Showing papers on "Earnings published in 1981"

Occupational self-selection: a human capital approach to sex differences in occupational structure.

Abstract: A rich and diverse literature exists concerning the distribution of labor incomes. One approach namely that of human capital concentrates on lifetime accumulation paths of "earnings capacity units" (human capital). Individual variations in human capital imply differences in earnings power thereby yielding strong implications concerning earnings distribution within a population. Despite its explanatory power the human capital model has been widely criticized. One criticism centers on its inability to obtain inferences concerning occupational distribution. The purpose of this paper is to alleviate at least some such criticism by applying the hedonic price approach so as to embed occupational choice into the human capital framework. The significance is that neoclassical economic theory can be used to obtain implications concerning the determinants of occupational structure. (excerpt)

Returns to education : an updated international comparison

Abstract: The question of the profitability of investing in human capital remains controversial. Three main methods for estimating the rate of return to investment in education are described: the elaborate method, the earnings function method, and the short-cut method. Application of cost-benefit analysis measures in 44 countries yields four patterns that have important policy implications: (i) top priority should be given to primary education as a form of human resource investment due to high returns, both social and private; (ii) secondary and higher education should also be pursued in a program of balanced human resource development; (iii) the larger discrepancy between the private and social returns in higher education indicates room for private finance at the university level; and (iv) falling returns to education that result as a country develops and/or the capacity of its educational system expands are minimal under time-series analysis and do not warrant abandonment of educational expansion.

A Possible Explanation of the Small Firm Effect

Abstract: Recent empirical studies have found that small listed firms yield higher average returns than large firms even when their riskiness is equal. The riskiness of small firms, however, has been improperly measured. Apparently, the error is due to auto-correlation in portfolio returns caused by infrequent trading. Other anomalous predictors of riskadjusted returns, such as price/earnings ratios and dividend yields, may also derive some of their apparent power from this spurious source.

Are those paid more really more productive? the case of experience*

Abstract: This study uses computerized personnel microdata on the white male managerial and professional employees at a major U.S. corporation to address the following question: Can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time? Our answer to this question, based on both cross-sectional and longitudinal information, is that performance plays a substantially smaller role in explaining cross-sectional experience-earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience-earnings profile. This response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates' relative productivity in the year of assessment; we present a great deal of evidence which strongly supports this assumption.

Price and Trading Volume Reaction Surrounding Earnings Announcements: A Closer Examination

Abstract: The process of information dissemination and interpretation in securities markets is very complex and mostly unobservable. While changes in prices and the amount of trading that takes place at the market level provide evidence of information processing, Verrecchia [1981] demonstrated that these are not sufficient to describe completely the dissemination of information and its interpretation by investors. A descriptive study of price changes and trading volume, however, may still provide some insights into how investors react to information. This paper is an empirical investigation of price changes and trading volume during the days surrounding the announcement of quarterly and annual earnings in the Wall Street Journal (WSJ). In the original paper investigating trading volume and price changes surrounding earnings announcements, Beaver [1968] was primarily concerned with whether the annual earnings announcement had "information content" (i.e., led to changes in investors' assessments of the probability distribution of future returns). If there were any significant price changes and/or trading volume during the week of the announcement, then the annual earnings announcement was assumed to have had

The Ex Ante and Ex Post Price Effects of Quarterly Earnings Announcements Reflected in Option and Stock Prices

Abstract: The subject of this study is the effect of investors' anticipations of impending informative disclosures on the behavior of option and stock prices. Our approach, introduced in a previous paper (Patell and Wolfson [1979]) and substantially extended here, represents the following significant departure from traditional information content studies. Instead of analyzing security price reactions to announcements, we analyze preannouncement option prices in order to discern investors' beliefs about the range of possible stock price reactions expected to accompany a forthcoming disclosure whose actual content is not yet known.' In the tests reported here, we focus on quarterly earnings announcements as disclosure events whose timing is predictable, and we attempt to detect their systematic influence on the relationship between stock and option prices. Our operational definition of information content emphasizes changes in the variability of common stock returns in response to earnings disclosures. While market efficiency precludes investors from predicting the direction of the stock price change which will accompany a future earnings announcement, it is likely that investors will anticipate increased price variability at the time of disclosure, and indeed, several studies have documented announcement date increases in stock price volatility.

Labor Mobility and Wages

Abstract: In this essay we explore the implications of human capital and search behavior for both the interpersonal and life-cycle structure of inter-firm labor mobility. The economic hypothesis which motivates the analysis is that individual differences in firm-specific complementarities and related skill acquisitions produce differences in mobility behavior and in the relation between job tenure, wages and mobility. Both "job duration dependence" and "heterogeneity bias" are implied by this theory. Exploration of longitudinal data sets (NLS and MID) which contain mobility, job and wage histories of men in the 1966-76 decade yield several findings, among others: 1. The initially steep and later decelerating declines of labor mobility with working age are in large part due to the similar but more steeply declining relation between mobility and length of job tenure. 2. Given tenure levels, the probability of moving is predicted positively by the frequency of prior moves and negatively by education. The inclusion of prior moves in the regression reduces the estimated tenure slope because it helps to remove the "heterogeneity bias" in that slope. 3. The popular "mover-stayer model" is rejected by the existence of tenure effects on mobility. 4. Differences in mobility during the first decade of working life do not predict long-run differences in earnings. However, persistent movers at later stages of working life have lower wage levels and flatter life-cycle wage growth. 5. The analysis calls for a reformulation of earnings (wage) functions. Inclusion of tenure terms in the function permits separate estimates of returns to general and specific human capital after correction for heterogeneity bias. A rough estimate is that 50 percent of life-time wage growth is due to general (transferable) experience and 25 percent each to firm-specific experience and inter-firm mobility.

Economic Segmentation, Worker Power, and Income Inequality

Abstract: How economic segmentation generates income inequality constitutes a central question for theories of economic and social organization and of socioeconomic achievement. Previous research emphasizes two sources of the structural variation in income: (1) employers with large amounts of resources, for a variety of reasons, may find it in their interests to pay workers higher wages; and (2) some workers are able to acquire power against their employers as well as against other workers and can therefore extract higher earnings. In this paper, we investigate several issues involved in the links among economic segmentation, worker power, and income inequality. We argue that the structure of economic segmentation is multidimensional and reflects such distinct concepts as concentration, economic scale, state intervention in the market, capital intensity, and organization size. Worker power also is derived from diverse sources, such as union membership, occupational skill and licensing, class position, and tenure wi...

Expectations and Share Prices

Abstract: It is generally believed that security prices are determined by expectations concerning firm and economic variables. Despite this belief there is very little research examining expectational data. In this paper we examine how expectations concerning earning per share effect share price. We first show that knowledge concerning analyst's forecasts of earnings per share cannot by itself lead to excess returns. Any information contained in the consensus estimate of earnings per share is already included in share price. Investors or managers who buy high growth stocks where high growth is determined by consensus beliefs should not earn an excess return. This is not due to earnings having no effect upon share price since knowledge of actual earnings leads to excess return. Much larger excess returns are earned if one is able to determine those stocks for which analysts most underestimate return. Finally, the largest returns can be earned by knowing which stocks for which analysts will make the greatest revision in their estimates. This pattern of results suggests that share price is affected by expectations about earnings per share. Given any degree of forecasting ability managers can obtain best results by acting on the differences between their forecasts and concensus forecasts.

Dividend Taxes, Corporate Investment, and "Q"

Abstract: Taxes on corporate distributions have traditionally been regarded as a "double tax" on corporate income. This view implies that while the total effective tax rate on corporate source income affects real economic decisions, the distribution of this tax burden between the shareholders and the corporation is irrelevant. Recent research has suggested an alter- native to this traditional view. One explanation of why firms in the U.S. pay dividends in spite of the heavy tax liabilities associated with this form of distribution is that the stock market capitalizes the tax payments associated with corporate distributions. This capitalization leaves investors indifferent at the margin between corporations paying our dividends and retaining earnings. This alternative view holds that while changes in the dividend tax rate will affect shareholder wealth, they will have no impact on corporate investment decisions. This paper develops econometric tests which distinguish between these two views of dividend taxation. By extending Tobin's "q" theory of investment to incorporate taxes at both the corporate and personal levels, the implications of each view for corporate investment decisions can be derived. The competing views may be tested by comparing the performance of investment equations estimates under each theory's predict ions. British time series data are particularly appropriate for testing hypotheses about dividend taxes because of the substantial postwar variation in effective tax rates on corporate distributions. The econometric results suggest that dividend taxes have important effects on investment decisions.

Black-White Earnings Ratios Since the Civil Rights Act of 1964: The Importance of Labor Market Dropouts

Abstract: Previous analyses of postwar black/white earnings ratios have found a more rapid rate of increase in the period since 1964 than before. The reason for this acceleration is unresolved. One view is that federal equal-employment activities have increased the relative demand for black labor. An alternative view is that rising relative earnings reflects (1) reductions in relative supply and (2) the "statistical" effect of low earners raising median earnings by withdrawing from the labor market. This study differs from previous work on the subject in two ways. First, the restrictions on the universe from which published median earnings data by race are calculated are discussed explicitly. The restrict ion most commonly addressed in previous work (having positive earnings in the year in question) is found to be less important than an undiscussed restriction (being employed as a wage and salary worker the following March). Second, data on the distribution of earnings are used to determine the effect of labor market dropouts on median earnings, instead of trying to estimate this effect (as well as demand and supply effects) from time series data. This permits comparison of "corrected" and "uncorrected" post-1964 trends. For males, about half of the "uncorrected" trend remains after the relative earnings variable is corrected for labor market withdrawals. For females, between half and four fifths remains.

Expected Interruptions in Labor Force Participation and Sex Related Differences in Earnings Growth

Abstract: The paper analyzes the joint determination of wives' earnings and labor force participation over the life cycle given the interruptions in wives' work careers. The interruptions affect the profitability of the investment in human capital, which in turn determines earnings. The earnings prospects feed back into the participation decision, namely, the decision whether and for how long to drop out of the labor force. The formal analysis compares the age-earnings profiles of persons who drop out of the labor force with those who do not during the pre- and post-interruption period. The comparison is carried out where interruptions are assumed to be exogenous and when they are endogenous. The effect of productivity at home, the initial stock of human capital and its rental value on the length of the interruption is investigated.

Efficient Market Tests of the Informational Content of Dividend Announcements: Critique and Extension

Abstract: In recent years a major controversy has formed in the finance literature regarding the empirical evidence of the informational content of dividends. Despite considerable support for the position of dividend nontriviality by various studies, the work by Watts [13] represents a formidable challenge. Because of the close proximity of the firm's earnings and dividend announcement dates, the major issue of the dispute has centered on the identification and control of contemporaneous earnings information. In an attempt to settle this controversy, the present study evaluates and extends Watts' methodology.

The Effects of Pensions and Earnings on Retirement: A Review Essay

Abstract: Does retirement behavior react predictably to economic incentives? Evidence on this question would be useful to policy makers responsible for work and retirement programs affecting the elderly. This paper reviews the lessons and limitations of recent economics literature on pensions, earnings, and retirement. Section I develops the life cycle context for analyzing this problem. Theoretical literature is examined in Section II, followed by a review of the empirical literature in Section III. Conclusions appear at the end of each Section.

Expected Interruptions in Labor Force Participation and Sex Related Differences in Earnings Growth

Abstract: The paper analyzes the joint determination of wives' earnings and labor force participation over the life cycle given the interruptions in wives' work careers. The interruptions affect the profitability of the investment in human capital, which in turn determines earnings. The earnings prospects feed back into the participation decision, namely, the decision whether and for how long to drop out of the labor force. The formal analysis compares the age-earnings profiles of persons who drop out of the labor force with those who do not during the pre- and post-interruption period. The comparison is carried out where interruptions are assumed to be exogenous and when they are endogenous. The effect of productivity at home, the initial stock of human capital and its rental value on the length of the interruption is investigated.

Causes and consequences of layoffs

Abstract: Using probit analysis, this article finds that differential treatment accounts for a substantial portion of the higher layoff rates of blacks in comparison to whites. However, women are found to be considerably less prone to layoffs than men with similar characteristics. Among those who obtained subsequent employment (taking into account the possible selectivity bias in such a subsample), white males are hurt more by layoffs than black males in terms of both short-term and long-term earnings growth; women's earnings are not necessarily affected by layoff at all. However, whites and males are found to be more likely to be reemployed than blacks and females, respectively.

Housework by Husbands Determinants and Implications

Abstract: WOMEN continue to carry disproportionate responsibility for household tasks. A study of 650 Detroit women reveals that attitudes, employment status, life cycle, and husband's income all contribute to husband's housework effort. Some evidence is presented that the greater the earnings differential of husband over wife, the less he contributes in help at home.

Perceived Earnings Functions and Ex Ante Rates of Return to Post Compulsory Education in England.

Abstract: This article offers a direct empirical test of one of the main tenets of the human capital model. It shows that by the end of their compulsory education English pupils in general are aware of the relationship between educational qualifications and average earnings. For the first time in Britain direct calculations are made of ex ante perceived rates of return to upper secondary and higher education. The perceived rates correspond closely to the actual rates estimated by earlier studies. The article also provides useful evidence of differences between social classes and ability groups. In particular it shows that the human capital model offers a much less satisfactory explanation of the behaviour of low ability and working class pupils than it does of high ability and middle class pupils.

The Influence of Socioeconomic Background on the Earnings of Young Men

Abstract: Using the Panel Study of Income Dynamics, we test the proposition that interaction between education and socioeconomic status (SES) has a negative impact on earnings. Contrary to findings by Papanicolaou and Psacharopoulos for the United Kingdom, no ...