Showing papers on "Earnings published in 1991"

Earnings Management During Import Relief Investigations

Abstract: This study tests whether firms that would benefit from import relief (eg, tariff increases and quota reductions) attempt to decrease earnings through earnings management during import relief investigations by the United States International Trade Commission (ITC) The import relief determination made by the ITC is based on several factors that are specified in the federal trade acts, including the profitability of the industry Explicit use of accounting numbers in import relief regulation provides incentives for managers to manage earnings in order to increase the likelihood of obtaining import relief and/or increase the amount of relief granted While studies of earnings management typically examine situations in which all contracting parties have incentives to "perfectly" monitor (adjust) accounting numbers for such manipulation, import relief investigations provide a specific motive for earnings management that is not

Who Benefits from State and Local Economic Development Policies

Abstract: Bartik reviews evidence on whether state and local policies affect job growth. He then presents empirical data supporting the intentions of such programs, showing that job growth may lead to a number of positive long-term effects including: lower unemployment, higher labor force participation, higher real estate values, and better occupational opportunities. He also shows that the earnings gains to disadvantaged groups outweigh the resulting increased real estate values for property owners, and concludes by saying that regional competition for jobs may actually be a benefit for the nation as a whole.

Earnings as an explanatory variable for returns

Abstract: In this paper we investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings/returns associations.' The primary model motivating this research relies on the idea that book value (owners' equity) and market value are both "stock" variables indicating the wealth of the firm's equity holders. The related "flow" variables (after adjusting for dividends) are, respectively, earnings divided by price at the beginning of the return period (A/P-1) and market returns. It then follows that earnings divided by beginning of period price should be associated with stock returns. Although models based on a relation between market value and book value are used occasionally in the accounting research literature (see, for example, Landsman [1986], Harris and Ohlson [1987], and Barth

Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority

Abstract: The idea that wages rise relative to alternatives as job seniority accumulates is the foundation of the theory of specific human capital, as well as other widely accepted theories of compensation. The fact that persons with longer job tenures typically earn higher wages tends to support these views, yet this evidence ignores the decisions that have brought individuals to the combination of wages, job tenure, and experience that are observed in survey data. Allowing for sources of bias generated by these decisions, this paper uses longitudinal data to estimate a lower bound on the average return to job seniority among adult men. I find that 10 years of current job seniority raise the wage of the typical male worker in the United States by over 25 percent. This is an estimate of what the typical worker would lose if his job were to end exogenously. Overall, the evidence implies that accumulation of specific capital is an important ingredient of the typical employment relationship and of life cycle earnings ...

The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?

Abstract: This article examines the properties and prevalence of measurement error in longitudinal earnings data. The analysis compares matched Current Population Survey data to administrative Social Security payroll tax records. In contrast to typically assumed properties of measurement error, the results indicate that errors are serially correlated over 2 years and negatively correlated with true earnings (i.e., mean reverting). In a cross section, the ratio of the variance of the signal to the total variance is .82 for men and .92 for women. These ratios fall to .65 and .81 when the data are specified in first differences. Longitudinal earnings data may be more reliable than previously believed.

Speaking, Reading and Earnings among Low-Skilled Immigrants.

Abstract: This article is concerned with the determinants of English language fluency among immigrants and the effects of fluency on earnings. Using special survey data on a sample of over 800 aliens, the analysis shows the importance of certain variables not previously available, speaking fluency at migration and English reading fluency. English speaking and reading fluency both increase with duration in the United States, and the increase with duration is greater for those with more schooling and who are not Hispanic. The article shows that reading fluency is more important than speaking fluency as a determinant of earnings.

What Went Wrong? The Erosion of Relative Earnings and Employment Among Young Black Men in the 1980s

Abstract: This paper shows a widening in black-white earnings and employment gaps among young men from the mid-l970s through the 1980s that differs among subgroups. Earnings gaps increased most among college graduates and in the midwest while gaps in employment-population rates grew most among high school dropouts. We attribute the differential widening to distinct shifts in demand for subgroups due to changes in industry and regional employment, the falling real minimum wage and deunionisation, the growth of the relative supply of black to white workers that was marked among college graduates, and to increased crime, that was marked among high school dropouts. The differential factors affecting the groups highlights the economic diversity of black Americans.

Evidence on the Possible Underweighting of Earnings-Related Information

Abstract: This study proposes and tests hypotheses related to three issues. (1) Do analysts underestimate the persistence (permanent component) of earnings forecast errors? (2) Do investors use analysts' earnings forecast revisions to reassess the persistence of previous forecast errors? (3) Do investors systematically underestimate the persistence of previous forecast errors signaled by forecast revisions? In their investigations of post-earnings-announcement drift, Rendleman, Jones, and Latan6 [1987], Bernard and Thomas [1989; 1990], and Freeman and Tse [1989] present evidence suggesting that investors systematically underestimate the persistence of earnings forecast errors. I use analysts' expectations (their forecasts) to test the hypothesis that market participants underestimate persistence (issue (1)). Freeman and Tse also show that investors reevaluate the persistence of earnings innovations in the light of subsequent earnings announcements. I investigate whether investors similarly reassess persistence in the light of subsequent analyst earnings forecast revisions (issue (2)). Finally, if investors both underestimate the persistence of forecast errors at earnings announcements and reevaluate persistence when forecasts are revised, then they may underestimate the persistence of earnings forecast errors signaled by forecast revisions. That is, investors may

The Effect of Information Releases on the Pricing and Timing of Equity Issues

Abstract: With time-varying adverse selection in the market for new equity issues, firms will prefer to issue equity when the market is most informed about the quality of the firm. This implies that equity issues tend to follow credible information releases. In addition, if the asymmetry in information increases over time between information releases, the price drop at the announcement of an equity issue should increase in the time since the last information relese. Using earnings releases as a proxy for informative events, we find evidence supporting these propositions. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry

Abstract: This paper estimates the difference in compensation between company-owned and franchisee-owned fast food restaurants. The contrast is of interest because contractual arrangements give managers of company-owned outlets less of an incentive to monitor and supervise employees. Estimates based on two data sets suggest that employee compensation is slightly greater at company-owned outlets than at franchisee-owned outlets. The earnings gap is 9 percent for assistant and shift managers and 2 percent for full-time crew workers. Furthermore, the tenure-earnings profile is steeper at company-owned restaurants. These findings suggest that monitoring difficulties influence the timing and generosity of compensation.

Earnings Uncertainty and Aggregate Wealth Accumulation

Abstract: This paper argues that precautionary savings due to uninsurable earnings uncertainty are likely to be an important source of aggregate wealth accumulation. The stylized model presented in this paper can easily generate levels of wealth above 60 percent of the observed net wealth in the United States, net of conventional life-cycle savings. Copyright 1991 by American Economic Association.

Crime and the Employment of Disadvantaged Youths

Abstract: This paper examines the magnitude of criminal activity among disadvantaged youths in the 1980s. It shows that a large proportion of youths who dropped out of high school, particularly black school dropouts, developed criminal records in the decade; and that those who were incarcerated in 1980 or earlier were much less likely to hold jobs than other youths over the entire decade. The magnitudes of incarceration, probation, and parole among black dropouts, in particular, suggest that crime has become an intrinsic part of the youth unemployment and poverty problem, rather than deviant behavior on the margin. Limited evidence on the returns to crime suggest that with the decline in earnings and employment for less educated young men, crime offers an increasingly attractive alternative.

How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?

Abstract: This paper estimates the effect of changing union density on earnings differentials and inequality among male workers in the U.S. and on industry earnings differentials among OECD countries. For the U.S. the evidence indicates that the fall in union density contributed to the 1980s increase in earnings inequality. Cross section-based estimates of union wage effects suggest that 40-50% of the rise in the white collar premium. 15-40% of the rise in the college premium. and 20% of the rise in the standard deviation of In earnings for all men are attributable to the fall in union density. Longitudinal-based estimates of union wage effects suggest that deunionization contributed less to the rise in differentials. Still. the dispersion of earnings grew as much among organized workers as among otherwise comparable nonunion workers, so that overall dispersion would have risen substantially even if the entire work force had been organized. Deunionization was thus a factor in the rise in inequality but not the factor. The cross-country comparisons show that earnings distributions are more compact among union workers than among nonunion workers in OECD countries with different union densities, types of union movements, and with very different union/nonunion wage differentials, making the relation between unionism and dispersion a general outcome of unionism. not something specific to U.S. institutions. In addition, they indicate that earnings differentials by industry are smaller and increased less in the 1980s in highly unionized countries than in less unionized countries, suggesting that strong national union movements can partially offset market pressures for rising inequality.

The Forecast Accuracy of Individual Analysts: Evidence of Systematic Optimism and Pessimism

Abstract: O'Brien [1990] examines the annual earnings forecast accuracy of individual analysts reporting to the Institutional Brokers Estimate System (IBES) of Lynch, Jones and Ryan during July 1975-September 1982. Using a regression model which adjusts for average firm and year effects, O'Brien finds no evidence of differential forecast accuracy. Comparing individual analysts' earnings forecasts to median consensus forecasts during 1983-86, we also find no statistically significant evidence of differential analyst forecast accuracy. Our result, however, does not mean that one analyst's forecasts are much like another's. We find that analysts are persistently optimistic or pessimistic relative to consensus forecasts. We examine this persistent behavior and its effect on measures of forecast accuracy over a sample

National Saving and Economic Performance

Abstract: The past decade has witnessed a decline in saving throughout the developed world the United States has the dubious distinction of leading the way. The consequences can be serious. For individuals, their own economic security and that of their families is jeopardized. For society, inadequate rates of saving have been blamed for a variety of ills decreasing the competitive abilities of American industry, slowing capital accumulation, increasing our trade deficit, and forcing the sale of capital stock to foreign investors at bargain prices. Restoring acceptable rates of saving in the United States poses a major challenge to those who formulate national economic policy, especially since economists and policymakers alike still understand little about what motivates people to save. In "National Saving and Economic Performance," edited by B. Douglas Bernheim and John B. Shoven, that task is addressed by offering the results of new research, with recommendations for policies aimed to improve saving. Leading experts in diverse fields of economics debate the need for more accurate measurement of official saving data; examine how corporate decisions to retain or distribute earnings affect household-level consumption and saving; and investigate the effects of taxation on saving behavior, correlations between national saving and international investment over time, and the influence of economic growth on saving. Presenting the most comprehensive and up-to-date research on saving, this volume will benefit both academic and government economists."

Learning and Capacity Expansion under Demand Uncertainty

Abstract: A competitive, dynamic model of entry into a new industry is set up and both its positive and normative aspects are studied. The main assumptions are that entry is sequential, that it occurs under imperfect information on the size of the market and that better information becomes available as time goes on. The gradual improvement in information is due to the fact that later waves of entrants are able to observe the profitability of earlier entrants. The major results reported here (under suitable restrictions) are that the equilibrium rate of entry is monotonically decreasing over time, and that-at any given point in time-it is smaller than the socially optimal one. When a new market opens (as a result of a product being newly invented, for instance) or when an existing market starts to expand, uncertainty with respect to its size is likely to prevail. As a result of this uncertainty, entry of firms into such markets typically will occur in waves: some firms will enter initially, while others will wait to see the consequences of that initial entry. If the experience of early entrants is favourable, entry will continue; otherwise entry will cease. Hence, with the introduction of a new product, two phases are associated: the "growth phase", typified by positive operating profits for existing firms and expansion of productive capacity due to entry of new firms, and the "mature phase", typified by erosion of profits and fixed total productive capacity. Empiricists estimating the time-pattern of investments during the growth phase have found an "S-shaped" diffusion curve (see Mansfield (1986), and Gort and Klepper (1982)). The purpose of the present paper is to theoretically characterize these time-patterns and to investigate their welfare properties. Any attempt to model the type of entry described above, must account for differences in both entry dates and resultant earnings. In other words, the theory must explain why the realized earnings of different cohorts of firms are not equal. Often such ex post differences are reconciled by assuming heterogeneity with respect to some latent underlying characteristic ("managerial ability", for instance) and attributing differences in earnings to differences in that characteristic. In this paper, instead, earning differentials are attributable to luck only: ex ante all firms are technologically identical and equally capable of forecasting market prospects and rationally acting upon those forecasts. Ex post, some firms turn out to have entered at the "right time" and are-for that reason-more profitable. The model developed in this paper analyzes a parametric example of a sequential entry problem in which the uncertainty over market size is gradually resolved over time in a Bayesian setting. In an environment of perfect competition and constant returns-toscale, a free-entry equilibrium concept is introduced and the aggregate implications of the time-path of investments are derived. I then compare this (actual) time-path to the optimum. This comparison is interesting because the equilibrium is analysed under the

How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?

Abstract: This paper estimates the effect of changing union density on earnings differentials and inequality among male workers in the US and on industry earnings differentials among OECD countries For the US the evidence indicates that the fall in union density contributed to the 1980s increase in earnings inequality Cross section-based estimates of union wage effects suggest that 40-50% of the rise in the white collar premium 15-40% of the rise in the college premium and 20% of the rise in the standard deviation of In earnings for all men are attributable to the fall in union density Longitudinal-based estimates of union wage effects suggest that deunionization contributed less to the rise in differentials Still the dispersion of earnings grew as much among organized workers as among otherwise comparable nonunion workers, so that overall dispersion would have risen substantially even if the entire work force had been organized Deunionization was thus a factor in the rise in inequality but not the factor The cross-country comparisons show that earnings distributions are more compact among union workers than among nonunion workers in OECD countries with different union densities, types of union movements, and with very different union/nonunion wage differentials, making the relation between unionism and dispersion a general outcome of unionism not something specific to US institutions In addition, they indicate that earnings differentials by industry are smaller and increased less in the 1980s in highly unionized countries than in less unionized countries, suggesting that strong national union movements can partially offset market pressures for rising inequality

Union Coverage and Profitability Among U.S. Firms

Abstract: This paper utilizes unique survey data on labor union coverage at the firm level to examine union effects on the profitability of 705 U.S. companies during the 1970s. Market value and earnings are estimated to be about 10-15 percent lower in an average unionized company than in a nonunion company, following extensive control for firm and industry characteristics. Deleterious union effects on firm profitability are sizable throughout the 1972-80 period, but vary considerably across industries. The relatively poor profit performance of unionized companies may help explain the recent decline in U.S. union membership. The author thanks the W.E. Upjohn Institute for Employment Research for financial support; Elizabeth Gregory for assistance with the union coverage survey; Zvi Griliches for providing access to the RD Donald Deere, Terry Seaks, and anonymous referees for helpful suggestions; and seminar participants at Connecticut, Florida State, Harvard, Texas A&M, and William and Mary for comments on earlier versions of this research.

Trends in the Growth and Distribution of Skills in the U.S. Workplace, 1960–1985:

Abstract: Using new measures of job skills and standard measures of education and earnings, the authors examine the effects of changing occupational and industry employment patterns on the skill composition of work between 1960 and 1985. The results show a strong upgrading of cognitive and interactive skills—combined, however, with a substantial slowdown in the rates of growth of those skills—and a declining demand for motor skills. The earnings mix of jobs did not show the same high correlation with employment growth as skill and education levels, because high-wage, low-skill jobs declined in the goods industries while low-wage jobs requiring at least moderate skill levels grew rapidly in the services.

Black-White Earnings Over the 1970s and 1980s: Gender Differences in Trends

Abstract: This paper uses CPS data to analyze gender differences in black-white annual earnings trends over the 1970s and 1980s. We find that in at least two respects black women fared better than men over this period. First, due to decreasing relative annual time inputs for black males, but not black females, black women experienced increases in both annual earnings and estimated wages compared to white women, while black men gained only in terms of wages compared to white men. Second, since the gender earnings gap among whites was narrowing during this time, as black women's wages rose relative to white women's, they also made faster progress relative to white males than did black males. In other important respects, however, the experience of black men and women over the period was similar. First, for both groups, while earnings and wages relative to whites of the same sex rose during the 1970s, they stagnated or declined during the 1980s. Second, in contrast to the 1960s, younger blacks did not fare better than older blacks during the 1970s and 1980s. While in 1971, both unadjusted wage ratios and adjusted earnings ratios were highest within each sex group for labor market entrants, by 1988 these ratios were fairly similar across experience groups.

Male-female differences in hourly wages: the role of human capital, working conditions, and housework

Abstract: This study uses a new data set from a 1986 survey of workers to examine simultaneously the wage effects of human capital, household responsibilities, working conditions, and on-the-job training. The analysis suggests that household responsibilities had a negative effect on women's earnings, but the unexplained difference between the earnings of men and women is not greatly reduced by inclusion in the explanatory model of information on either housework or working conditions. The presence of children appears to have had a positive effect on the wages of both men and women. T WENTY years of research on gender differences in earnings have failed to explain the entire wage gap as a consequence of measured differences between male and female workers. Some researchers view the unexplained residual as evidence of discrimination against female workers; others take the position that the entire wage gap is potentially explicable by differences in labor supply. According to the latter view, an unexplained wage gap remains because the data sets in use do not contain adequate information on all productivity-related characteristics. This view implies that the unexplained wage gap will be reduced by more comprehensive infor

Time-Varying Stock Price Response to Earnings Induced by Uncertainty about the Time-Series Process of Earnings

Abstract: In this paper, I examine how changes in the level of uncertainty about the time-series process of earnings affect the magnitude of the stock price response to earnings announcements. The basic premise is that when there is more uncertainty about the time-series parameters of earnings,' a given level of unexpected earnings can have a larger effect on stock price because it is weighted more heavily by investors in determining the value of the firm. Tests are based on a simple model in which price is a function of expected future earnings which follow a random walk with drift time-

The New Suburbanization: Challenge To The Central City

Abstract: The changing metropolis the industrial composition of employment earnings levels agglomeration economies and the development of cities and suburbs population and work-force characteristics problems in city and suburban labour markets.