of identical twins to study the economic returns to schooling. We estimate the returns to schooling by contrasting the wage rates of identical twins with different schooling levels. Our goal is to ensure that the correlation we observe between schooling and wage rates is not due to a correlation between schooling and a worker's ability or other characteristics. We do this by taking advantage of the fact that monozygotic (from the same egg) twins are genetically identical and have similar family backgrounds. In our survey we also took some unusual steps to measure a worker's schooling level accurately. We obtained independent estimates of each sibling's schooling level by asking the twins to report on both their own and their twin's schooling. These new data provide a simple and powerful method for assessing the role of measurement error in estimates of the economic returns to schooling.

Wages, Profits and Rent-Sharing

Abstract: The paper uses CPS data from 1964 to 1985 to test for the existence of rent-sharing in US tabor markets, Using an unbalanced panel from the manufacturing sector, and random-effects and fixed-effects specifications, the paper finds that changes in wages are explained by movements in lagged levels of profitability and unemployment. The results appear to be consistent with rent-sharing theory (or a labor contract framework with risk-averse firms) and to be inconsistent with the competitive labor market model. The paper estimates the unemployment elasticity of pay at approximately -0.03, and the profit elasticity of pay at between 0.02 and 0.05.

The Effect of the Minimum Wage on the Fast Food Industry

Abstract: Using data from a longitudinal survey of fast food restaurants in Texas, the authors examine the impact of recent changes in the federal minimum wage on a low-wage labor market The authors draw four main conclusions. First, the survey results indicate that less than 5 percent of fast food restaurants use the new youth subminimum wage even though the vast majority paid a starting wage below the new hourly minimum wage immediately before the new minimum went into effect. Second, although some restaurants increased wages by an amount exceeding that necessary to comply with higher minimum wages in both 1990 and 1991, recent increases in the federal minimum wage have greatly compressed the distribution of starting wages in the Texas fast food industry. Third, employment increased relatively in those firms likely to have been most affected by the 1991 minimum wage increase. Fourth, changes in the prices of meals appear to be unrelated to mandated wage changes. These employment and price changes do not seem consistent with conventional views of the effects of increases in a binding minimum wage.

Why Has the Natural Rate of Unemployment Increased over Time

Abstract: In 1970, when Robert Hall asked, "Why Is the Unemployment Rate So High at Full Employment?" the unemployment rate for adult men stood at 3.5 percent. That rate, which had been substantially below that level throughout the late 1960s, would climb to 4.4 percent in the recession of 1971. More recently, after the longest economic expansion of the post-war period, the unemployment rate of prime-aged men in the late 1980s settled at just below 5 percent of the labor force. What changes in the American labor market led to this apparent secular increase in the natural rate of unemployment. Twenty years later, we revisit Hall's question and turn up some new answers.

Testing for Price Anomalies in Real Estate Auctions

Abstract: This paper reports on the results of an auction sale of 83 condominium apartment units in New Jersey. At the auction every unit was hammered down, but, unknown to the 2,348 registered bidders, 40% of the sales fell through. Prices in the subsequent sale of condominium units in face to face negotiations resulted in identical units selling for 13% less than they fetched at auction and the discount was largest for those units hammered down early in the auction. These results are inconsistent with the usual predictions from the theory of common value auctions and suggest that uninformed bidders in this auction may have been the subject of a "winner's curse" which generated considerable profit for the seller.

Do Doctoral StudentsA Financial Support Patterns Affect Their Times-to-Degree and Completion Probabilities

Abstract: Projections of forthcoming shortages of Ph.D.s abound. Part of the reason is that American college graduates are much less likely to receive doctorates today than thcy were 20 years ago. Two important factors in this decline may be the increase in the length of time necessary for doctorate students to complete their programs that occurred over the period and the low completion rates of entrants into doctoral programs. Among the policies urged to prevent future Ph.D. shortages are increasing support for graduate students. Surprisingly little empirical evidence is available on how different types of support (fellowships. research assistantships, teaching assistantships) are likely to influence times-to-degree and completion rates. Our paper uses data on all graduate students who entered Ph.D. programs in four fields during a 25-year period at a single major doctorate producing university to estimate how graduate student financial support patterns influence these outcomes. We find that completion rates and mean durations of times-to-completion are sensitive to the types of financial support the students received. Other things held constant, students who receive fellowships or research assistantships have higher completion rates and shorter times-to-degree than students who receive teaching assistantships or tuition waivers, or who are totally self-supporting. A major finding Is that the Impact of financial support patterns on the fraction of students who complete programs is much larger than its impact on mean durations of times-to-degree.

The Gender Earnings Gap: Some International Evidence

Abstract: This paper uses micro-data to analyze international differences in the gender pay gap among a sample of ten industrialized nations We particularly focus on explaining the surprisingly low ranking of the US in comparison to other industrialized countries Empirical research on gender pay gaps has traditionally focused on the role of gender-specific factors, particularly gender differences in qualifications and differences in the treatment of otherwise equally qualified male and female workers (ie, labor market discrimination) An innovative feature of our study is to focus on the role of wage structure--the array of prices set for various labor market skills--in influencing the gender gap The striking finding of this study is the enormous importance of overall wage structure in explaining the lower ranking of US women Our results suggest that the US gap would be similar to that in countries like Sweden, Italy and Australia (the countries with the smallest gaps) if the US had their level of wage inequality This insight helps to resolve three puzzling sets of facts: (1) US women compare favorably with women in other countries in terms of human capital and occupational status: (2) the US has had a longer and often stronger commitment to equal pay and equal employment opportunity policies than have most of the other countries in our sample; but (3) the gender pay gap is larger in the US than in most industrialized countries An important part of the explanation of this pattern is that the labor market in the US places a much larger penalty on those with lower levels of labor market skills (both measured and unmeasured)

A Comparative Analysis of East and West German Labor Markets: Before and after Unification

Abstract: In 1988, the wage distribution in East Germany was much more compressed than in West Germany or the U.S. Since the collapse of Communism and unification with West Germany, however, the wage structure in eastern Germany has changed considerably. In particular, wage variation has increased, the payoff to education has decreased somewhat, industry differentials have expanded, and the white collar premium has increased. Although average wage growth has been remarkably high in eastern Germany, individual variation in wage growth is similar to typical western levels. The wage structure of former East Germans who work in western Germany resembles the wage structure of native West Germans in some respects, but their experience-earnings profile is flat.

Sources of Bias in Women's Wage Equations: Results Using Sibling Data

Abstract: We use data on sisters to jointly address heterogeneity bias and endogeneity bias in estimates of wage equations for women. This analysis yields evidence of biases in OLS estimates of wage equations for white and black women, some of which are detected only when these two sources of bias are addressed simultaneously. For both white and black women there is evidence of upward bias in the estimated returns to schooling. Bias-corrected estimates of the effect of marriage on wages, for white women, suggest a positive marriage premium. We also use the sibling data to identify our models, and test a number of other commonly used identifying assumptions as overidentifying restrictions.

Union Membership in the United States: The Decline Continues

Abstract: We use a demand/supply framework to analyze 1) the decline in union membership since 1977 in the United States and 2) the difference in unionization rates between the United States and Canada We extend earlier work on these problems by analyzing new data for 1991 from the General Social Survey and for 1992 from our own household survey on worker preferences for union representation When combined with earlier data for 1977 from the Quality of Employment Survey and for 1984 from a survey conducted for the AFL-CIO, we are able to decompose changes in unionization into changes in demand and changes in supply We also analyze data for 1990 from a survey conducted for the Canadian Federation of Labor on the preferences of Canadian workers for union representation We find that virtually all of the decline in union membership in the United States between 1977 and 1991 is due to a decline in worker demand for union representation There was almost no change over this period in the relative supply of union jobs Additionally, very little of the decline in unionization in the US can be accounted for by structural shifts in the composition of the labor force Next, we find that all of the higher unionization rate in the US public sector in 1984 can be accounted for by higher demand for unionization and that there is actually more frustrated demand for union representation in the public sector Finally we tentatively conclude that the difference in unionization rates between the US and Canada is accounted for roughly in equal measure by differences in demand and in supply

Estimating the payoff to schooling using the Vietnam-era draft lottery

Abstract: Between 1970 and 1973 priority for military service was randomly assigned to draft-age men in a series of lotteries Many men who were at risk of being drafted managed to avoid military service by enrolling in school and obtaining an educational deferment This paper uses the draft lottery as a natural experiment to estimate the return to education and the veteran premium Estimates are based on special extracts of the Current Population Survey for 1979and 1981-85 The results suggest that an extra year of schooling acquired in response to the lottery is associated with66 percent higher weekly earnings This figure is about 10 percent higher than the OLS estimate of the return to education in this sample, which suggests there is omitted-variable bias in conventional estimates of the return to education Our findings are robust to a variety of assumptions about the effect of veteran status on earnings

International Wage Curves

Abstract: The paper provides international evidence for the existence of a negatively sloped locus linking the level of pay to the rate of regional (or industry) unemployment. This ''wage curve'' is found using microeconomic data for Britain, the US, Canada, Korea, Austria, Italy, Holland, Switzerland, Norway and Germany. The average unemployment elasticity of pay is approximately -0.1. The paper sets out a multi-region efficiency wage model as one possible interpretation of the data.

Entrepreneurship, Happiness and Supernormal Returns: Evidence from Britain and the US

Abstract: Do entrepreneurs earn supernormal returns, or does competitive pressure ensure that entrepreneurs receive the same utility level as workers? If those who run their own businesses get supernormal returns (or 'rents') they should be happier than those who work as employees. The paper tests this hypothesis. It uses survey data from Britain and the USA to show that, in comparison with those in regular forms of employment, the self-employed report significantly higher levels of utility as proxied by overall satisfaction data.

What Drove the Mass Migrations from Europe in the Late Nineteenth Century

Abstract: This paper examines the determinants of overseas mass migration from eleven European countries in the late 19th century. They typically passed through something like a half-century life-cycle: a steep rise in emigration rates from low levels in preindustrial decades, followed by a plateau of very high emigration, and then a subsequent fall during more mature stages of industrialization. Using a new real wage data base, we are able to isolate the impact of economic and demographic forces (associated with the industrial revolution) on this emigration experience. The steep rise in emigration rates was driven mainly by fertility boom and infant mortality decline, events early in the demographic transition which, with a two decade lag, tended to glut the age cohort most responsive to wage gaps between the labor-abundant Old World and the labor-scarce New World. The steep fall in emigration rates was driven mainly by the forces of convergence and catching up -- more rapid real wage growth at home encouraged an increasingly large share to stay at home. Since we show elsewhere that these mass migrations contributed significantly to an impressive late 19th century economic convergence, they can be viewed as an important part of a long run equilibrium adjustment manifested by an evolving global labor market.

Race and School Quality Since Brown vs. Board of Education

Abstract: This paper presents evidence on the quality of schooling by race and ethnic origin in the United States Although substantial racial segregation across schools exists, the average pupil-teacher ratio is approximately the same for black and white students Hispanic students, however, on average have 10 percent more students per teacher Relative to whites, blacks and Hispanics are less likely to use computers at school and at work The implications of these differences in school quality for labor market outcomes are examined We conclude by examining reasons for the increase in the black-white earnings gap since the mid-1970s

Race and Gender Pay Differentials

Abstract: In this paper we review research findings from the 1980s and early 1990s on race and gender pay gaps. In addition. we present some evidence from the Current Population Surveys (1972, 1982 and 1989) regarding the impact of shifts in the industrial composition of employment and in interindustry wage differentials on these gaps. The gender gap in pay was stable in the 1970s but fell steadily in the 1980s; the opposite patterns were observed for black-white wage differentials--a trend towards convergence in the 1970s and stability in the 1980s. Understanding these new trends comprised the unifying theme of our review. Existing studies suggest that changes in wage structure. changing relative skill levels by race and sex. and. possibly. changes in the implementation of government policies all played a role in producing the observed outcomes. although impacts were sometimes countervailing. Our own results indicate that total industry effects (representation plus coefficient effects) had little impact on the male-female pay gap during the 1970s. but accounted for a small portion of the closing of the male-female pay gap for both blacks and for whites in the 1980s. In contrast, we found no evidence that total industry effects contributed to black-white wage trends in either period.

Turnover and the Dynamics of Labor Demand

Abstract: The theory of the dynamics of labor demand is based either on the costs of adjusting the level of employment or on the costs of hiring or firing (of gross changes in employment). We write down a generalized cost of adjustment function that includes both types of cost and allows for asymmetries in those costs. We derive the firm's rational-expectations profit - maximizing path of employment demand and the Euler equation whose parameters we estimate. Identifying the two types of costs requires complete data on turnover, which were available for the U.S. through 1981. We use these data for manufacturing to demonstrate that both types of adjustment cost figure in the representative firm's profit-maximizing decisions about employment, and that both types of cost are asymmetric (leading here to quicker increases than decreases in employment).

Differential Effects of Post-School Training on Early Career Mobility

Abstract: This paper examines in detail the factors that influence the probability of new entrants leaving their first job after completing school, including the differential effects of company provided training, apprenticeships, and training received off-the-job from for profit proprietary institutions. Particular attention is paid to how training effects vary by race, gender and educational attainment. In the paper it is shown that the majority of company provided training spells begin after an employee has been with an employer for at least one year while the majority of off-the-job training spells begin during the first year with an employer. Overall there is no significant difference in the probability of leaving the first employer by gender. Company provided training results in a lower probability of leaving an employer while off-the-job training increases the probability of leaving the first employer. Both of these effects are especially strong for women.

Spatial and Temporal Aggregation in the Dynamics of Labor Demand

Abstract: The paper demonstrates the general difficulty of inferring the structure of adjustment costs from aggregated, including industry data, except in the unlikely case that costs are symmetric and quadratic at the micro level. The implications of this difficulty for cross-national comparisons of adjustment costs, and for attempts to infer the structure of these costs without micro data, are examined. In the voluminous literature on dynamic labor demand studies based on annual data generally find longer lags than those that use quarterly data, which in turn produce longer lags than models estimated using monthly data. However, when a consistent set of U.S. industry time series is used, and quadratic symmetric costs are assumed, the estimated length of the lag is independent of the frequency of observation. This conclusion is clearly not general: If we assume the costs of adjusting labor demand are lumpy, inferences about their structure differ greatly depending on how often the data are observed.

Self-Selection and Internal Migration in the United States

Abstract: Within the conceptual framework of the Roy model, this paper provides an empirical analysis of internal migration flows using data from the National Longitudinal Surveys of Youth. The theoretical approach highlights regional differences in the returns to skills: regions that pay higher returns to skills attract more skilled workers than regions that pay lower returns. Our empirical results suggest that interstate differences in the returns to skills are a major determinant of both the size and skill composition of internal migration flows. Persons whose skills are most mismatched with the reward structure offered by their current state of residence are the persons most likely to leave that state. and these persons tend to relocate in states which offer higher rewards for their particular skills.

Training at Work: A Comparison of U.S. and British Youths

Abstract: This paper compares and contrasts the structure of school training for young non-university graduates in Britain and United States. We utilize two unique longitudinal surveys in these countries on young people to examine four issues: the extent of post school training in Britain and the U.S. and the wage gains associated with it; the link between formal training and further qualifications in Britain of dismantling significant elements of the traditional apprenticeship system. Our principal findings are that non-college graduates in Britain receive much more post school training than similar youths in the United States. This training is also linked with higher national recognised qualifications. The rates of return to post school training in both countries is high, especially in the United States. The higher rates of return to training in the U.S. is consistent with underinvestment in training in the U.S. When the sample is divided by gender, however, women in the U.S. receive more training than their British counterparts and their wage increase by a greater amount. As Britain has replaced the traditional apprenticeship system with a government-led program called Youth Training more women seem to be receiving training after school. However, far fewer young people are obtaining qualifications after their training.

Union Threat Effects and Nonunion Industry Wage Differentials

Abstract: We investigate the impact of union strength on changes in nonunion wages and employment. The prevailing model in this area is the threat model, which predicts that increases in union strength cause increases in nonunion wages and decreases in nonunion employment. In testing the threat model, we are also testing two alternatives, the crowding and complements models. In contrast to the prediction of the threat model, decreases in the percent organized (reflecting a declining union threat) are associated with increases in the nonunion wage. Furthermore, increases in union wages appear to decrease, rather than to increase, nonunion wages. Evidence on the determinants of intra-industry variation in nonunion wage premia is somewhat more consistent with the crowding model and is strikingly consistent with the complements model of union and nonunion wage determination. Further evidence on the determinants of intra-industry variation in nonunion employment is consistent with the complements model and the threat model; movements in nonunion industry employment are negatively related to changes in proxies for union strength. Thus, the combined evidence supports the complements model, but neither the threat model nor the crowding model.

Hostile Takeovers and Expropriation of Extramarginal Wages: A Test

Abstract: We construct a prediction model for testing the hypothesis that firms with employees earning extramarginal wages--perhaps owing to long-term implicit contracts-were more likely to experience hostile tender offers from 1979-1989. Firms on the Compustat (active) file in 1979 comprise the domain from which targets were identified. The 1980 Census of Population is used to estimate wage equations by two-digit (SIC) industry and extract both industry wage premia as well as age-earnings profiles and age distributions of employees by industry. Firm-level estimates of employee characteristics are then constructed using the Compustat breakdown of firm sales by industry segment. Finally, event probabilities are estimated using logit and multinomial logit models. Variables related to proxies for the magnitude of extramarginal wages payments, plus other firm characteristics such as the extent of diversification across industries, are found to raise the likelihood of being a hostile takeover target, relative to other corporate control events.

International Migration and World Development: A Historical Perspective

Abstract: The 1920s marked the end of a century of mass migration from Europe to the New World. This paper examines analytically this pre-quota experience. The discussion is divided into two parts. The first deals with the character and dimensions of overseas emigration from Europe chiefly from the mid 19th century to World War I. The second discussions the effects of these migrations on both sending and receiving countries. The traditional literature has far more to say about the first than the second. Here we deal with the evolution of global labor markets, first as they were directly influenced by the migrations, and second as they interacted with the evolution of world commodity and capital markets. The paper argues that the impressive economic convergence which took place between 1870 and World War I can be largely explained by these forces of economic integration, rather than by technological convergence or differential human capital growth.

Inflation Expectations and the Structural Shift in Aggregate Labor-Cost Determination in the 1980s

Abstract: Aggregate labor cost equations tended to overpredict labor-cost inflation in the United States in the 1980s. We consider the hypothesis that a change in the price-inflation-expectations mechanism can explain this apparent structural shift in the 1980s. We examine whether the sharp recession of the early 1980s and continued tight monetary policy throughout the decade may have led to changes in the relationship between past price inflation and expected price inflation such that distributed lags of price inflation persistently overestimated expected price inflation, and hence led to overprediction of labor-cost inflation by standard Phillips curves in this period. The evidence leads us to reject this hypothesis, and to conclude instead that there was a true structural shift in labor cost determination.

National Origin and Immigrant Welfare Recipiency

Abstract: This paper explores national origin differences in the welfare recipiency of immigrantsto the United States. We develop an economic model of immigration which generatesimplications about how welfare utilization should vary according to characteristics of thecountry of origin. The empirical analysis reveals that a few source country characteristicsexplain over two-thirds of the variance of welfare recipiency rates across national origingroups, and changes in the average source country characteristics of the foreign-bornpopulation between 1970 and 1980 can account for most of the rise in immigrant welfare use that occurred over the decade.

Are Rising Wage Profiles a Forced-Saving Mechanism?

Abstract: This paper tests the hypothesis that rising earnings profiles are a mechanism by which individuals engage in forced saving. It does this by examining the cross-sectional relationship between overwithholding on income tax payments--behavior that is consistent with a preference for forced saving--and the slopes of age-earnings profiles. The force-saving hypothesis receives some support from earnings regression estimates. Individuals who receive tax refunds are on earnings profiles that are steeper and have lower intercepts, although the evidence is statistically significant in only a subset of the specifications estimated. On average, individuals who receive refunds have about one percentage point faster earnings growth per year.

Hostile Takeovers and Expropriation of Extramarginal Wages: A Test

Abstract: We construct a prediction model for testing the hypothesis that firms with employees earning extramarginal wages--perhaps owing to long-term implicit contracts-were more likely to experience hostile tender offers from 1979-1989. Firms on the Compustat (active) file in 1979 comprise the domain from which targets were identified. The 1980 Census of Population is used to estimate wage equations by two-digit (SIC) industry and extract both industry wage premia as well as age-earnings profiles and age distributions of employees by industry. Firm-level estimates of employee characteristics are then constructed using the Compustat breakdown of firm sales by industry segment. Finally, event probabilities are estimated using logit and multinomial logit models. Variables related to proxies for the magnitude of extramarginal wages payments, plus other firm characteristics such as the extent of diversification across industries, are found to raise the likelihood of being a hostile takeover target, relative to other corporate control events.