Showing papers on "Earnings published in 1975"

Education and Screening

Abstract: Since the advent of the human capital concept, much attention has been devoted to the relationship between income and schooling. Their positive association is one of the most consistent empirical findings of the human capital literature. The conventional view, the productivity augmenting view, is that schooling enhances earnings via the production of marketable skills. But, recent theoretical arguments have suggested the possibility that schooling's private monetary return may be informationally based.' In the most extreme form of this screening hypothesis, schooling serves only to identify those individuals who are more productive in the market, the proposition being that an individual's productivity is unaffected- by the formal schooling process. The importance of these competing explanations relates to schooling's implied social return. If schooling's sole function is informational, its social product is determined exclusively by the gain to productive rearrangements which are made feasible by the less imperfect ex ante knowledge of individual productivities. In the most extreme form of screening it is only the relationship between aggregate output and schooling's informational content that determines, along with the resource cost of schooling, the socially optimal investment in school

Overinvestment in College Training

Abstract: The college job market underwent an unprecedented downturn in the 1 970s when the earnings of graduates relative to other workers, the rate of return to investing in higher education, and employment opportunities dropped sharply, especially for new graduates This paper examines the quantitative dimensions, causes, and consequences of the "new depression" in the market It explains the downturn by slackened demand due to changes in the industrial structure and continued growth of supply A major finding is that the fraction of young men choosing college fell in the seventies, apparently the result of responsive supply behavior to the depressed market One of the major labor market developments of the 1960s, and to a lesser extent of the 1950s as well, was the enormous expansion of individual and social investments in higher education The proportion of GNP allocated to colleges and universities jumped from 08 percent to 22 percent between 1950 and 1970; college enrollments more than tripled; the number of BA graduates rose by 91 percent; master's and doctorate production more than tripled These increases in the supply of college-trained specialists notwithstanding, the ratio of the earnings of the college-trained to the educated workers was quite stable [14], and the rate of return to investment in higher education remained high [2, 15] Toward the end of the 1960s and the outset of the 1970s, however, the market for college graduates began to change, with the boom of previous decades coming to an end What are the dimensions of this turnaround in the college labor market? Has the rate of return to investing in higher education fallen? What has been the enrollment response of students to changes in rates of The author is Associate Professor of Economics, Harvard University * The author wishes to thank the National Institute of Education for their support under Grant No G-00-0202 [Manuscript received September 1974; accepted January 1975j The Journal of Human Resources * X * 3 This content downloaded from 1575539104 on Mon, 20 Jun 2016 05:57:09 UTC All use subject to http://aboutjstororg/terms

Occupations, Labor Markets and the Process of Wage Attainment

Abstract: A key problem in sociology, as in economics, is explaining why some workers earn more money than others. Sociological models of earnings have stressed the role of a worker's occupation and have tended to ignore the conditions of the labor market in which he finds work. Economic models have stressed labor market functioning at the expense of considering the role of a worker's occupation in determining his wages. In this paper, I attempt to combine sociological models of earnings with (a) economic models of earnings and (b) concepts and findings from the sociology of occupations and professions. I argue theoretically and empirically that some similar conclusions about the processes governing individual earnings attainment can be drawn by examining occupations in terms of labor markets and by analysis of labor markets from the standpoint of occupations. These conclusions are: (a) that labor markets tend to be fragmented along occupational lines, (b) that the processes governing wage attainment vary from one occupation to another and (c) that occupational differences in these processes can be predicted from and explained in terms of the forces which lead to occupational segmentation of labor markets. I discuss some useful implications of my analyses for the study of the relationship between worker age and worker earnings, and I perform some empirical and theoretical analyses of occupational differences in the age-wage relationship. Data are drawn from the U.S. Censuses of 1960 and 1970 and from publications of the U.S. Bureau of Labor Statistics.

Efficiency of the Natural Rate

Abstract: During the sixties a cornerstone of economic policy was that permanent inflation results in high levels of economic activity. This was based in large part on the observation that prices and output, when measured as deviations from trend, are highly correlated-that is, the Phillips curve. Phelps and others showed that this apparent trade-off could not be explained in modern theoretical terms except possibly as a monetary and transient phenomenon. Inevitably, such an analysis implied a natural rate of unemployment or employment. The path-breaking book, The New Microeconomics in Employment Theory (New York: W. W. Norton & Co., 1970), by Edmund S. Phelps et al., contains most of these studies. In the first part of the book under review (Edmund S. Phelps, Inflation Policy and Unemployment Theory: The Cost Benefit Approach to Monetary Planning [London: Macmillan Co., 1972]), these and related developments in unemployment theory are synthesized and presented in a lucid and elegant manner. I recommend this book to all economists interested in understanding the new theory. Within the framework of modern unemployment theory, each of the three basic definitions employed treats unemployment as a private investment: (1) Search unemployment is a sacrifice of present wage earnings in return for the expectations of an improvement in future earnings. (2) Precautionary unemployment is an act of waiting in order to be available for better use later. (3) In the neoclassical speculative labor supply model, unemployment is an intended intertemporal trade of present leisure for an expected improvement in leisure cost of future consumption and future leisure. To this list I would add layoff unemployThe author thanks Robert E. Lucas, Jr., and Edmund S. Phelps for commenting on

The Impact of Poor Health on Earnings

Abstract: T HE overall impact of poor health on earnings is large the average disabled man aged 18 to 64 years suffers a 37% reduction in yearly earnings. This loss is the result of the effects of poor health on all the components of earnings: labor force participation, weeks worked per year, hours worked per week, and earnings per hour. In each case there is a substantial effect of health, not just when a comparison is made between well and sick persons, but also when adjustments are made to account for the different socio-economic characteristics of the two groups. This analysis not only provides estimates of the effect of health on each component of earnings, but also the aggregate earnings loss attributable to long term disability 23 billion dollars in 1966. The first section outlines some of the previous analyses concerning the effects of health on the various components of earnings and briefly describes the data and method used in this study. The effects of health are usually measured by comparing the status of persons who are well with those who are disabled. The second and third sections offer this comparison as well as the "true" effects of health which are based on the difference between the current status of the disabled and their estimated status, based on how they would have behaved had they been well, taking into account the different socioeconomic characteristics of the well and disabled groups. The first of these two sections provides the comparisons for each of the components of earnings. As the analysis is carried out for subsamples of men and women, and blacks and whites, it is possible to examine the different ways in which disability affects different groups. The second section of the pair continues the analysis in terms of a more aggregate measure the overall loss of earnings to the economy within a year. A final section provides a brief summary and an outline of the major findings and conclusions.

Potential Biases in Measuring Male-Female Discrimination.

Abstract: By addressing the problem of life-cycle division of labor within the family, this study considers the question of the effect of family characteristics on both male and female earnings capacities. The paper illustrates both theoretically and empirically that being married and having children have opposite effects on the wage rates of husbands and wives, and further that these diverging wage patterns are perpetuated over the length of the marriage. Neglecting the fact that family characteristics have opposite effects on male and female wage structures leads to biases in the computation of the male-female discrimination coefficient.

Inequality: Earnings vs. Human Wealth

Abstract: The objective of this paper is to draw some inferences concerning the relative magnitudes of inequality in annual earnings, the traditional measure, and in human wealth, the measure suggested by recent literature. A second objective is to assess the relative importance of schooling, measured ability and to a limited extent family background in earnings and human wealth inequality as well as the overall contribution of these variables combined. A unique feature of this study is the estimation of earnings and human wealth and their distribution for a group of men for which several age-earnings data points are available over almost an entire lifetime (ages eighteen to fifty-four).

Life-Cycle Effects on Corporate Returns on Retentions

Abstract: IN a recent paper investigating the efficiency of earnings retentions, Baumol, Heim, Malkiel and Quandt (1970) (hereafter BHMQ) estimate the rate of return on earnings retentions, debt and new equity for a large cross section of firms. They find new equity earns considerably higher returns than the ploughback of profit and depreciation, with the returns on new debt falling between. BHMQ do not explain these striking results, beyond suggesting a lack of market discipline on the reinvestment of internal funds. In their concluding remarks, they pose a number of open questions for future research and analysis

The information content of price-earnings ratios

Abstract: T he price-earnings (P/E) ratio and dividend yield are probably the two most frequently used in the investment community. Theory and previous empirical research [5, 9, 21, 26] indicates that although a host of financial variables including risk, payout and leverage account for differences in P/E ratios of corporate equities, the principal explanatory factor is the expectation of growth in earnings and dividends. While the precise 'manner in which these expectations are formed by the market is unclear, historical growth rates, recent earnings and other corporate announcements, and market forecasts at the economy-wide and industry levels are believed to be significant. Capital market efficiency implies that all such information is fully impounded in security prices in a rapid and unbiased fashion. While an impressive body of empirical evidence supports the efficient markets hypothesis (for example, [15,20]), there does exist some evidence to the contrary [13, 14]. In particular, studies by Breen & Savage [11], Breen [10], McWilliams [22], Miller & Widmann [23] and Nicholson [25] challenge market efficiency in processing information implicit in price-earnings ratios. These studies suggest that P/E ratios may be indicators of future investment performance of securities, they have significant shortcomings that include retroactive selection bias i.e., sample being composed of only "survived" firms and the failure to account for risk

Human Capital Theory: Education, Discrimination, and Lifecycles,

Abstract: : Three topics are discussed which do not represent a comprehensive view, but are each part of the overall question of income distributions and have each absorbed the attention of those working with human capital theory. the topics are: (1) Wealth distributions and lifecycle earnings profiles; (2) sources of income returns to schooling; and, (3) race differences in income.

The Effect of School Quality on Achievement, Attainment Levels, and Lifetime Earnings

Abstract: This study provides a comprehensive examinatjono relationship between the quality of schools arid colleges attended-. lifetime economic behavior. Previous studies have been concentr. almost exclusively on the quantity of schooling in this stud', ft effects of school quality and length of schooling are exanuinesj is some highly disaggregated cross-sectional data. ¶ The data (NBER-TH) used here was first compiled by R. L. Thorndike se an Hagen in the mid-i 950s and has since been extended by the Nationa Bureau. In the analysis, the lifetinie economic histories of the NB[R.IH respondents were combined with quality data for the school districtI which the respondent attended high school and for the colleges e attended These data were used to estimate sonic simple recurse models. In the first model, family background and school quality sser exogenous, and the enclogenous variables were achievement as mea­ sured by army tests, quantity of further schooling, and lifetime earr­ ings. Significant school quality effects on achievement and earnir were found. In subsequent models, a measure of college quality included as an additional intervening variable There were significa" NOTED This research was suppon express my appreci1Q by National tnstiu of [duration Grant OEG 2-71-04798. nd to the mem15 of the staff reading cont lames P. Smith, and the Board Edward e t azear. Danlet 5a s' LaForce In addition, reading commig ndrew F valuable suggesj5 Brimnie, Frank I Eernch, nd I ­ luster, and Lewis C. Solmon and encouragement nere provided by Linda Edwards, F Liebowj Rearch assistance was ably prosi(ged by Moshe The manuscript was typed by Catherine Ben.Horirn and SUe­ were drawn by H. Irving Fornsan Grant. it was edited by Ester Moskonti. and rhes 502

The Effects on Income of Type of College Attended

Abstract: This paper estimates an earnings function, familiar to the economic literature, in order to study the effect on income of the type of college attended. The scheme developed by the Carnegie Commission is used to classify colleges by type. It is shown that there are systematic differences in college types as shown by a variety of college quality measures. There are statistically significant differences in the predicted earnings of graduates from the various types of college, which suggests that college type and quality are important determinants of the returns to education. The study also examines the effects of ability and socioeconomic class on the choice of college and on the earnings effect of college type.

Education, Occupation, and Wage Differences Between White and Black Men

Abstract: Past research has indicated repeatedly that black men receive lower wages than white males working in the same occupation. Past findings have also suggested that these within-occupation race differences in men's success in convertin their years of schooling into dollars of earnings. This paper reexamines the role of returns of schooling in producing differences in earnings of white and black men who are employed in the same occupation. The role of schooling into dollars of earnings. This paper reexamines the role of returns of schooling in producing differences in earnings of white and black men who are employed in the same occupation. The role of schooling in determining wages of all workers is also considered. A hypothesis suggesting that years of schooling and years of labor-force experience have joint nonadditive effects on earnings is formulated, tested, and supported by several regression analyses. A measure of race differences in wage returns to schooling based on partial derivatives is computed fr...

Statistical Measures of Earnings Differentials

Abstract: Anyone looking at earnings data is immediately struck by the difference inthe average earnings of men and women. Since the principles of our country state that pay should be based on merit and skill factors and that everyone doing the same job should be paid the same wages, explaining the observed wage differences is a high priority social problem. My interest in this topic began when I served as a Visiting Faculty Advisor to OMB and participated in a task force under the direction of the Deputy Assistant Attorney General for Civil Rights. While a substantial literature has been devoted to discovering the factors contributing to high earning power (e.g., education, experience) and measuring (via regression models) their relative importance, it appeared to me that one needed a simple, yet statistically sound measure that would

Unemployment, expected returns, and the demand for university education in ontario: some empirical results

Abstract: This article presents the results of empirical analysis of the influence of labour market factors on the private demand for university education in Ontario. Contrary to a widely held belief, the analysis indicates that the effect of youth unemployment upon enrolment demand is very weak. High unemployment, by itself, does not appear to drive youths into universities. On the other hand, expected earnings upon completion of a degree is shown to have a strong positive impact upon enrolment demand, particularly for post-graduate students. A 10 percent increase in the expected earnings of persons with post graduate degrees relative to persons with only bachelor's degrees is associated with more than a 20 percent increase in post-graduate enrolment. These findings are subject to qualifications regarding certain weaknesses in the data, as well as the usual problems of making inferences about expectation behaviour from ex post data. One important policy implication of this study is that attempts to use educational spending as a contra-cyclical device may not be successful unless students are given extra inducement to enrol when unemployment is high. Second, the apparent responsiveness of enrolment demand to changes in earnings expectations of degree holders underscores the importance of providing good up-to-date information on earnings prospects. It should be emphasized, however, that this study dealt only with aggregate (undergraduate or postgraduate) enrolment, and further research is needed to examine the responsiveness of specific program and subject choices to variation in occupational earnings prospects. Moreover, the responsiveness of student enrolment decisions to prospective earnings is only one of several factors — though a very important one — which must be taken into account in deciding upon the role of manpower considerations in educational planning.

Black Education, Earnings and Interregional Migration: Even Newer Evidence

Abstract: The striking difference between the results reached by Charles Link, using published 1970 Census data, and ours, using the 1967 SEO tape, calls for some explanation. In an effort to find the source of the difference, this comment reports our results using the 1970 Census (1969 income and earnings) individual data from the public use tapes. We shall show that the source of the discrepancies lies with the form of the published Census data rather than in underlying economic relationships. Using individual data, we show that the effect of education on earnings is similar for blacks and whites in 1969, a result which confirms our assertions from the 1966 SEO data. We suspect that similar results would be forthcoming from the 1959 Census data. It seems likely that the low apparent return to black education found bv Lester Thurow was also a statistical artifact. At the very least, we conclude that the use of grouped data for policy analysis of this sort is very suspect and that individual data should be used wherever possible. The published census data is beset with numerous flaws. First, it presents data on income rather than earnings from work or self-employment. Income includes welfare transfers, unemployment insurance, and the like. As a result, the effect of education on income is apt to be weak at low levels of education compared with its effect on earnings. Second, the published data excludes persons with zero income. Since these include the unemployed, their exclusion tends to weaken the education-earnings relationship still further. Third, the published data include all males in the armed forces and in institutions (for example, jail). The education-earnings relationship may be biased downwards even further since income in kind is an enormous component of military pay. Each of these flaws in the published data apply to whites as well as blacks, but the distortion is likely to be more severe for blacks since they have higher dependence on transfers, higher unemployment rates, and higher participation in the armed forces. In addition, the published Census data consist of median incomes for age-education groups, and three problems arise as a result. First, the census groups are quite broad. For example, median incomes are reported for those with 1-4 vears of education, 5-7 years of education, etc., and for ages 18-19, 25-29, . . , 36-44, etc. In contrast, the 1967 SEO tape and the 1970 Census public use tapes permit us to use precise age and education data. Second, the Thurow and Link studies gave each age-education cell equal weight, while our study is based on individual data effectively weighted by the number of individuals in a given cell. Third, the published cell medians do not reflect outliers very well, but they are included in our study. Obviously, a grouped data regression will always yield a higher R2. Bevond that, it is not clear what a priori bias is introduced by grouping. In an attempt to evaluate the effect of these differences we grouped the public use tape data following the census procedures, but utilizing alternative measures of income and alternative sample definitions. These results were then compared with those derived from individual data upon which the grouping was based. The results of these experiments appear in Table 1 for those in the North, Table 2 for those in the South, and Table 3 for the nation as a whole. * The University of Wisconsin, Madison. We gratefully acknowledge the superb research assistance of Nancy Williamson. The research was supported by funds granted to the Institute for Research on Poverty at the University of Wisconsin by the Office of Economic Opportunity. The conclusions are the sole responsibility of the authors.

Dividend Policy: Informational Content or Partial Adjustment?

Abstract: IN making dividend decisions, the firm determines the division of earnings between reinvestment and distribution to stockholders. There are two general issues in the area of dividend policy: The first concerns the determinants of the firm's payout ratio (the ratio of dividends to earnings). The second issue concerns the intertemporal change of dividends. The focus of this paper is on the second issue. There are two prevailing views on the behavior of corporate dividend policies over time; the informational content and the partial adjustment hypothesis. In the following sections, both hypotheses are shown leading to empirically equivalent expressions. To avoid this confusion, we suggest an approach that would differentiate between the two hypotheses. Empirical results analyzing dividends behavior of twenty broad industry categories are summarized.

Security Price Revaluation Implications of Sub-Earnings Disclosure

Abstract: A frequent argument advanced for the disclosure of divisional results of multi-activity firms is that investors require information about divisions which vary in profitability, risk, or growth.' At present there is little empirical evidence that if divisional information is disclosed, it has information content relevant to security price revaluation. In the insurance industry there is currently separate disclosure of (1) underwriting results, (2) investment results, and (3) capital gains and losses on marketable equity securities. In this paper, I examine the security price reaction to this separate disclosure of sub-earnings figures. The results indicate that (a) earnings changes for the three sub-earnings series vary (at least in sign); and (b) information about these varying rates of earnings changes could be used in security price revaluation. In section 1, I hypothesize why information about earnings changes on the three series is important in security price revaluation.

Labor Supply Distortions of Social Security

Abstract: Most scholars agree that there is a very tenuous connection between the taxes a person pays under the U. S. social security system and the value of the benefits later received in retirement. In several recent analyses this fact has served as a primary justification to evaluate the tax structure separately from the benefit structure. For example, Pechman, Aaron, and Taussig [10] conclude that the already loose connection between benefits and taxes should be made still looser by making the tax more progressive and the benefits even less closely related to previous taxes paid. In contrast, when Friedman [8] evaluates these elements of the system separately, he concludes that neither can be justified and proposes instead that social security be gradually phased out. Despite their disparate conclusions, these economists are in general agreement concerning the framework for their analyses: separate evaluations of the tax and benefit structures. In this paper I will defend the contrary position that the social security system cannot be adequately analyzed unless the tax and benefit structures are considered simultaneously. It will be shown that the labor supply and related welfare effects of the system depend crucially on the way in which taxes are related to benefits. The analysis of the social security payroll tax in the first section of this paper shows clearly why this is so, and the second section uses Harberger's method for estimating the welfare cost of a tax on earnings to approximate the quantitative importance of the relationship between benefits and taxes for the resulting welfare cost. I. THE LABOR SUPPLY EFFECTS OF A PAYROLL TAX

Engineering Earnings in Britain, 1914-68

Abstract: SUMMARY The paper presents weekly earnings data for the British engineering industry over 1914-68 and comparable unemployment statistics. Additional information is provided to allow calculation of standard hourly and weekly earnings. The series cover the two key bargaining groups in the engineering industry, fitters and labourers, and 28 separate labour market areas across the whole geographical space of Great Britain. The main purpose of the paper is to provide an important additional source of earnings data which can be used for a variety of purposes, but a number of analyses of a particular subject, the regional earnings structure, is also undertaken.

Formal education and adult earnings: A longitudinal study on the economic benefits of education

Abstract: Formal education and adult earnings : a longitudinal study on the economic benefits of education