Showing papers by "Institute for the Study of Labor published in 1994"

Cities and Growth: Theory and Evidence from France and Japan

Abstract: The relative distribution of the populations of the top 40 urban areas of France and Japan remained very constant during these countries' periods of industrialization and urbanization. Moreover, projection of their future distributions based on past growth indicates that their size-distributions in steady state will not differ essentially from what they have been historically. Urbanization consequently appears to have taken the form of the parallel growth of cities, rather than of convergence to an optimal city size or of the divergent growth of the largest cities. We develop a model of urbanization and growth based on the accumulation of human capital consistent with these observations. Our model predicts that larger cities will have higher levels of human capital, higher rents, and higher wages per worker, even though workers are homogeneous and free to migrate between cities. Cities grow at a common growth rate, with relative city size depending upon the environment that they provide for learning.

An Economic Analysis of Works Councils

Abstract: Works councils, found in most Western European economies, are elected bodies of employees with rights to information, consultation, and in some cases co-determination of employment conditions at local workplaces, mandated by law. Many European employers and unions believe that councils improve communication between workers and management, raising social output, while reducing the speed with which decisions are made. This paper analyzes the operation of councils as a means of improving social output by creating more cooperative labor relations. It argues that councils are mandated because the incentive for companies to institute them and delegate them power falls short of the social incentive; that workers provide more accurate information to employers about preferences when councils have some say over how that information is used; and that the communication from employers to workers produces socially desirable worker concessions in bad times that would not occur absent this institution. It compares a jury style random selection of works councilors with selection via elections.

Economic Growth and the Environment

Abstract: Using data assembled by the Global Environmental Monitoring System we examine the reduced-form relationship between various environmental indicators and the level of a country's per capita income. Our study covers four types of indicators: concentrations of urban air pollution; measures of the state of the oxygen regime in river basins; concentrations of fecal contaminants in river basins; and concentrations of heavy metals in river basins. We find no evidence that environmental quality deteriorates steadily with economic growth. Rather, for most indicators, economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement. The turning points for the different pollutants vary, but in most cases they come before a country reaches a per capita income of $8,000.

Job Stability in the United States

Abstract: Two key attributes of a job are its wage and its duration. Much has been made of changes in the wage distribution in the 1980s, but little attention has been given to job durations since Hall (1982). We fill this void by examining the temporal evolution of job retention rates in U.S. labor markets, using data assembled from the sequence of Current Population Survey job tenure supplements. In contrast to the distribution of wages, which clearly changed in the 1980s, we find that job retention rates have remained stable.

Generating Equality and Eliminating Poverty, the Swedish Way

Abstract: Sweden has a remarkable record in reducing inequality and virtually eliminating poverty. This paper shows that: 1) Sweden achieved its egalitarian income distribution and eliminated poverty largely because of its system of earnings and income determination, not because of the homogeneity of the population nor of its educational system. 2) In the job market Sweden is distinguished by a relatively egalitarian distribution of hours of work among those employed, which may be an interrelated part of the Swedish economic system, and until the recent recession, by a high employment rate. 3) Tax and transfer policies contribute substantially to Sweden's overall distribution record. In contrast to many social welfare systems, Sweden's is largely a workfare system, providing benefits for those with some work activity. 4) Part of Sweden's historic success in maintaining jobs for low wage workers while raising their wages resulted from policies that directly or indirectly buttress demand for low skill workers, notably through public sector employment. 5) Sweden's tax and transfer policies have maintained the position of lower income workers and families, including those with children, during its recent economic decline.

Why Do Americans and Germans Work Different Hours

Abstract: This paper documents the difference between the annual hours worked by employed Americans and Germans, decomposes the difference into differences due to vacation and holiday time and to hours worked while on the job, and examines alternative explanations for the difference. Employed Americans work roughly 10-15% more hours than Germans. Since American employment-population rates exceed those of Germans, adult Americans average some 20% more work time than adult Germans. At the same time, Americans show greater preference for additional hours worked than do Germans. Both of these differences developed in the past 20 years. Two decades ago, Americans worked less than Germans, and it was the Germans who wanted to work more hours. Standard labor supply analyses do not appear able to explain this difference. We show that differences in hours worked are related to differences in earnings inequality across countries, and hypothesize that the high rewards to success in the U.S., lack of job security, and low social safety net compared to Germany or other European countries may explain the cross-country differences in an extended supply model.

Do Teachers' Race, Gender, and Ethnicity Matter?: Evidence from Nels88

Abstract: Our study uses a unique national longitudinal survey, the National Educational Longitudinal Study of 1988 (NELS), which permits researchers to match individual students and teachers, to analyze issues relating to how a teacher's race, gender, and ethnicity, per se, influence students from both the same and different race, gender, and ethnic groups. In contrast to much of the previous literature, we focus both on how teachers subjectively relate to and evaluate their students and on objectively how much their students learn. On balance, we find that teachers' race, gender, and ethnicity, per se, are much more likely to influence teachers' subjective evaluations of their students than they are to influence how much the students objectively learn. For example, while white female teachers do not appear to be associated with larger increases in test scores for white female students in mathematics and science than white male teachers 'produce', white female teachers do have higher subjective evaluations than their white male counterparts of their white female students. We relate our findings to the more general literature on gender, race, and ethnic bias in subjective performance evaluations in the world of work and trace their implications for educational and labor markets.

Do Historically Black Institutions of Higher Education Confer Unique Advantages on Black Students: An Initial Analysis

Abstract: Do Historically Black Institutions (HBIs)of Higher Education confer unique advantages on black students? Our paper consists of two separate analyses that begin 10 address this issue. The first uses data from the ?National Longitudinal Study of the High School Class of 1972? to ascertain whether black college students who attended HBIs in the early 1970s had higher graduation rates. improved early career labor market success and higher probabilities of going on 10 graduate or professional schools than their counterparts who attended other institutions. The econometric methods we employ control for the characteristics of the students. characteristics of the institutions, and the process by which black students decided 10 enroll (or were prevented from enrolling) in different types of institutions. We find that attendance at an HBI subswltia1ly enhanced the probability that a black student received a bachelor?s degree within seven years. however it had no apparent affect on the student's early career labor market success and probability of enrolling in post-college schooling. The second uses data from the 1987 to 1991 waves of the National Research Council's ?Survey of Earned Doctorates? to provide evidence on the patterns of black citizen doctorates with respect to their undergraduate institutions, their graduate institutions, and whether they achieved academic positions in major American liberal arts and research/doctorate institutions. Among the major findings is that black doctorates who received their undergraduate degrees at HBIs were much less likely to have received their graduate degree at a major research institution than those black doctorates who attended a major research or selective liberal arts undergraduate institution. Similarly, among the black doctorates who entered academic careers, those with graduate degrees from HBIs were less likely to be employed in major American research or liberal arts institutions than those who received their graduate degrees from major research institutions.

The Effects of Inflation on Wage Adjustments in Firm-Level Data: Grease or Sand?

Abstract: An analysis of whether inflation facilitates adjustments to shocks or distorts relative prices, examining the wage-setting process across a panel of occupations and employers and finding that the costs of inflation may rise more rapidly than its benefits beyond quite modest rates of increase in the price level.

Estimating a Wage Curve for Britain 1973-1990

Abstract: Following Phillip's original work on the UK, applied research on unemployment and wages has been dominated by the analysis of highly aggregated time-series data sets. However, it has proved difficult with such methods to uncover statistically reliable models. This paper adopts a different approach. It uses microeconomic data on 175,000 British workers from 1973-1990 to provide evidence for the existence of a negatively sloped relationship linking the level of pay to the local rate of unemployment. This 'wage curve' is found to have an elasticity of approximately -0.1. Contrary to the Phillips Curve, no autoregression is found in wages. The paper casts doubt on standard ideas in macroeconomics, regional economics and labour economics.

Wage Inequality and Industrial Change: Evidence from Five Decades

Abstract: Using data from the 1940-1980 Decennial Census and the 1988-1992 March Current Population Surveys, this paper examines the impact of industrial change on male wage inequality over a period of five decades (1940-1990). Alternative measures of skill such as the wage percentile, education and occupation indicate that wage inequality between more and less skilled male workers fell substantially during the 1940s and increased most dramatically during the 1980s. Examination of industrial change over this longer time period shows that the demand for the most highly educated and skilled male workers relative to the least skilled male workers increased no faster during the 1970s and the 1980s than during the earlier decades. In contrast, the demand for men in the middle skill categories (such as those in basic manufacturing) expanded during the 1940s and the 1950s and contracted severely during the 1970s and 1980s. This suggests that the growth of jobs in the middle skill categories may be closely related to overall wage inequality. Cross sectional regressions based on state level data also show some empirical support for the hypothesis that a decline in demand for medium skilled groups increases overall wage inequality.

Do Pensions Increase the Labor Supply of Older Men

Abstract: This paper investigates the relationship between pension coverage and the retirement behavior of older men. Pensions are associated with higher work involvement for males in their late fifties and early sixties but with lower rates of job holding for those aged 65 through 69. Age of entry into pension employment is shown to be positively correlated with future labor supply. When combined with evidence on age-specific changes in labor force participation rates, this pattern casts doubt on the hypothesis that broadened pension coverage explains a substantial portion of the trend toward earlier male retirement.

IRAs and household saving revisited: some new evidence

Abstract: The effectiveness of tax-favored savings accounts in raising national savings depends crucially upon the willingness of households to reduce consumption in order to finance contributions to these accounts. The debate over the tax deductibility of IRA's has centered on whether IRA contributions represented new savings or reshuffled assets. We devise a test to distinguish between these two hypotheses where we compare the behavior of households which just opened an IRA account with that of households which already had an IRA account. Our test accounts for any unobservable heterogeneity across the two groups. We find evidence that supports the view that households financed their IRA contributions primarily through reductions in their stocks of other assets. Our results indicate that less than 20% of IRA contributions represented addition to national savings.

An Evaluation of the Swedish Active Labor Market Policy: New and Received Wisdom

Abstract: About 3% of GNP is spent on government labor market programs in Sweden, compared to 2% in Germany and less than 0.5% in the U.S. In Sweden these programs include extensive job training, public sector relief work, recruitment subsidies, youth programs, mobility bonuses, and unemployment benefits. Using county-level data, we provide new evidence that public relief workers displace other workers, especially in the construction sector. Our review of the previous literature suggests that job training programs have small effects on wages and re-employment in Sweden, but precise inferences are difficult because of small sample sizes. We also investigate alternative reasons for the stability of the Beveridge Curve in Sweden, and compare regional evolutions of employment and unemployment in Sweden and the U.S. Lastly, we present cross-country analysis for 1993 which, contrary to studies that use earlier data, shows that the extent of a country's active labor market programs is positively associated with the national unemployment rate.

New Facts About Factor-Demand Dynamics: Employment, Jobs, and Workers

Abstract: We provide a unified discussion of the relations among flows of workers, changes in employment and changes in the number of jobs at the level of the firm Using the only available set of data (a nationally representative sample of Dutch firms in 1988 and 1990) we discover that: 1) Nearly half of all hiring is by firms where employment is not growing; 2) Over half of all firing is by firms that are not contracting; 3) Most firing is by firms that are also hiring; 4) Flows of workers within firms are small compared to flows into and out of firms; and 5) Accounting for simultaneous creation and destruction of jobs within firms adds roughly 15 percent to estimates of economywide job creation and destruction The results imply that macroeconomic fluctuations can have substantial effects beyond those indicated by net employment changes at the firm level, and that studies of dynamic factor demand must account for variations in gross flows of workers

International Differences in Male Wage Inequality: Institutions Versus Market Forces

Abstract: While changes in the demand for skilled labor appear to have led to a widening of the wage structures in many countries during the 198Os,considerable differences in the level of wage inequality remain. In this paper, we examine the sources of these differences, focusing primarily on explaining the considerably higher level of wage inequality in the U.S. We find that the greater overall dispersion of the U.S. wage distribution reflects considerably more compression at the bottom of the distribution in the other countries, but relatively little difference in the degree of wage inequality at the top. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, U.S. labor market prices--that is, higher rewards to labor market skills-are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the U.S. compared to other countries, appear to provide the most persuasive explanation for these international differences in prices. In contrast, the pattern of cross-country differences in relative supplies of and demands for skills does not appear to be consistent with the pattern of observed differences in wage inequality.

The Impact of Demographics on Housing and Non-Housing Wealth in the United States

Abstract: This paper focuses on two questions: (1) Are housing prices forecastable from current information on demographics and housing prices? and (2) How are household savings decisions affected by capital gains in housing? We use [U.S.] metropolitan statistical area (MSA) level data on housing prices and demographic trends during the 1980s and find mixed evidence on the forecastability of housing prices. Further we use data on five-year savings rates from the Panel Study of Income Dynamics and find no evidence that households engage in changing their non-housing savings in response to expectations about capital gains in housing. (EXCERPT)

Minimum Wage Effects on Employment and School Enrollment

Abstract: We argue in this paper that the focus on employment effects in recent studies of minimum wages ignores an important interaction between schooling, employment, and the minimum wage. To study these linkages, we estimate a conditional logit model of employment and enrollment outcomes for teenagers using state-year observations for the period 1977 to 1989. The results show a negative influence of minimum wages on school enrollment and a positive effect on the proportion of teens neither employed nor in school. We further suggest that our results are consistent with substitution by employers of higher- for lower-skilled teenagers, with the displaced teens ending up both out of work and out of school.

Minimum Wage Effects and Low-Wage Labor Markets: A Disequilibrium Approach

Abstract: We present a new approach to estimating minimum wage effects on employment. In contrast to most previous research, we account for the possibility that the relationship between minimum wages and employment depends on the magnitude of the minimum wage relative to the equilibrium wage in the absence of the legislated minimum. In particular, estimating the employment effects of binding minimum wages requires separation of sample observations into those that are on the labor demand curve but off the labor supply curve, and those that are at labor market equilibria. The paper implements an endogenous switching regression model with unknown sample separation that yields these estimates. The approach also yields estimates of the impact of labor market characteristics on the probability that minimum wages are binding. We also extend the disequilibrium approach to monopsony, which introduces a third regime, between the equilibrium monopsony wage and the equilibrium competitive wage, in which observations are on the labor supply curve but off the labor demand curve and minimum wages are therefore positively related to employment. Minimum wage effects under monopsony are estimated in a three-regime endogenous switching regression model with unknown regimes, and the monopsony characterization of low-wage labor markets is tested against the competitive characterization.

The Dynamics of Dual-Job Holding and Job Mobility

Abstract: This article concerns the incidence and dynamics of dual-job holding, and its link to job mobility. The first section presents evidence on patterns of dual-job holding, hours changes, and job mobility in the United States, using data from the Panel Study of Income Dynamics and the Current Population Survey. The results indicate that most workers experience dual-job holding sometime during their working lives, and there is a great deal of movement into and out of dual-job holding. Mobility into and out of second jobs is associated with large changes in weekly and annual hours, and there is evidence that dual-job holding is prompted by hours constraints on the main job. The second section of the article turns to theories of dual-job holding. Much of the empirical literature on second jobs is motivated by a simple model of labor supply in which workers face upper constraints on main-job hours: a worker who would like to work more on his main job, but cannot, will take a second job provided the second-job wage is high enough. These models do not account for the fact that workers may also avoid hours constraints by finding new main jobs with higher hours. We develop a stochastic dynamic model of dual-job holding and job mobility in which decisions to take second jobs and/or change main jobs are made simultaneously. This model is consistent with our findings and provides new insights into the economics of dual-job holding and labor mobility.

The Impact of Wage Structure on Trends in U.S. Gender Wage Differentials 1975-1987

Abstract: The US labor market experienced two dramatic developments over the past twenty years: a falling male-female pay gap and a rising level of wage inequality This paper uses Michigan Panel Study on Income Dynamics (PSID) data for 1975 and 1987 and Current Population Survey (CPS) data for 1971 and 1988 to analyze how this dramatic decline in the gender gap was achieved in the face of shifts in overall wage structure that were increasingly unfavorable to low wage workers The decrease is traced to a rise in women's relative experience levels and occupational status, and a larger negative impact of de-unionization on male than female workers In addition, there was a substantial decline in the 'unexplained' portion of the pay gap These 'gender-specific' factors were more than sufficient to counterbalance changes in both measured and unmeasured prices which worked against women Using a simply supply and demand framework, we find that the net effect of supply and demand shifts was unfavorable for women as a group: shifts in the composition of demand during this period favoring female workers were more than offset by the rising relative supply of women However, supply and demand changes match up fairly well with observed relative changes in the gender gap among skill groups, specifically a faster closing of the gap at the bottom of the skill distribution than at the top Moreover, our analysis of the sources of the greater progress at the bottom than at the top is consistent with the operation of demand and supply forces

Biases in Twin Estimates of the Return to Schooling: A Note on Recent Research

Abstract: Ashenfelter and Krueger's (1993) within-twin, measurement-error- corrected estimate of the return to schooling is about 13-16 percent. If their estimate is unbiased, then their results imply considerable downward measurement error bias in uncorrected within-twin estimates of the return to schooling, and considerable downward omitted ability bias in cross-section estimates. This note points out that if there are ability differences among twins, then AK's IV estimator exacerbates the omitted ability bias in the within-twin estimate. Thus, upward omitted ability bias in within-twin estimates may provide an alternative explanation of the surprisingly high estimates of the return to schooling that AK obtain, and permit their results to be reconciled with upward, rather than downward omitted ability bias in cross-section estimates.

Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model

Abstract: This paper tests some empirical implications of the general human capital model's explanation of rising wage profiles. At the individual level, the model implies that there will be a negative relationship between the initial wage level and wage growth of young, inexperienced workers. At the market level, the model implies that the present value of the wage profile of an investor equals that of an otherwise identical non-investor, or that the ratio of the present values equals one. We test both of these hypotheses. Evidence on the wage level-wage growth tradeoff points to a negative relationship between initial wage levels and wage growth, even after correcting for negative biases that may have influenced existing estimates of this relationship. Evidence on present values of wage profiles suggests that the ratio of the present value of rising wage profiles to flat wage profiles is quite close to one. Alternative estimates of this ratio are tightly clustered around one, and more often than not are insignificantly different from one. Overall, then, the evidence is largely consistent with the general human capital model.

Aging and Productivity, Rationality and Matching: Evidence from Economists

Abstract: Economists' productivity, as measured by publication in leading journals, declines very sharply with age. Additional evidence shows that this is a rational response to economic incentives and/or changing physical or mental abilities: There is no difference by age in the probability that an article submitted to a leading journal will be accepted. The probability of acceptance does show increasing heterogeneity with age that is related to the author's quality, consistent with models of optimal investment in human capital and especially with occupational matching models.

New Evidence on Workplace Education

Abstract: This paper presents an analysis of the impact of a workplace education program that was administered by a community college at two companies. One of the companies we study is in the manufacturing sector and the other is in the service sector. The analysis relies on longitudinal administrative data and cross-sectional survey data. We examine a broad range of outcome variables, including workers' earnings, performance awards, job attendance, and subjective performance measures. Our main finding is that the program had a small, positive impact on earnings at the manufacturing company, but an insignificant impact at the service company. We also find that the training program had a positive association with the incidence of job bids, upgrades, performance awards, and job attendance. At the manufacturing company, occupational courses, such as blue print reading, had the largest impact.

Policy Transferability and Hysteresis: Daily and Weekly Hours in the Brd and the Us

Abstract: I develop a model with the path of labor-market outcomes exhibiting hysteresis depending on prior labor-market policy. The results suggest that attempts to transfer policies across economies lead to surprising results even if current economic outcomes in the countries appear similar. Examples of minimum wages, optimal income maintenance, and training programs are given. The results are applied to a discussion of overtime laws and differences in days worked and weekly hours in the U.S. and Germany.

Profit Sharing and Gainsharing: A Review of Theory

Abstract: The slowdown in productivity growth since the 1970s has led to increased interest in alternative compensation schemes such as profit sharing and gain sharing that might raise worker productivity and reduce turnover. In this working paper, Jones, Kato, and Pliskin summarize the rise in popularity of profit sharing (PS) and gain sharing (GS) plans; review existing theoretical and empirical work on PS and GS; and highlight findings that relate the effectiveness of such programs at raising productivity and enhancing employment stability. They also note that some existing studies contain some econometric problems relating to plan and model variables; there are measurement problems as well. Their paper primarily focuses on PS plans.

Training and the Growth of Wage Inequality

Abstract: Shifts in the incidence of training over the 1980s favored more-educated, more-experienced workers. These shifts, coupled with increases in returns to skill, suggest that training may have contributed to the growth of between-group wage inequality in this period. However, because i) the shifts in training were too small, and ii) the returns to training did not rise, only small fractions of the increases in returns to schooling and experience over this period can be explained by changes in the distribution of or returns to training.

The Timing of Promotion to Top Management in the U.S. and Japan: A Duration Analysis

Abstract: Many theories attempt to explain Japan's economic success in the post-war period, including innovative production methods, unique management practices, and superior industrial policy. Another hypothesis stresses competition arising from Japanese firms prolonging the promotion tournament among aspiring CEOs. In this paper, Kato and Taylor contribute to the debate by utilizing rigorous econometric analysis to provide a comparison of promotion policies between U.S. and Japanese firms.