Showing papers in "Journal of Political Economy in 1979"
TL;DR: Turnover is generated by the existence of a nondegenerate distribution of the worker's productivity across different jobs as discussed by the authors, caused by the assumed variation in the quality of the employee-employer match.
Abstract: A long-run equilibrium theory of turnover is presented and is shown to explain the important regularities that have been observed by empirical investigators. A worker's productivity in a particular job is not known ex ante and becomes known more precisely as the worker's job tenure increases. Turnover is generated by the existence of a nondegenerate distribution of the worker's productivity across different. The nondegeneracy is caused by the assumed variation in the quality of the worker-employer match.
3,238Â citations
TL;DR: In this paper, a public debt theory is constructed in which the Ricardian invariance theorem is valid as a first-order proposition but where the dependence excess burden on the timing of taxation implies an optimal time path of debt issue.
Abstract: A public debt theory is constructed in which the Ricardian invariance theorem is valid as a first-order proposition but where the dependence excess burden on the timing of taxation implies an optimal time path of debt issue. A central proposition is that deficits are varied in order to maintain expected constancy in tax rates. This behavior implies a positive effect on debt issue of temporary increases in government spending (as in wartime), a countercyclical response of debt to temporary income movements, and a one-to-one effect of expected inflation on nominal debt growth. Debt issue would be invariant with the outstanding debt-income ratio and, except for a mirror effect, with the level of government spending. Hypotheses are tested on U.S. data since World War I. Results are basically in accord with the theory. It also turns out that a small set of explanatory variables can account for the principal movements in interest-bearing federal debt since the 1920s.
3,112Â citations
TL;DR: The theory of inequality and intergenerational mobility presented in this paper assumes that each family maximizes a utility function spanning several generations, which depends on the consumption of parents and on the quantity and quality of their children.
Abstract: The theory of inequality and intergenerational mobility presented in this essay assumes that each family maximizes a utility function spanning several generations. Utility depends on the consumption of parents and on the quantity and quality of their children. The income of children is raised when they receive more human and nonhuman capital from their parents. Their income is also raised by their "endowment" of genetically determined race, ability, and other characteristics, family reputation and "connections," and knowledge, skills, and goals provided by their family environment. The fortunes of children are linked to their parents not only through investments but also through these endowments acquired from parents (and other family members). The equilibrium income of children is determined by their market and endowed luck, the own income and endowment of parents, and the two parameters, the degree of inheritability and the propensity to invest in children. If these parameters are both less than unity, ...
2,000Â citations
TL;DR: In this paper, a theory of agency is presented and empirical evidence which supports the hypothesis is provided, and the contract with mandatory-retirement clauses is Pareto efficient, where the date of mandatory retirement is chosen to correspond to the date for voluntary retirement, but the nature of the optimal wage profile results in a discrepancy between spot wage and spot VMP.
Abstract: This paper offers an explanation of the use of mandatory-retirement clauses in labor contracts. It argues that the date of mandatory retirement is chosen to correspond to the date of voluntary retirement, but the nature of the optimal wage profile results in a discrepancy between spot wage and spot VMP (value of the worker's marginal product). This is because it is preferable to pay workers less than VMP when young and more than VMP when old. By doing so the "agency" problem is solved, so the contract with mandatory retirement is Pareto efficient. A theory of agency is presented and empirical evidence which supports the hypothesis is provided.
1,924Â citations
TL;DR: In this paper, the authors construct a theory of competitive equilibrium under uncertainty using an entrepreneurial model with historical roots in the work of Knight in the 1920s, and prove that the equilibrium is efficient only if all entrepreneurs are risk neutral.
Abstract: We construct a theory of competitive equilibrium under uncertainty using an entrepreneurial model with historical roots in the work of Knight in the 1920s. Individuals possess labor which they can supply as workers to a competitive labor market or use as entrepreneurs in running a firm. All entrepreneurs have access to the same risky technology and receive all profits from their firms. In the equilibrium, more risk averse individuals become workers while the less risk averse become entrepreneurs. Less risk averse entrepreneurs run larger firms and economy-wide increases in risk aversion reduce the equilibrium wage. A dynamic process of firm entry and exit is stable. The equilibrium is efficient only if all entrepreneurs are risk neutral. Inefficiencies in the number of firms and in the allocation of labor to firms are traced to inefficiencies in the risk allocation caused by institutional constraints on risk trading. In a second best sense which accounts for these constraints, the equilibrium is efficient.
1,857Â citations
TL;DR: In this article, the authors developed a simple general-equilibrium model of product cycle trade, where there are two countries, innovating North and non-innovating South, each of which can produce new products at first only in North, but eventually the technology of production becomes available to South.
Abstract: This paper develops a simple general-equilibrium model of product cycle trade. There are two countries, innovating North and noninnovating South. Innovation consists of the development of new products. These can be produced at first only in North, but eventually the technology of production becomes available to South. This technological lag gives rise to trade, with North exporting new products and importing old products. Higher Northern per capita income depends on the quasi rents from the Northern monopoly of new products, so that North must continually innovate not only to maintain its relative position but even to maintain its real income in absolute terms.
1,261Â citations
TL;DR: A structural model of the demand for college attendance is derived from the theory of comparative advantage and recent statistical models of self-selection and unobserved components, which strongly support the theory as discussed by the authors.
Abstract: A structural model of the demand for college attendance is derived from the theory of comparative advantage and recent statistical models of self-selection and unobserved components. Estimates from NBEr-Thorndike data strongly support the theory. First, expected lifetime earnings gains influence the decision to attend college. Second, those who did not attend college would have earned less than measurably similar people who did attend, while those who attended college would have earned less as high school graduates than measurably similar people who stopped after high school. Positive selection in both groups implies no "ability bias" in these data.
1,115Â citations
TL;DR: This paper showed that long rates show a tendency to fall when they are high relative to short rates rather than rise as predicted by expectations models, and that the volatility of actual long-term interest rates, as measured by the variance of short-term holding yields on longterm bonds, appears to exceed limits imposed by the models.
Abstract: Models which represent long-term interest rates as long averages of expected short-term interest rates imply, because of the smoothing implicit in the averaging, that long rates should not be too volatile. The volatility of actual long-term interest rates, as measured by the variance of short-term holding yields on long-term bonds, appears to exceed limits imposed by the models. Such excess volatility implies a kind of forecastability for long rates. Long rates show a slight tendency to fall when they are high relative to short rates rather than rise as predicted by expectations models.
857Â citations
TL;DR: In this article, the authors consider markets with asymmetric information and show that quality deterioration in such markets may take place, and they show that this is a general phenomenon in markets with minimum quality constraints.
Abstract: I consider markets with asymmetric information. As suggested by Akerlof, quality deterioration in such markets may take place. I show that this is a general phenomenon. Minimum quality constraints ...
791Â citations
TL;DR: In this paper, a career-phase model was used to examine the relationship between cohort size and wages, and the main result is that income-depressant effects of cohort size decline over the c...
Abstract: The arrival of the post--World War II baby boom cohorts in the job market raises many questions of effects associated with a rapidly declining average age of the labor force. This paper first summarizes 1967-75 wage behavior, showing that relative wages between schooling groups have not changed for prime-aged workers, but there is some evidence, for new job-market entrants, that wages of more educated workers have fallen relative to wages of less educated workers. However, changes among schooling groups are small in comparison to those between new entrants and peak earners within schooling group. The evidence is very direct: as work-experience distributions shifted toward increased proportions of young workers, their relative wages fell. After examining a career-phase model in which workers at different phases are imperfect substitutes, estimates of empirical relationships between cohort size and wages are presented. The main result is that income-depressant effects of (own) cohort size decline over the c...
711Â citations
TL;DR: The authors reviewed a number of recent studies of the income schooling-ability nexus using sibling data and discussed the problem of identification in such studies, and special emphasis was placed on the identification in these studies.
Abstract: This paper reviews a number of recent studies of the income schooling-ability nexus using sibling data and discusses the problem of identification in such studies. Special emphasis is placed on the...
TL;DR: In this paper, a model of permanent job separations when there are endogenous firm-specific human capital and intensity of on-the-job search is proposed, which is a combination of human-capital theory with the t...
Abstract: This is a model of permanent job separations when there are endogenous firm-specific human capital and intensity of on-the-job search. The result is a combination of human-capital theory with the t...
TL;DR: In this paper, an implicit market procedure is developed that elicits honest preferences, that assigns individuals efficiently, and that is adaptable to a variety of distributional objectives, where individuals' preferences are unknown and where there is no facilitating external medium of exchange such as money.
Abstract: In a variety of contexts, individuals must be allocated to positions with limited capacities. Legislators must be assigned to committees, college students to dormitories, and urban homesteaders to dwellings. (A general class of fair division problems would have the positions represent goods.) This paper examines the general problem of achieving efficient allocations when individuals' preferences are unknown and where (as with a growing number of nonmarket allocation schemes) there is no facilitating external medium of exchange such as money. An implicit market procedure is developed that elicits honest preferences, that assigns individuals efficiently, and that is adaptable to a variety of distributional objectives.
TL;DR: In this article, the authors used a theoretical model to determine characteristics of the time sequence of benefits that maximizes the expected utility of the unemployed, given that they act in a self-interested way and given the total size of the U.I. budget.
Abstract: The primary purpose of unemployment insurance (U.I.) is no doubt to insure individuals against loss of wage income. However, U.I. is commonly believed to adversely affect job search behavior and to lengthen the duration of unemployment. With these issues in mind, this paper asks how U.I. benefits ought to be paid out over time. Specifically, the paper uses a theoretical model to determine characteristics of the time sequence of benefits that maximizes the expected utility of the unemployed, given that they act in a self-interested way and given the total size of the U.I. budget.
TL;DR: In this article, the authors show that price dispersion can exist even within the context of a very simple model, where identical buyers with elastic demand curves sample sequentially from a known price distribution, at a fixed cost per observation.
Abstract: This paper demonstrates that price dispersion can exist even within the context of a very simple model. Identical buyers with elastic demand curves sample sequentially from a known price distribution, at a fixed cost per observation. Firms are assumed to be perfectly informed of buyers' reservation prices and demand functions. Given the firms' distribution of marginal costs, firms' behavior as monopolistic competitors results in their offering a distribution of prices which is consistent with expected utility maximization by buyers and with expected profit maximization by sellers.
TL;DR: In this article, a nonhomothetic, nonneutral generalized Box-Cox cost function is employed which takes on the generalized Leontief, generalized square-root quadratic, and translog cost functions as special or limiting cases.
Abstract: This paper formulates and estimates a model of producer behavior for U.S. manufacturing 1947-71 that simultaneously identifies substitution elasticities, scale economies, and the rate and bias of technical change. A nonhomothetic, nonneutral generalized Box-Cox cost function is employed which takes on the generalized Leontief, generalized square-root quadratic, and translog cost functions as special or limiting cases. Total factor productivity is estimated parametrically rather than being computed as the residual of growth in outputs minus growth in inputs. We find substantial economies of scale and relatively little technological change.
TL;DR: This article found that the observed correlations among income, education, and ability measures are consistent with education being used to screen for exogenous ability differences, and that screening will be much more important in some occupations than in others.
Abstract: Human capital theorists have traditionally argued that individuals invest in education until the marginal gain in productivity is equal to the marginal opportunity cost However, the observed correlations among income, education, and ability measures are also consistent with education being used to screen for exogenous ability differences This paper tests for such an informational role, arguing that screening will be much more important in some occupations than in others Subsamples of "screened" and "unscreened" occupations are isolated and compared It is concluded that observed differences, not readily explained by the traditional model, are consistent with the educational screening hypothesis
TL;DR: In this article, the authors studied the effect of minimum wage on the quality and quantity of production workers and the number of supervisors in a competitive hierarchical firm. And they showed that the quality of a worker and his quality increase with the hierarchical position of the employee.
Abstract: Labor allocation and wage-scale formation are studied in the context of competitive hierarchic firms. We show that (1) the wage per effective laborer and his quality increase with the hierarchical position of the employee, and (2) up to a point, the imposition of a minimum wage for production labor increases the quality and quantity of production workers and reduces the wage, quality, and number of supervisors. These results help to explain the skewness of income distribution, and the wage differentials across layers which are inexplicable in terms of differences in labor quality and difficulty of tasks.
TL;DR: In this paper, it is hypothesized that constant payment mortgages (imposed, in part, by regulation) lead to distortions in the housing market in the face of anticipated inflation, and the nature of this distortion is specified within a model of the US housing market.
Abstract: It is hypothesized that constant payment mortgages (imposed, in part, by regulation) lead to distortions in the housing market in the face of anticipated inflation The nature of this distortion is specified within a model of the housing market Evidence is presented supporting the existence of the distortion Moreover, this evidence is found to be robust to various structural and reduced form specifications of the model A concluding section uses simulation to estimate the total loss to the housing stock up to 1974 attributable to the distortion It is also shown that the production mix is affected by the inflation-induced distortion
TL;DR: In this paper, an empirically tractable version of a job search model is presented, using data on a sample of workers who were laid off when their plants closed and a generalization of the empirical model which allows for reservation wages to change over duration of unemployment is provided and estimated.
Abstract: This paper provides an empirically tractable version of a job-search model. The model is estimated using data on a sample of workers who were laid off when their plants closed. A generalization of the empirical model which allows for reservation wages to change over duration of unemployment is provided and estimated. Reservation wages are found to decline significantly with duration. Applications of the model and the estimates to explain diverse labor market phenomena are provided.
TL;DR: The authors revisited the analysis of risk taking and income distribution pioneered by Friedman, but in an extended general equilibrium framework, and found that the relationship between inequality and liking for risk is not necessarily monotonic.
Abstract: This paper revisits the analysis of risk taking and income distribution pioneered by Friedman, but in an extended--general equilibrium--framework. The results of this paper cast doubt on the generality of many of Friedman's strong propositions. In particular, we find that the relationship between inequality and liking for risk is not necessarily monotonic. Nor is it the case that greater diversity in tastes for risk necessarily contributes to greater inequality. The paper also analyzes the effect of progressive taxation on national income and inequality in the context of risk taking.
TL;DR: In this paper, the extent and patterns of compliance with the federal minimum wage were investigated using a profit-maximizing model of compliance, and predictions about compliance with weak or random government enforcement were made.
Abstract: This paper investigates the extent and patterns of compliance with the federal minimum wage. Using a profit-maximizing model of compliance, predictions about compliance with weak or random government enforcement are made. Such enforcement is not random, however, and our measures of compliance suggest that government enforcement, while not inducing anything near complete compliance, does have an impact. Overall compliance in 1973 is estimated to be about 65 percent, while it is about 10 percentage points lower after the new minimum was established in 1975. Compliance appears highest among regional/racial/sex (but not age) groups where market incentives for violation are strongest.
TL;DR: In this article, the authors investigate the incremental effect of 1 year of schooling on unemployed hours and use this calculation to explain the difference in the proportional effects of schooling in terms of earnings and wages.
Abstract: Using data on adult male workers, we first investigate the incremental effect of 1 year of schooling on unemployed hours and use this calculation to explain the difference in the proportional effects of schooling on earnings and wages. Schooling apparently reduces unemployed hours by reducing the incidence of unemployment spells, but it does not significantly affect their duration. We next test whether unemployed hours represent real constraints on worker behavior. To do this we develop and estimate life-cycle models of labor supply for workers with and without spells of unemployment, using longitudinal data. The results imply that perhaps three-quarters of the unemployed hours of male workers are part of the offer to sell labor.
TL;DR: This article examined the statistical relationship between devaluation and both the trade balance and the balance of payments for 16 devaluations of 14 countries in the 1960s and concluded that the adjustment to devaluation is essentially monetary in nature, involving only a portfolio stock adjustment.
Abstract: This paper examines the statistical relationship between devaluation and both the trade balance and the balance of payments for 16 devaluations of 14 countries in the 1960s. Using several tests involving both the seemingly unrelated and pooled cross-section time-series regression techniques, the paper tests the effect of devaluation while standardizing for other variables that may affect the foreign accounts. While the balance of payments does seem to improve following devaluation, no evidence is found to support the hypothesis that devaluation improves the trade balance. The paper concludes that the adjustment to devaluation is essentially monetary in nature, involving only a portfolio stock adjustment.
TL;DR: In this paper, a model of on-the-job training is developed to analyze the determination of the amounts and the sharing of investment in specific human capital, and the model predicts that increased profitability of investment leads to an increased bonus-earnings ratio.
Abstract: The prevalence in Japan of flexible wages in the form of bonus payments is explained by a high profitability of investment in specific human capital together with the low costs of transactions facing the employer and the worker in assessing fluctuations in productivities. A model of on-the-job training is developed to analyze the determination of the amounts and the sharing of investment in specific human capital. The model predicts that increased profitability of investment leads to an increased bonus-earnings ratio. Evidence indicates that education and firm size, which are often said to be positively associated with the profitability of on-the-job training in Japan, as well as years of experience in the current firm, have significant positive associations with the bonus-earnings ratio. An observed positive association between the cyclical sensitivities in a production index and in the bonus-earnings ratio also supports the theory.
TL;DR: In this paper, three largely independent sets of evidence indicate that the prolonged high unemployment was due to the operation of an unemployment insurance scheme that paid benefits that were high relative to wages and available subject to few restrictions.
Abstract: From 1921 to 1938 unemployment in Britain averaged 14 percent and never fell below 9.5 percent. Three largely independent sets of evidence indicate that the prolonged high unemployment was due to the operation of an unemployment insurance scheme that paid benefits that were high relative to wages and available subject to few restrictions. We estimate that the insurance system raised the unemployment rate by five to eight percentage points on average and that in the absence of the system unemployment would have been at normal levels through much of the period. Although a few interwar observers saw clearly the effects of unemployment insurance, Keynes and his followers did not.
TL;DR: In this article, the authors investigate the economics of the transition from rural to urban use and propose a simple model to examine the developer's problem: When and at what destiny should vacant land be developed to maximize the present value of the land?
Abstract: This paper investigates the economics of the transition of land from rural to urban use. A simple model is employed to examine the developer's problem: When and at what destiny should vacant land be developed to maximize the present value of the Land? A series of rules emerges from the analysis to the timing and density of new development. In the latter half of the paper, the rules are tested against recent Canadian experience and peform well.
TL;DR: In this article, the authors focus on the typical individual's value of a small change in the probability of his survival and find that the value of life is about $370,000.
Abstract: This paper focuses on the typical individual's value of a small change in the probability of his survival. With a simple life-cycle model, the value is shown to be implied by consumption activity which affects risk. The premium an individual is willing to pay to reduce risk is estimated using probit analysis of automobile seat-belt use. The "value of life" is found to be about $370,000. This estimate is contrasted with the foregone-earnings approach by showing that a surplus value above earnings exists and the elasticity of the value with respect to earnings is less than one.
TL;DR: This paper examined the "market" for bets on thoroughbred horse races to determine whether the published forecasts of professional handicappers are completely discounted, and found that they do contain considerable information but that the track odds generated by betting discount almost all of it.
Abstract: Much of the information available to participants in speculative markets is in the nature of expert opinion, analysis, professional advice, and so on. Markets discount widely held factual information very well; this paper studies market efficiency with respect to subjective information. We examine the "market" for bets on thoroughbred horse races to determine whether the published forecasts of professional handicappers are completely discounted. A multinomial logit probability model is used to measure the information content of the forecasts, and we find that they do contain considerable information but that the track odds generated by betting discount almost all of it. Within the population of bettors, those betting at the track appear to discount the handicapper information fully, but those betting through New York's off-track betting system do not.
TL;DR: In this paper, the authors apply Alchian and Allen's proposition concerning the effects of transportation costs on the composition of demand to explain this phenomenon and show that the same effects occur under specific tariffs but do not pertain to ad valorem tariffs or value restrictions.
Abstract: Quantitative restrictions imposed on product categories have been observed to shift the composition of imports with these categories in favor of relatively more expensive items. This paper applies Alchian and Allen's proposition concerning the effects of transportation costs on the composition of demand to explain this phenomenon. It is also shown that the same effects occur under specific tariffs but do not pertain to ad valorem tariffs or value restrictions.