Showing papers on "Earnings published in 1992"

U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations

Abstract: The article studies the U.S. earning trends since 1950 and gives explanations for the inequality in earnings. Both slow growth and increased inequality appear in the comparison of adult male earnings distributions for 1979 and 1987. Trends in women's earnings paint a somewhat brighter picture. Women, like men, have experienced slow hourly wage growth and growing wage inequality. But in terms of annual earnings, both factors have been offset by changes in hours worked. The result is a significant increase in the proportion of women who earn $20,000 a year or more. A combination of shifts in supply and shifts in demand is necessary to explain the observed trends between these groups. A critical aspect of supply shifts was the entry into the labor market of the well-educated baby boom generation. Demand shifts can be characterized as a long-term trend toward increasing relative demand for highly skilled workers. The growth in within group earnings inequality has many potential explanations, but it is not well understood and contains opportunities for future research.

Earnings Losses of Displaced Workers

Abstract: The authors exploit administrative data combining workers' earnings histories with information about their firms to estimate the magnitude and temporal pattern of displaced workers' earnings losses. They find that high-tenure workers separating from distressed firms suffer long-term losses averaging 25 percent per year. In addition, the authors find that displaced workers' losses (1) begin mounting before their separations; (2) depend only slightly on their age and sex; (3) depend more on local labor-market conditions and their former industries; (4) are not, however, limited to those in a few sectors; and (5) are large even for those who find new jobs in similar firms. Copyright 1993 by American Economic Association.

Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States

Abstract: This paper estimates the effects of school quality--measured by the pupil/teacher ratio, average term length, and relative teacher pay--on the rate of return to education for men born between 1920 and 1949. Using earnings data from the 1980 census, we find that men who were educated in states with higher-quality schools have a higher return to additional years of schooling. Rates of return are also higher for individuals from states with better-educated teachers and with a higher fraction of female teachers. Holding constant school quality measures, however, we find no evidence that parental income or education affects average state-level rates of return.

Reputation and Performance Among Security Analysts

Abstract: Members of the Institutional Investor All-American Research Team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance. This contemporaneous advantage is complemented by a timing advantage; All-Americans supply forecasts more often than other analysts. Stocks returns immediately following large upward forecast revisions suggest that All-Americans impact prices more than other analysts. However, there is virtually no difference in returns following large downward revisions. Nevertheless, the collective results suggest a positive relation between reputation and performance, and, assuming that All-Americans are better paid, pay and performance.

Tests of Analysts' Overreaction/Underreaction to Earnings Information as an Explanation for Anomalous Stock Price Behavior

Abstract: This study examines whether security analysts underreact or overreact to prior earnings information, and whether any such behavior could explain previously documented anomalous stock price movements. We present evidence that analysts' forecasts underreact to recent earnings. This feature of the forecasts is consistent with certain properties of the naive seasonal random walk forecast that Bernard and Thomas (1990) hypothesize underlie the well-known anomalous post-earnings-announcement drift. However, the underreactions in analysts' forecasts are at most only about half as large as necessary to explain the magnitude of the drift. We also document that the “extreme” analysts' forecasts studied by DeBondt and Thaler (1990) cannot be viewed as overreactions to earnings, and are not clearly linked to the stock price overreactions discussed in DeBondt and Thaler (1985, 1987) and Chopra, Lakonishok, and Ritter (Forthcoming). We conclude that security analysts' behavior is at best only a partial explanation for stock price underreaction to earnings, and may be unrelated to stock price overreactions.

Overreaction / Underreaction to Earnings Information as an Explanation for Anomalous Stock Price Behavior

Abstract: This study examines whether security analysts underreact or overreact to prior earnings information, and whether any such behavior could explain previously documented anomalous stock price movements. We present evidence that analysts' forecasts underreact to recent earnings. This feature of the forecasts is consistent with certain properties of the naive seasonal random walk forecast that Bernard and Thomas (1990) hypothesize underlie the well-known anomalous post-earningsannouncement drift. However, the underreactions in analysts' forecasts are at most only about half as large as necessary to explain the magnitude of the drift. We also document that the "extreme" analysts' forecasts studied by DeBondt and Thaler (1990) cannot be viewed as overreactions to earnings, and are not clearly linked to the stock price overreactions discussed in DeBondt and Thaler (1985, 1987) and Chopra, Lakonishok, and Ritter (Forthcoming). We conclude that security analysts'

The Spatial Mismatch Hypothesis: Three Decades Later

Abstract: This paper provides a comprehensive review of the extensive scholarly literature dealing with the effect of housing market discrimination on the employment and earnings of Afro‐American workers. From a historical perspective, it examines a variety of empirical studies that are as relevant today (particularly in light of recent events in Los Angeles) as they were when this discussion began nearly 30 years ago. More specifically, it reviews studies that have attempted to determine the extent to which serious limitations on black residential choice, combined with the steady dispersal of jobs from central cities, are responsible for the low rates of employment and low earnings of Afro‐American workers. The paper concludes with a discussion of policy recommendations and suggestions for continued areas of research. Three major categories in need of policy prescriptions are examined: housing, employment, and schooling. There is an assessment of the gains made since the inception of the spatial mismatch ...

A nonlinear model of security price responses to unexpected earnings

Abstract: This study presents evidence that the marginal response of stock price to unexpected earnings declines as the absolute magnitude of unexpected earnings increases. Most previous studies assume a linear relation between unexpected returns (UR) and unexpected earnings (UE). The constant marginal response of prices to earnings in linear models is typically referred to as the earnings response coefficient (ERC) and estimated as the slope coefficient from simple linear regression of UR on UE. Relative to the linear model, a nonlinear approach provides both significantly higher explanatory power and a richer explanation for differences between ERCs and price-earnings ratios. The nonlinear relation described in this paper rests on the premise that the absolute value of unexpected earnings is negatively correlated with earnings persistence. Valuation theory suggests that analysts and investors should place greater emphasis on forecasting high-persistence earnings than low-persistence earnings, because a given amount of the former has a greater valuation impact than the same amount of the

School Quality and Black-White Relative Earnings: A Direct Assessment

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.

Dividends and Losses

Abstract: An annual loss is essentially a necessary condition for dividend reductions in firms with established earnings and dividend records: 50.9% of 167 NYSE firms with losses during 1980–1985 reduced dividends, versus 1.0% of 440 firms without losses. As hypothesized by Miller and Modigliani, dividend reductions depend on whether earnings include unusual items that are likely to temporarily depress income. Dividend reductions are more likely given greater current losses, less negative unusual items, and more persistent earnings difficulties. Dividend policy has information content in that knowledge that a firm has reduced dividends improves the ability of current earnings to predict future earnings.

The Effect of the Set of Comparable Firms on the Accuracy of the Price-Earnings Valuation Method

Abstract: The price-earnings (PIE) valuation method estimates a firm's stock price as the product of its earnings and the PIE multiple determined from a set of comparable firms. This paper studies empirically the accuracy of the PIE valuation method when comparable firms are selected on the basis of industry, risk, and earnings growth. The effect of adjusting earnings for cross-sectional differences in leverage is also examined.

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-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.

Employment tenure and earnings profiles in Japan and the United States : comments

Abstract: The relationship between job tenure and annual earnings in Japan has received considerable attention from social scientists examining employment contracts and the Japanese compensation system. In their widely cited article, Masanori Hashimoto and John Raisian (1985), using data for 1980, showed that Japanese men have greater job tenure than comparable workers in the United States and that the earnings of Japanese men rise more rapidly with increased tenure. They found that an additional year of tenure increases earnings in both small and large firms in Japan more than does an additional year of general market experience. Their results for the United States indicate that general market experience increases earnings more than an additional year of job tenure. The 1970's and 1980's were a period of substantial change in Japanese labor markets, due to the rapid aging of the population and the restructuring of the economy following the oil crisis. The present analysis extends the work of Hashimoto and Raisian by estimating earnings equations for Japanese men for the years 1971, 1976, 1981, and 1986. Specifically, we wish to investigate whether Hashimoto and Raisian's findings have been stable over time or whether changes in the labor market have altered the importance of tenure relative to total labor-market experience in the Japanese labor market. I. Changes in the Labor Market

The Voluntary Restructuring of Large Firms in Response to Performance Decline

Abstract: Much of the research on corporate restructuring has examined the causes and aftermath of extreme changes in corporate governance such as takeovers and bankruptcy In contrast, we study restructurings initiated in response to product market pressures by "normal" corporate governance mechanisms Such "voluntary" restructurings, motivated by the discipline of the product market and internal corporate controls, will play a relatively more important role in the 1990s due to a weakening in the discipline of the takeover market Our data suggest that the firms retrenched quickly and, on average, increased their focus There is no evidence of abnormally high levels of forced turnover in top managers There is, however, a significant and rapid cut of 5% in the labor force Further, the cost of goods sold to sales and labor costs to sales ratios both decline rapidly, more than 5% in the first two years after the negative earnings The firms cut research and development, increased investment, and also reduced their debt/asset level by over 8% in the first year after the negative earnings We also document the reasons management and analysis reported for the negative earnings Overwhelmingly the firms blame bad economic conditions and, to a lesser extent, foreign competition

Earnings Uncertainty and Precautionary Saving

Abstract: We test for the presence of precautionary saving using a self-reported measure of earnings uncertainty drawn from the 1989 Italian Survey of Household Income and Wealth. The effect of uncertainty on saving and wealth accumulations is consistent with the theory of precautionary saving and with decreasing prudence. Earnings uncertainty, however, explains only a small fraction of saving and asset accumulation. The results cast doubt on the empirical relevance of precautionary saving as a response to earnings uncertainty, but not on the importance of the precautionary motive per se. Besides earnings uncertainty, other major risks such as health and mortality risks may be important determinants of wealth accumulation.

Women's Entry into Management: Trends in Earnings, Authority, and Values among Salaried Managers

Abstract: Jerry A. Jacobs University of Pennsylvania This paper examines whether the dramatic increase in women's representation among managers between 1970 and 1988 was real or was simply a case of women being given managerial titles but not commensurate pay or supervisory responsibility. Earnings and authority differentials between male and female managers are analyzed with data from three sources for this period. The results indicate that the sex gap in earnings among managers narrowed during this period, while the gap in authority remained constant. Thus, women's increasing representation in management was not simply a matter of their artificial reclassification. Nonetheless, the sex gap in wages within management continues to exceed that in the labor force as a whole. The implication of these results for theories of internal organizational dynamics are discussed.'

Price, Quality, and Income in Child Care Choice.

Abstract: Recent legislation may substantially expand federal assistance in paying for child care. This paper examines the potential effects of three aspects of federal assistance-reducing child care price (through vouchers or grants to providers), improving its quality (through incentives or regulation), and increasing family income (through tax credits)-on the child care choices employed mothers make. The data come from the 1985 wave of the National Longitudinal Survey of Youth, Ohio State University. Both multinomial and universal logit models are used. The results suggest that price is a critical variable in child care choice. The higher the price, the lower the probability a mode of care will be chosen. Parents do not consistently select high quality care, although overall quality improvements may increase the use of family day care. Mothers who earn more per hour and families who have higher incomes (other than the mother's earnings) are more likely to select center care over other modes. Consequently, subsidizing child care expenditures directly through vouchers and reduced fees or increasing other family income through tax credits consistently increases the use of center-based programs, all else equal.

Jobs, Authority, and Earnings Among Managers The Continuing Significance of Sex

Abstract: Explanations for women's historic underrepresentation in managerial jobs include actual or assumed sex differences in relevant qualifications, institutional barriers, and men's desire to retain the advantages afforded by managerial status. To the extent that women's increasing representation in managerial jobs stems from declines in real and stereotyped sex differences in qualifications, management jobs should afford women both the organizational authority and the rewards authority customarily gives men. If women's greater share of managerial jobs represent employers' minimal response to antidiscrimination pressures, managers' sex should continue to affect their authority and rewards, net of their inputs and organizational status. This article investigates these alternatives by examining the effect of sex in the access to and returns to authority, using data from a survey of self-described managers. Analyses revealed that women managers were concentrated low in chains of command, that they tended to super...

Households, Employment, and the Sense of Control*

Abstract: This paper investigates how the combination of job and household circumstances modifies the association between employment and the sense of control over one's life. Data are from a 1985 sample of 809 Illinois adults. The average sense of control is greater among people with paying jobs than among those without. The difference increases with greater job autonomy and higher earnings. Not all household contexts of employment are alike, however; people who do most of the household workfind employment less beneficial to their sense of control. Also, the more family income comes from sources other than one's earnings, the less that employment increases the sense of control. For married women, the typical combination of low pay, low autonomy, high responsibility for household chores, and family income other than personal earnings negates the positive association between employment and the sense of control.

Equity Issues with Time-Varying Asymmetric Information

Abstract: This paper develops a formal model of the effect of time-varying asymmetric information on the timing and pricing of equity issues when managers are better informed than outside investors. We assume that as time passes, the adverse selection problem becomes more severe as more managers receive a private signal. Under this assumption, the model predicts temporal variation in the quantity of issues, with a bunching of issues after information releases. It also predicts that the price drop at issue announcement increases with the time since the last information release. These predictions are consistent with several recent empirical studies relating equity issues to earnings and dividend announcements.

The Gender Earnings Gap: Some International Evidence

Abstract: This paper uses micro-data to analyze international differences in the gender pay gap among a sample of ten industrialized nations We particularly focus on explaining the surprisingly low ranking of the US in comparison to other industrialized countries Empirical research on gender pay gaps has traditionally focused on the role of gender-specific factors, particularly gender differences in qualifications and differences in the treatment of otherwise equally qualified male and female workers (ie, labor market discrimination) An innovative feature of our study is to focus on the role of wage structure--the array of prices set for various labor market skills--in influencing the gender gap The striking finding of this study is the enormous importance of overall wage structure in explaining the lower ranking of US women Our results suggest that the US gap would be similar to that in countries like Sweden, Italy and Australia (the countries with the smallest gaps) if the US had their level of wage inequality This insight helps to resolve three puzzling sets of facts: (1) US women compare favorably with women in other countries in terms of human capital and occupational status: (2) the US has had a longer and often stronger commitment to equal pay and equal employment opportunity policies than have most of the other countries in our sample; but (3) the gender pay gap is larger in the US than in most industrialized countries An important part of the explanation of this pattern is that the labor market in the US places a much larger penalty on those with lower levels of labor market skills (both measured and unmeasured)