Showing papers in "Journal of Political Economy in 1962"

The Costs and Returns of Human Migration

Abstract: Migration research has dealt mainly with the forces which affect migration and how strongly they have affected it, but little has been done to determine the influence of migration as an equilibrating mechanism in a changing economy. The movements of migrants clearly are in the appropriate direction, but we do not know whether the numbers are sufficient to be efficient in correcting income disparities as they emerge. There is a strong presumption that they are not.

Labor as a Quasi-Fixed Factor

Abstract: T HE cyclical behavior of labor markets reveals a number of puzzling features for which there are no truly satisfying explanations. Included among these are (1) occupational differences in the stability of employment and earnings, (2) the uneven incidence of unemployment, (3) the persistence of differential labor turnover rates, and (4) discriminatory hiring and firing policies. I believe that the major impediment to rational explanations for these phenomena lies in the classical treatment of labor as a purely variable factor. In this paper I propose a short-run theory of employment which rests on the premise that labor is a quasi-fixed factor. The fixed employment costs arise from investments by firms in hiring and training activities. The theory of labor as a quasi-fixed factor is developed in Part I. In Part II, the implications of this theory are subjected to various empirical tests. Finally, Part III turns to an examination of alternative theories and an extension of my theory to a theory of occupational wage differentials. The concept of labor as a quasi-fixed factor is, in my opinion, the relevant one for a short-run theory of employment. Its implications are amenable to empirical verification and are, in the main,

The Incidence of the Corporation Income Tax

Abstract: The Incidence of the Corporation Income Tax Arnold C. Harberger 215 Externalities, Welfare, and the Theory of Games Otto A. Davis and Andrew Whinston 241 Business Cycles, Residential Constrution Cycles, and the Mortgage Market William W. Alberts 263 Marshall's Principles after Guilebaud George 1. Stigler 282 The Saving-Wealth Relation and the Measure of the Real Value of Assets Syed Ahmad 287 Contracted Research and the Case for Big Business William L. Balduuin 294 Weinstein on Featherbedding: A Comment N. J. Sinter 299 Book Reviews (See inside front cover) 302 Books Received 319

On-the-Job Training: Costs, Returns, and Some Implications

Abstract: IN TIHE context of the economist's concern with education as a process of investment in manpower, it is important to be reminded that formal school instruction is neither an exclusive nor a sufficient method of training the labor force. Graduation from some level of schooling does not signify the completion of a training process. It is usually the end of a more general and preparatory stage, and the beginning of a more specialized and often prolonged process of acquisition of occupational skill, after entry into the labor force. This second stage, training on the job, ranges from formally organized activities such as apprenticeships and other training programs2 to the in-

An Experimental Study of Competitive Market Behavior

Abstract: INTRODUCTION RECENT years have witnessed a growing interest in experimental L. games such as management decision- making games and games designed to simulate oligopolistic market phenomena. This article reports on a series of experimental games designed to study some of the hypotheses of neoclassical competitive market theory. Since the organized stock, bond, and commodity exchanges would seem to have the best chance of fulfilling the conditions of an operational theory of supply and demand, most of these experiments have been designed to simulate, on a modest scale, the multilateral auction-trading process characteristic of these organized markets. I would emphasize, however, that they are intended as simulations of certain key features of the organized markets and of competitive markets generally, rather than as direct, exhaustive simulations of any particular organized exchange. The experimental conditions of supply and demand in force in these markets are modeled closely upon the supply and demand curves generated by the limit price orders in the hands of stock and commodity market brokers at the opening of a trading day in any one stock or commodity, though I would consider them to be good general models of received short-run supply and demand theory. A similar experimental supply and demand model was first used by E. H. Chamberlin in an interesting set of experiments that pre-date contemporary interest in experimental games.

Information in the Labor Market

Abstract: rfl9H E young person entering the labor market for the first time has an . immense number of potential employers, scarce as they may seem the first day. If he is an unskilled or a semiskilled worker, the number of potential employers is strictly in the millions. Even if he has a specialized training, the number of potential employers will be in the thousands: the young Ph.D. in economics, for example, has scores of colleges and universities, dozens of governmental agencies, hundreds of business firms, and the Ford Foundation as potential employers. As the worker becomes older the number of potential employers may shrink more often than it grows, but the number will seldom fall to even a thousand. No worker, unless his degree of specialization is pathological, will ever be able to become informed on the prospective earnings which would be obtained from every one of these potential employers at any given time, let alone keep this information up to date. He faces the problem of how to acquire information on the wage rates, stability of employment, conditions of employment, and other determinants of job choice, and how to keep this information current. I shall concentrate attention on the determination of wage rates.

Irrational Behavior and Economic Theory

Abstract: ALTHOUGH it has long been agreed that traditional economic theory \"assumes\" rational behavior, at one time there was considerable disagreement over the meaning of the word \"rational.\" To many, the word suggested an outdated psychology, lightning-fast calculation, hedonistic motivation, and other presumably unrealistic behavior. As economic theory became more clearly and precisely formulated, controversy over the meaning of the assumptions diminished greatly, and now everyone more or less agrees that rational behavior simply implies consistent maximization

Health as an Investment

Abstract: A THEORY of human capital is in the process of formulation. The primary question is "What is the contribution of changes in the quality of people to economic growth?" The academic economists first raised the question after their research showed that production in developed economies had been increasing much faster than could be explained by inputs of physical capital and additions to the labor force. But the wide interest which the question has aroused indicates much more than academic curiosity. It reflects the desires and aspirations of people throughout the world-people anxious to add weight to their demands for action against disease and illiteracy by showing that such action is not only humanitarian, but will make a major contribution to economic growth as well. Though research on the return to investment in people is barely getting started, even the most tentative conclusions have been widely quoted. Preliminary indications that the rate of return on investment in people is high have been seized upon in a growing number of countries as justification for in-

Reflections on Investment in Man

Abstract: THEODORE W. SCHULTZI University of Chicago T HE analytical scaffolding ofthese studies rests on the proposition that people enhance their capabilities as producers and as consumers by investing in themselves. It implies that not all of the economic capabilities of a people are given at birth, or at age fourteen when some of them enter upon work, or at some later age when some complete their schooling; but that many of these capabilities are developed through activities that have the attributes of an investment. These investments in people turn out not to be trivial; on the contrary, they are of a magnitude to alter radically the usual measure of the amount of savings and capital formation. They also alter the structure of wages and salaries and the amount of earnings relative to income from property. These alterations are clues to longstanding puzzles about economic growth, structure of relative earnings, and the distribution of personal income. Inasmuch as these alterations are a consequence of investment in human capital,

Firm Size and Rate of Growth

Abstract: T wo recent articles-one published in the United States by Simon and Bonini and the other in England by Hart and Prais2-have advanced several important and interesting hypotheses about the firm. In this paper we submit these hypotheses to further testing and clarification, using data we have collected on the growth rates of the one thousand largest manufacturing firms in the United States in the decade between 1946 and 1955. The two articles do not cover exactly the same ground, so it is unfair to treat them as one; but for purposes of our investigation their results may be summarized as follows:

Education and Investment in Human Capital

Abstract: AS TECHNOLOGICAL developments have altered production techniques, types of mechanical equipment, and varieties of outputs, society has begun to recognize that economic progress involves not only changes in machinery but also in men-not only expenditures on equipment but also on people. Investment in people makes it possible to take advantage of technical progress as well as to continue that progress. Improvements in health make investment in education more rewarding by extending life expectancy. Investment in education expands and extends knowledge, leading to advances which raise productivity and improve health. With investment in human capital and non-human capital both contributing to economic growth and welfare and in what is probably an interdependent manner, more attention should be paid to the adequacy of the level of expenditures on people. The principal forms of direct investment in the productivity and well-being of people are: health, learning (both in school and on the job), and location (migration). Formal education and health constitute two large components of public and private spending in the United States. Private expenditures alone for hospital and physician services were over

Advertising and Cigarettes

Abstract: Measurement of various aspects of competitive advertising to determine how advertising affects sales.

Externalities, Welfare, and the Theory of Games

Abstract: T HAS traditionally been argued that, if firms create external economies and diseconomies, the proper role of a welfare-maximizing government is to constrain the behavior of firms by arranging rates of taxes and subsidies in order to equate private with social benefit. We attempt to establish both the conditions under which this classical policy prescription might work and is needed, and those under which it cannot be expected to work. First, we argue that motivation exists for firms themselves to try to eliminate externalities in production through merger. Second, we attempt to show that technological externalities can be divided neatly into two cases, which we label "separable" and "non-separable," respectively. Third, if merger has not eliminated the externalities, we argue that the classical scheme of per unit taxes and subsidies can be clearly successful in equating private with social benefit only in the separable cases. Fourth, if the externality is non-separable, we argue that it is not clear that the classical prescription can work even at the conceptual level, since problems of uncertainty and the non-existence of equilibrium arise. Finally, we note that this latter possibility poses some difficult problems for policy-makers, and we attempt to outline and explore briefly alternative policy approaches. The analytic approach which we shall employ involves the consideration of two firms in a competitive industry. The traditional or classical approach, on the other hand, often involves an analysis of externality between competitive industries. We choose to depart from this traditional approach for several reasons. First, the firm is an entity which fits more easily into the framework of our analysis. Second, and more fundamental, it is individual decision units-firmswhich react to externalities so that it seems more "natural" to conduct the analysis at that level.2 Furthermore, concentration upon the industry (as opposed to the firm) requires a certain amount of aggregation which tends to mask some of the more important and interesting points at issue. This aggregation is especially misleading with respect to public policy regulation, where the problem is made to appear much more simple than it actually is. Finally, utilization of the firm as the basic analytic unit gives a level of generality 1 This paper was written as part of the project "The Planning and Control of Industrial Operations" under a grant from the Office of Naval Research and the Bureau of Ships at the Graduate School of Industrial Administration, Carnegie Institute of Technology. The authors would like to express their appreciation to Professors W. W. Cooper and J. F. Muth, both of Carnegie Institute of Technology, Dr. R. R. Nelson, Council of Economic Advisers, and Professor James M. Buchanan, University of Virginia, for their very helpful comments and criticisms. 2 Interestingly enough, J. de V. Graaff also considers that externalities are a phenomenon which relates to the firm rather than the industry, and, furthermore, he seems to think this point quite important (see his Theoretical Welfare Economics [Cambridge: Cambridge University Press, 1957], p. 19).

Investment in Human Beings

Abstract: Публикация главы из книги Г. Беккера "Человеческий капитал", в которой рассматривается проблематика инвестиций в повышение квалификации работника через дополнительное образование. Описывается несколько схем оплаты дополнительного образования, дается оценка их эффективности и динамика заработной платы работника в зависимости от выбранной схемы. Русский перевод главы см.: "США: экономика, политика, идеология", № 11, ноябрь, 1993 г.

Education, Economic Growth, and Gaps in Information

Abstract: T iiis brief paper concerns a rather speculative and wide-ranging document on economic growth. It is not a study of the economics of education, but in it I was forced to make a foray into this field. The entire study focuses in quantitative terms-upon three questions. What have been the sources of past United States growth? What will be the probable future growth rate? How much could the future growth rate be altered by various actions that might be considered? My interest in the sources of past growth arose partly because quantitative estimates were needed to approach the other two questions, but mainly because of the feeling that a systematic and simultaneous look at all the possible sources of growth should give rise to a more objective appraisal of each than the more usual examination of only one source in isolation. Tables 1 and 2 show the estimates. One shows the sources of growth of total real national income, the other of real national income per person employed. The tables divide growth broadly between the contribution of increased inputs and that of increased output per unit of input. The general approach to measurement of the contribution of increased inputs is simple (although there are some fairly complicated refinements that I shall not discuss here) and rather conventional. If all inputs increase 1 per cent, output should increase 1 per cent. (I actually assume output will increase more than 1 per cent, but the excess is shown separately in the tables as the contribution of economies of scale.) If labor earnings represent 73 per cent of the national income, then labor must represent 73 per cent of total inputs, and a 1 per cent increase in labor input alone will increase national income by 0.73 per cent. There are considerable advantages in using growth rates rather than percentage changes in the calculations, and this is what I have actually done. Thus, if labor input increased at an average annual rate of 1 per cent over some period and labor earnings averaged 73 per cent in this period, the assumption is that the increase in labor inputs contributed 0.73 percentage points to the growth rate of total real national income. (This result is subject to several refinements, but it indicates the general approach.) I treat a change in the average quality of labor in exactly the same way as an increase in its quantity, and it is here that education comes into the study. If, in the previous example, the average quality of labor increased at an average annual rate of 1 per cent because of more education, 0.73 points in the growth rate would be ascribed to this factor. My study devotes a chapter to education, in which the estimation of changes in the average quality of the labor force resulting from education is described. In brief, earnings differences between groups of males of similar age, classified by education, are taken to represent differences in their contributions to production or quality. Educational groups differ not only by the fact of education but by natural ability, amount of experience, and other factors. Of the total earnings differentials, three-fifths are assumed to result from differences in education and associated offsetting differences in work experience, as distinguished from natural ability, energy, and other factors. This provides weights for combining groups with different amounts of education. Distribu-

The Homohypallagic Production Function, Factor-Intensity Reversals, and the Heckscher-Ohlin Theorem

Abstract: IN THE classical single-factor, constantreturns, two-country mrodel of international trade \"production conditions\" alone determine the comparative cost advantage commodity, and each country exports that commodity in which it possesses comparative advantage. What exactly is contained in the package of \"production conditions\" was never exactly specified, though one can find abundant references to such nebulous factors as climate and ingenuity of the population. In fact, the classical economists left the principle of comparative costs hanging in the air. In their scheme of analysis comparative cost differences, somehow, get determined; then, assuming reasonable similarity of taste patterns across countries, these differences in comparative costs give rise to international trade, which is mutually beneficial. Heckscher2 and Ohlin3 attempted to provide a more specific explanation of the principle of comparative costs and the catises of international trade. They

Stock Prices and Changes in Earnings and Dividends: Some Empirical Results

Abstract: THE influence of changes in earnings and dividends on stock prices has been the subject of considerable dispute. For example, one assertion is that, with few exceptions, the movement of a stock's price over time "corresponds to the direction of its earnings and dividends."2 Another is that stock prices are considerably affected by public sentiment and often go contrary to earnings and dividends.3 Such assertions are almost always advanced without reference to economic theory and are generally unsupported by empirical evidence. It is the purpose of this paper to help alleviate these deficiencies by considering these assertions as implications of classical capital theory and by subjecting them to empirical test.

The Costs of Automobile Model Changes since 1949

Abstract: T HIS paper reports estimates of the costs to the consumer of the changes in private automobile specifications that took place during the 1950's. Throughout we concentrate on the costs that would not have been expended if cars with the 19491 model lengths, weights, horsepowers, transmissions, and other specifications had been produced in every year. As there was technological change in the industry, we are thus assessing not the expenditure that would have been saved had the 1949 models themselves been continued, but rather the expenditure that would have been saved had such cars been continued but been built with the developing technology. We count as costs not only the costs to the automobile manufacturers themselves of special retooling for new models, but also the direct costs of producing larger, heavier, and more powerful cars,

Rational Action and Economic Theory

Abstract: T RADITIONAL economic theory assumes that participants in a market act rationally. To many, this assumption of rationality has been unpalatable, and the validity of the theorems of economics has frequently been subject to criticism on account of their reliance on the rationality assumption. In a recent paper, Gary S. Becker has attempted a rescue operation.' Unlike earlier champions of economics Becker does not attempt to defend the rationality assumption. Rather he tries to demonstrate that \"the important theorems of modern economics\" do not, in fact, depend on the rationality assumption at all. The results of economic analysis hold, he asserts, for a society made up of a wide range of irrational types of individual, quite as fully as they hold for a world of rational decision-makers. The present note has three purposes. In the first section it will be shown why Becker's attempted rescue cannot be pronounced a success. In the second section it will be shown that Becker's thesis can, nevertheless, claim to hold for many current expositions of price theory (so that the demonstration of the insufficiency of Becker's attempt will at the same time reveal the superficiality of these expositions). In the final section it will be briefly argued that, from the point of view of economic theory, the failure of Becker's attempt ought in no sense to be viewed as a matter for regret.

Business Cycles, Residential Construction Cycles, and the Mortgage Market

Abstract: A THOUGH one might expect house construction to exhibit the same cyclical behavior as the output of other durable goods, it has not done so during the post-World War II period. In general, seasonally adjusted singlefamily house starts have increased sharply only when gross national product has been depressed and the remainder of the time have either decreased or fluctuated within a narrow range. More precisely, after drifting upward during 1946 and 1947 and then decreasing briefly in 1948, seasonally adjusted house starts turned up sharply after the downturn and just before the trough of the 1948-49 recession, increased over 50 per cent in about four quarters, reached their peak in the summer of 1950, and then decreased over the next five quarters almost as sharply as they had previously risen. Starts were approximately constant for about two years, and then turned up sharply again, this time shortly after the downturn and just before the trough of the 1953-54 recession; they increased about 30 per cent in four quarters, reached their peak in the summer of 1955, and then decreased steadily for almost three years. Starts then reversed their course just at the trough of the 1957-58 recession, increased about 35 per cent in five quarters, turned down in the summer of 1959, and then decreased continuously for the next one and onehalf years.2 Not surprisingly, a number of economists have become interested in these fluctuations in housing output and have offered explanations of them. All of these explanations are essentially the same: that the postwar housing cycles have been directly tied to the postwar business cycles and that the link has been the fixed interest rates charged on mortgage loans insured by the Federal Housing Administration or guaranteed by the Veterans' Administration. Put another way, these economists have concluded that had interest rates on these insured and guaranteed mortgage loans been free to fluctuate in response to changing market forces, there would

On the "chicago school of economics"'

Abstract: "the Chicago School of economics" is a recognizable and meaningful designation.2 Yet a number of people who would obviously be included in the school argue that this designation has no real content-that the Chicagoans do not constitute a school in any relevant sense and that there is no significant difference between a good Chicago economist and any other good economist. This paper explores and answers that assertion. Its thesis is that the Chicagoans do in fact form an interconnected group with a set of common attitudes and interests which distinguishes them from the rest of the economics profession. Like the Cambridge School, the institutional school, and others, the Chicago School represents a subject of legitimate professional interest. What follows is simply an elaboration of this thesis which focuses on the way in which Chicago economists differ from the main body of the profession and on the status of economics as a science.

Hours of Work in the United States: A Cross-Sectional Analysis

Abstract: W5 THY is the work week of adult males in the United States longer in some occupations and industries than in others? This article offers a theoretical and empirical exploration of this question. By \"the work week\" of adult males is meant the number of hours of work per week performed by them for pay or profit in the labor market.2 This study is based on the assumption that the length of the work week is one dimension of an important economic problem the allocation of human resources between work and leisure and that economic theory and empirical evidence should provide us with insights

On Total Productivity and All That

Abstract: JOHN W. KENDRICK'S Productivity Trends in the United States' is a major addition to the long and honorable list of the National Bureau of Economic Research studies in American economic development, crowned (but let us hope, not terminated) by Simon Kuznets' recent magnum OpUS.2 Like some of its weighty predecessors, Kendrick's is an impressive book: 630 pages long, with ten appendixes, 205 tables, and 25 charts. Some of its materials came from the Bureau's previous publications; others were derived by the author from a variety of sources. The result is a vast array of data for the American economy and for a number of industrial subdivisions over the 1899-1953 period that (like most of the Bureau works) will be used (and probably misused) by economists for many years to come. As required by tradition, I shall try to quarrel and to find fault with the author's work, but the total impact of all my comments will, I suspect, amount to little compared with the sheer accomplishments of this book. I can now understand how the puppy in an old Russian fable must have felt when barking at an elephant. There are three subjects that a reviewer of such a volume might discuss: (1) the derivation of statistical data, (2) the methodological skeleton, and (3) the most significant findings. The first subject is beyond my knowledge and time; the third will be presented, like a dessert, at the end of what promises to be a rather tedious paper; and on the second I shall concentrate. The intri-

Why Visiting Economists Fail

Abstract: A LARGE and growing number of economists are working for foreign governments, as direct employees, as invited visitors, or more commonly as experts supplied under national or international technical assistance programs. It would be invidious to cite examples, but there is little doubt that many of us have been, in some degree, failures. In the ministries of almost any underdeveloped country you can find cupboards full of the reports of economists, reports which have been talked about for a week or two, then put away and forgotten. Scores of \"missions\" and individual advisers are now overseas writing reports, many of which, it can safely be predicted, will suffer the same fate, and others are

Official Central Banking Theory in the United States, 1939-61: Four Editions of the Federal Reserve System: Purposes and Functions

Abstract: LAWRENCE S. RITTER New York University T HE past decade has witnessed a resurgence of controversy over the perennial issues of monetary policy. What should be the objectives of monetary policy? What methods should it employ? What are the channels or processes through which it influences economic activity? By now, opinion has become so sharply divided-fragmented would perhaps be the better word-on so many issues as to almost defy classification, much less resolution. What influence, if any, has this intellectual ferment had on the thinking of the monetary authorities? The purpose of this paper is to trace the evolution of official Federal Reserve views on these questions, as they have been reflected in the changes made between 1939 and 1961 in the four successive editions of the widely read Board of Governors publication, The Federal Reserve System: Purposes and Functions. There seems to be a rather widely held impression that the Federal Reserve stands aloof, impervious to gratuitous advice or dissident opinion. Journal editors are all too aware of the almost tropistic reaction of academicians to policy actions and statements of the Federal Reserve. Is there any evidence of reaction in the other direction, with the System modifying its own conception of its raison d'etre in light of commentary from I The author is indebted to his colleagues, Clifford Clark, Robert Kavesh, and Herman Krooss, for helpful criticisms of earlier drafts of this paper. the academic community? If we are to have a viable central bank, some degree of such interchange would seem to be imperative. It is with the hope of shedding some light on this matter that the present paper has been written. But a disclaimer is quickly in order: to explore this topic fully requires a much wider inquiry than has been attempted here. My aim has been only to piece together one particular chain of evidence-namely, the changes made between 1939 and 1961 in the four editions of Purposes and Functions-which, while suggestive, is but one strand among many. First a word about the book itself. Purposes and Functions was published originally in May, 1939. A revised second edition was published in 1947, a third edition in 1954, and the fourth and most recent in February, 1961. Bray Hammond was primarily responsible for the text of the first edition, E. A. Goldenweiser for the second, and Ralph Young for the third and fourth. However, all four editions were joint efforts, written in collaboration with other members of the Board's staff, and all bear the imprimatur of the Board of Governors. As described in the Foreword to the first edition, the volume is intended \"primarily for students, bankers, businessmen and others who desire an authoritative statement of the purposes and functions of the Federal Reserve System. It is neither a primer, nor is it an exhaustive treatise. The aim has been to have it cover the

The Friedman Proposal for Auctioning Treasury Bills

Abstract: IN RECENT years the United States Treasury has employed two different techniques for selling its marketable obligations -the sealed-bid auction system for Treasury bills and the "fixed-price" method for certificates, notes, and bonds. Milton Friedman has proposed that the Treasury abandon these techniques in favor of a new sort of auction technique which would be used to sell both bills and longer-term securities.2 The present note considers the pros and cons of his proposal, but only for Treasury bills. The question of whether the new technique should be used for notes and bonds is not examined.3

Economic Articles in the Westminister Review and Their Authors, 1824-51

Abstract: THEWestminster Review, founded in 1824 by Jeremy Bentham, was the last of the four great British reviews that in the first half of the nineteenth century gave extended discussion of the economic issues of the time. A large part of its economic articles dealt with problems that in new settings are still with us, including the relation between government expenditures and employment, the monetary standard, restrictions on international trade, and the role of education in economic progress. Furthermore many of its articles help to illuminate the philosophical and political thinking that gave strength to the laissez faire doctrines of the time. The Edinburgh Review, founded in 1802 by a group of young men of Whig sympathies, from the beginning published many economic articles.' Seven years later a group of Tories started the Quarterly Review, largely to offset the growing influence of the Edinburgh in public affairs. The Quarterly was little interested in economic analysis as such, but was soon forced, as economic issues were linked increasingly with political and social controversies, to give extensive treatment to economic topics, although the emphasis was on the consequences of eco-