Showing papers in "Quarterly Journal of Economics in 1992"
TL;DR: The authors examined whether the Solow growth model is consistent with the international variation in the standard of living, and they showed that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data.
Abstract: This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts. This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two vari- ables determine the steady-state level of income per capita. Be- cause saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influ- ence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country. This paper argues that the predictions of the Solow model are, to a first approximation, consistent with the evidence. Examining recently available data for a large set of countries, we find that saving and population growth affect income in the directions that Solow predicted. Moreover, more than half of the cross-country variation in income per capita can be explained by these two variables alone. Yet all is not right for the Solow model. Although the model correctly predicts the directions of the effects of saving and
14,402 citations
TL;DR: In this article, the authors analyze a sequential decision model in which each decision maker looks at the decisions made by previous decision makers in taking her own decision, and they show that the decision rules that are chosen by optimizing individuals will be characterized by herd behavior.
Abstract: We analyze a sequential decision model in which each decision maker looks at the decisions made by previous decision makers in taking her own decision. This is rational for her because these other decision makers may have some information that is important for her. We then show that the decision rules that are chosen by optimizing individuals will be characterized by herd behavior; i.e., people will be doing what others are doing rather than using their information. We then show that the resulting equilibrium is inefficient.
5,956 citations
TL;DR: A simple supply and demand framework is used to analyze changes in the U.S. wage structure from 1963 to 1987 as discussed by the authors, showing that rapid secular growth in the demand for more-educated workers, "more-skilled" workers, and females appears to be the driving force behind observed changes in wage structure.
Abstract: A simple supply and demand framework is used to analyze changes in the U. S. wage structure from 1963 to 1987. Rapid secular growth in the demand for more-educated workers, "more-skilled" workers, and females appears to be the driving force behind observed changes in the wage structure. Measured changes in the allocation of labor between industries and occupations strongly favored college graduates and females throughout the period. Movements in the college wage premium over this period appear to be strongly related to fluctuations in the rate of growth of the supply of college graduates.
3,487 citations
TL;DR: In this paper, the authors enumerate a set of discounted utility anomalies analogous to the EU anomalies and propose a model that accounts for the anomalies, as well as other intertemporal choice phenomena incompatible with DU.
Abstract: Research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility (EU) anomalies—behaviors that violate the expected utility axioms. The relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility (DU) anomalies. We enumerate a set of DU anomalies analogous to the EU anomalies and propose a model that accounts for the anomalies, as well as other intertemporal choice phenomena incompatible with DU. We discuss implications for savings behavior, estimation of discount rates, and choice framing effects.
2,208 citations
TL;DR: The authors measured the heterogeneity of establishment-level employment changes in the U.S. manufacturing sector over the 1972 to 1986 period and measured this heterogeneity in terms of the gross creation and destruction of jobs and the rate at which jobs are reallocated across plants.
Abstract: This study measures the heterogeneity of establishment-level employment changes in the U. S. manufacturing sector over the 1972 to 1986 period. We measure this heterogeneity in terms of the gross creation and destruction of jobs and the rate at which jobs are reallocated across plants. Our measurement efforts enable us to quantify the connection between job reallocation and worker reallocation, to evaluate theories of heterogeneity in plant-level employment dynamics, and to establish new results related to the cyclical behavior of the labor market.
1,835 citations
TL;DR: The authors studied the processes of job mobility and wage growth among young men and found that the evolution of wages plays a key role in this transition to stable employment: wage gains at job changes account for at least a third of early career wage growth, and the wage is the key determinant of job changing decisions among young workers.
Abstract: Using longitudinal data, we study the processes of job mobility and wage growth among young men. During the first ten years in the labor market, a typical worker will hold seven jobs, about two thirds of his career total. The evolution of wages plays a key role in this transition to stable employment: wage gains at job changes account for at least a third of early-career wage growth, and the wage is the key determinant of job changing decisions among young workers. Job changing is a critical component of workers' movement toward the stable employment relations of mature careers.
1,150 citations
TL;DR: This article examined the structure of wages among white men distinguished by age and schooling for the period from 1963 to 1989 and compared shifts in the distribution of wages and employment among the age x schooling categories to show in reference to a stable demand structure that employment alone cannot account for observed changes in relative wages.
Abstract: Although surveys show that traditional orderings of average wage—i.e., higher earnings with higher schooling and concave age-wage profiles—have not changed during the past three decades, the actual size of the wage differentials measured by education or by work experience has varied from peak to trough by a factor of two-to-one. The patterns are not monotone, but there is a trend toward increased skill premiums. We first examine the structure of wages among white men distinguished by age and schooling for the period from 1963 to 1989. We then compare shifts in the distribution of wages and employment among the age x schooling categories to show in reference to a stable demand structure that employment alone cannot account for observed changes in relative wages. Finally, we describe the characteristics required of candidate demand shifters and offer examples using linear trend, business cycle shocks, and recent patterns of deficits in international trade.
899 citations
TL;DR: In this paper, the authors argue that the degree of specialization is more often determined by other considerations, such as coordination costs of specialized workers who perform complementary tasks, and the amount of general knowledge available.
Abstract: This paper considers specialization and the division of labor. A more extensive division of labor raises productivity because returns to the time spent on tasks are usually greater to workers who concentrate on a narrower range of skills. The traditional discussion of the division of labor emphasizes the limitations to specialization imposed by the extent of the market. We claim that the degree of specialization is more often determined by other considerations. Especially emphasized are various costs of "coordinating" specialized workers who perform complementary tasks, and the amount of general knowledge available.
893 citations
TL;DR: In this article, the IS-LM-Phillips curve model is used to identify the four main sources of fluctuations found in the IS model: money supply, money demand, IS, and aggregate supply shocks.
Abstract: Postwar U. S. time series for money, interest rates, prices, and GNP are characterized by a multivariate process driven by four exogenous disturbances. Those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the IS-LM-Phillips curve model: money supply, money demand, IS, and aggregate supply shocks. The dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model. The estimated decomposition is also used to measure the relative importance of each shock, to interpret some macroeconomic episodes, and to study sources of permanent shocks to nominal variables.
798 citations
TL;DR: The authors analyzes the extent to which ethnic skill differentials are transmitted across generations and finds that the skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments.
Abstract: This paper analyzes the extent to which ethnic skill differentials are transmitted across generations. I assume that ethnicity acts as an externality in the human capital accumulation process. The skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments, or "ethnic capital." The empirical evidence reveals that the skills of today's generation depend not only on the skills of their parents, but also on the average skills of the ethnic group in the parent's generation.
743 citations
TL;DR: In this article, the authors investigated the effect of increased import competition on U.S. manufacturing employment and wages, using data for a panel of manufacturing industries over the 1977-1987 period.
Abstract: This paper investigates the effect of increased import competition on U. S. manufacturing employment and wages, using data for a panel of manufacturing industries over the 1977–1987 period. The empirical analysis uses previously unavailable industry import price data and an instrumental variables estimation strategy. The estimates suggest that changes in import prices have a significant effect on both employment and wages. The dramatic appreciation of the dollar between 1980 and 1985 is estimated to have reduced wages by 2 percent, and employment by 4.5–7.5 percent on average in this sample of trade-impacted industries.
TL;DR: In this article, the authors evaluate the effect of cheap talk on nonbinding, preplay communication in bilateral coordination games and show that one-way communication increases play of the Pareto-dominant equilibrium relative to the no communication baseline.
Abstract: We present experimental evidence on nonbinding, preplay communication in bilateral coordination games. To evaluate the effect of "cheap talk," we consider two communication structures (one-way and two-way communication) and two types of coordination games (one with a cooperative strategy and a second in which one strategy is less "risky"). In games with a cooperative strategy, one-way communication increases play of the Pareto-dominant equilibrium relative to the no communication baseline; two-way communication does not always decrease the frequency of coordination failures. In the second type of game, two-way communication always leads to the Pareto-dominant Nash equilibrium, while one-way communication does not.
TL;DR: This article examined whether positive and negative money-supply shocks have symmetric effects on output, and found that positive money supply shocks do not have an effect on output while negative ones do have an impact on output.
Abstract: This paper examines whether positive and negative money-supply shocks have symmetric effects on output. The results are consistent with the hypothesis that positive money-supply shocks do not have an effect on output, while negative money-supply shocks do have an effect on output. This finding is independent of whether or not expected money is assumed to affect output. The results reported in this paper imply that the Fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply.
TL;DR: In this article, the authors extend Sobel's [1985] model of strategic communication to the case of noisy private signals and show that when truthfulness is not easily verifiable, restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices.
Abstract: Access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements. The fact that privileged information is noisy interferes with the public's attempts to learn whether such announcements are honest; it allows opportunistic individuals to manipulate prices repeatedly, without ever being fully found out. This leads us to extend Sobel's [1985] model of strategic communication to the case of noisy private signals. Our results show that when truthfulness is not easily verifiable, restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices.
TL;DR: This article found that banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates, but are faster to reduce them when the market interest rate is falling.
Abstract: Panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks. Banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates, but are faster to reduce them in response to declining market interest rates. Thus, banks with market power skim off surplus on movements in both directions. Since deposit interest rates are inversely related to the price charged by banks for deposits, the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration.
TL;DR: The authors showed that when unemployed workers lose some of their skills, the effects of a temporary shock to employment can persist for a long time and developed an overlapping-generations model of search equilibrium and showed that different patterns of persistence and multiple equilibria are possible even with constant returns production and matching technologies.
Abstract: This paper shows that when unemployed workers lose some of their skills, the effects of a temporary shock to employment can persist for a long time. The key mechanism is a thin market externality that reduces the supply of jobs when the duration of unemployment increases. The paper develops an overlapping-generations model of search equilibrium and shows that different patterns of persistence and multiple equilibria are possible even with constant returns production and matching technologies.
TL;DR: This article presented new estimates of the consequences of teen childbearing that take into account observed and unobserved family background heterogeneity comparing sisters who have timed their first births at different ages, using data from the [U.S.] National Longitudinal Survey of Young Women.
Abstract: We present new estimates of the consequences of teen childbearing that take into account observed and unobserved family background heterogeneity comparing sisters who have timed their first births at different ages....The estimation is conducted using data from the [U.S.] National Longitudinal Survey of Young Women.... (EXCERPT)
TL;DR: For example, the authors found that voters penalize federal and state spending growth in Presidential, Senate, and gubernatorial elections from 1950 to 1988, and that the composition of federal spending growth seems irrelevant.
Abstract: Voters penalize federal and state spending growth. This is the central result of my analysis of voting behavior in Presidential, Senatorial, and gubernatorial elections from 1950–1988. The composition of federal spending growth seems irrelevant. The vote loss to the President's party from an extra dollar of defense or nondefense spending is the same. However, in gubernatorial elections, expansion of state welfare spending exacts a disproportionate political price. Deficit financing of federal or state spending does not appear to matter politically. I conclude by discussing the obvious question of why government budgets have grown in the face of this voter hostility.
TL;DR: The era of wage stretching has been a current focus, but as mentioned in this paper direct attention here to a decade of extraordinary wage compression, the 1940s Wages narrowed by education, job experience, and occupation, and compression occurred within cells The 90-10 differential in the log of wages for men was 145 in 1940 but 106 in 1950 by the late 1980s it returned to its 1940 level.
Abstract: The era of wage stretching has been a current focus, but we direct attention here to a decade of extraordinary wage compression—the 1940s Wages narrowed by education, job experience, and occupation, and compression occurred within cells The 90–10 differential in the log of wages for men was 145 in 1940 but 106 in 1950 By the late 1980s it returned to its 1940 level, thus restoring a dispersion of 50 years ago World War II and the National War Labor Board share some credit for the Great Compression, but much was due to an increased demand for unskilled labor when educated labor was greatly expanding
TL;DR: This article found that the wage differential between black and white men fell from 40 percent in 1960 to 25 percent in 1980, and that this convergence reflects improvements in the relative quality of black schools, which explained 20 percent of the narrowing of the black-white earnings gap between 1960 and 1980.
Abstract: The wage differential between black and white men fell from 40 percent in 1960 to 25 percent in 1980. It has been argued that this convergence reflects improvements in the relative quality of black schools. To test this hypothesis, we assembled data on pupil-teacher ratios, annual teacher pay, and term length for black and white schools in the eighteen segregated states from 1915 to 1966. These data are linked to estimated returns to education for Southern-born men from different cohorts and states in 1960,1970, and 1980. Improvements in the relative quality of black schools explain 20 percent of the narrowing of the black-white earnings gap between 1960 and 1980.
TL;DR: In this paper, it is shown that an increase in public debt reduces the growth rate, so there always exists a future generation that will be harmed, and that a reduction in the public debt, although it increases the growth, cannot be Pareto-improving: one current generation must be harmed.
Abstract: In a neoclassical growth model, it is possible to make a case for public debt, because a balanced growth path may be dynamically inefficient. This paper shows that this possibility no longer holds in an endogenous growth model with constant external returns to capital. It is shown that an increase in public debt reduces the growth rate, so there always exists a future generation that will be harmed, and that a reduction in public debt, although it increases the growth rate, cannot be Pareto-improving: one current generation must be harmed.
TL;DR: The authors assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents and find that affirmative action always benefit disadvantaged groups and that equal-opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator (usually the firm).
Abstract: This paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents. More precisely, we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups. Equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator (usually the firm). The effects of affirmative action programs depend on the severity of a group's cost disadvantage. When the cost disadvantage is severe, these programs significantly increase effort levels (and hence profits). The opposite is true when the disadvantage is slight.
TL;DR: For example, the authors found that the aggregate net number of open market purchases and sales by corporate insiders in their own firms predicts up to 60 percent of the variation in one-year-ahead aggregate stock returns.
Abstract: This paper documents that, for the period from 1975 to 1989, the aggregate net number of open market purchases and sales by corporate insiders in their own firms predicts up to 60 percent of the variation in one-year-ahead aggregate stock returns. This study also examines whether the ability of aggregate insider trading to predict future stock returns can be attributed to changes in business conditions or movements away from fundamentals. Evidence suggests that both explanations contribute to the predictive ability of aggregate insider trading.
TL;DR: The authors showed a widening in black-white earnings and employment gaps among young men from the mid-1970s through the 1980s, and attributed the differential widening to shifts in demand for subgroups due to shifting industry and regional employment, the falling real minimum wage and deunionization, the growing supply of black to white workers that was marked among college graduates, and increased crime among dropouts.
Abstract: This paper shows a widening in black-white earnings and employment gaps among young men from the mid-1970s through the 1980s. Earnings gaps increased most among college graduates and in the Midwest, while gaps in employment-population rates grew most among dropouts. We attribute the differential widening to shifts in demand for subgroups due to shifting industry and regional employment, the falling real minimum wage and deunionization, the growing supply of black to white workers that was marked among college graduates, and to increased crime among dropouts. The different factors affecting subgroups highlight the economic diversity of black Americans.
TL;DR: The authors used micro data from the Current Population Surveys (CPS) to document the secular decline in labor market activity among prime age men from 1967 to 1987, and found that the initial fall in employment from the late 1960s to the early 1970s is entirely attributable to falling labor supply whereas since the early1970s, wage changes predicted most of the decline in employment for whites and approximately half of the reduction for blacks.
Abstract: This paper uses micro data from the Current Population Surveys to document the secular decline in labor market activity among prime age men from 1967 to 1987. Declines in employment occur at all ages but are found to be particularly severe among less-educated and low-wage men. Information on the cross-section wage-employment relationship and on actual wage changes indicates that the initial fall in employment from the late 1960s to the early 1970s is entirely attributable to falling labor supply whereas since the early 1970s, wage changes predict most of the decline in employment for whites and approximately half of the decline for blacks.
TL;DR: In this article, the authors present a theory of a partial economic reform of a planned economy, similar to the one that took place in Russia since 1988 and in China earlier, in which some markets are liberalized in the sense that producers can sell output to whomever they want, including private firms, at free prices, but at the same time must sell to state firms at state prices.
Abstract: We present a theory of a partial economic reform of a planned economy, similar to the one that took place in Russia since 1988 and in China earlier. In such a reform, some markets are liberalized in the sense that producers can sell output to whomever they want, including private firms, at free prices, but at the same time must sell to state firms at state prices. We show that such a reform can result in a substantial diversion of subsidized inputs away from state firms and toward private firms even when state firms value these inputs more. The result may be a reduction of total output. The simple analysis sheds light on many consequences of the Soviet reform, such as breakdown of coordination of production, increased state policing of delivery quotas, prohibitions of trading cooperatives, and opposition to privatization. The model also explains why partial reform failed in Russia but worked in China.
TL;DR: In this paper, the authors consider and test several possible explanations such as the provision of medical services the degree of urbanization the extent of female literacy and differences in the composition of births among different income groups.
Abstract: Comparing two countries in which the poor have equal real incomes the one in which the rich are wealthier is likely to have a higher infant mortality rate. This anomalous result does not appear to spring from measurement error in estimating the income of the poor and the association between high infant mortality and income inequality is still present after controlling for other factors such as education medical personnel and fertility. The positive association of infant mortality and the income of the rich suggests that measured real incomes may be a poor measure of social welfare....This paper considers and tests several possible explanations such as the provision of medical services the degree of urbanization the extent of female literacy and differences in the composition of births among different income groups. None of these factors adequately accounts for the positive association between the incomes of the rich and infant mortality. The geographical scope is worldwide. (EXCERPT)
TL;DR: In this paper, the authors study the microeconomic forces that influence real wages and find that the real wage is an increasing function of past profitability in the employer's industry, and a decreasing function of the level of unemployment in the region.
Abstract: The microeconomic forces that influence real wages are not fully understood. This paper studies pay determination using data on approximately 600 labour contracts. It finds that the real wage is an increasing function of past profitability in the employer''s industry, and a decreasing function of the level of unemployment in the employer''s region. These results are consistent with rent-sharing theories.
TL;DR: A sharp experimental test is thus possible on this class of games, and the present paper reports the results of such a test as mentioned in this paper, which leads to markedly different predictions about what should be observed in three different games.
Abstract: Laboratory data from bargaining experiments have started a debate about the prospects for various parts of game theory as descriptive theories of observable behavior, and about whether, to what extent, and how a successful descriptive theory must take into account peoples' perceptions of "fairness." Plausible explanations of the observed bargaining phenomena advanced by different investigators lead to markedly different predictions about what should be observed in three different games. A sharp experimental test is thus possible on this class of games, and the present paper reports the results of such a test.
TL;DR: In this article, the authors argue that the macroeconomically interesting features of inventory behavior are well captured by a model in which firms face only demand uncertainty with a nonnegativity constraint on inventories.
Abstract: This paper argues that the macroeconomically interesting features of inventory behavior are well captured by a model in which firms face only demand uncertainty with a nonnegativity constraint on inventories. Empirical implications of the "stockout-avoidance" model of inventory behavior are derived and then tested on disaggregated automobile industry data. The results largely support the model, though they suggest a small role for production-smoothing as well. Subsidiary evidence on the relative variance of demand and cost shocks suggests that demand shocks are indeed more important.