Knowledge that Transforms

This article examines whether increases in female labor supply contributed to rising wage inequality and declining real wages of less skilled males during the 1980s. While male wage declines are concentrated in the 1980s, female labor supply growth slowed in the 1980s relative to the 1970s. Women also increased the relative supply of skill in the economy in the 1980s. Using state‐level data we estimate cross‐substitution effects between men and women. Once we account for demand changes we find little evidence that women substitute for men or that they contributed to the rapid inequality growth in the 1980s.

Using data from the National Longitudinal Survey of Youth, this article examines the impact of employer‐provided training on the wage profile and on the mobility of young workers. The main results are that (i) training with the current employer has a positive effect on the wage; (ii) employers seem to reward skills acquired through training with previous employers as much as skills they provide themselves; and (iii) part of the skills acquired through training programs provided by the current employer seem to be fairly specific as they are shown to reduce mobility, even after controlling for unobserved heterogeneity.

Recent work on the economic effects of minimum wages has stressed that the standard economic model, where increases in minimum wages depress employment, is not supported by empirical work in some labor markets. We present a general theoretical model whereby employers have some degree of monopsony power, which allows minimum wages to have the conventional negative impact on employment but which also allows for a neutral or positive impact. Studying the industry-based British Wages Councils between 1975 and 1992, we find that minimum wages significantly compress the distribution of earnings but do not have a negative impact on employment. I.

The pattern of effort and wages is derived in a multisector efficiency wage model. Firms choose effort endogenously. Easily monitored or low‐turnover jobs have high effort and may have low wages in equilibrium. Empirical wage differentials from a measure of supervision are smaller than observed industry differentials that have been attributed to efficiency wage models and are closer to those predicted by the model. Workers can search for and avail of on‐the‐job offers. If sectors grow at different rates or the unemployment rate changes, the pattern of wage differentials is unaffected.

Using data on union certification elections, we estimate the impact of unionization on firms' investment behavior. Employing both a standard q model and an “investment surprises” technique, we find that union certification significantly reduces investment in the year following the election. We find that a winning certification election has, on average, about the same effect on investment in the year following the event as would—given the elasticity measures taken from the public finance literature—a 33 percentage‐point increase in the corporate tax. The magnitude of the response in years further away from the election is less certain.

Estimated negative substitution effects on work hours question the empirical validity of the classical labor supply model. Estimates are reconciled by allowing a dual choice of hours and effort for piecerate workers. In such a model, these negative substitution effects result from substituting on‐ and off‐the‐job leisure. We test our model using controlled experimentation on human subjects. These experiments, while not naturally occurring environments, represent real economic choices and can generate data unavailable elsewhere (e.g., effort data). The results support our model, and they have implications both for labor management and for empirical research focusing only on the hours choice.

We study the effect of new technologies (NT) on wages and employment using a unique panel that matches data on individuals and on their firms. As in the United States, we show that computer users are better paid than nonusers (15%–20% more). But these workers were already better compensated before the introduction of the NTs. Total returns to computer use amount to 2%. Measurement errors do not affect our estimates. Furthermore, computer users are protected from job losses as long as bad business conditions do not last too long. This result holds even after controlling for possible selection biases.

This article adds to the empirical literature on tournament theory as a theory of executive compensation. I test several propositions of tournament models on a rich data set containing information about 2,600 executives in 210 Danish firms during a 4‐year period. I ask, Are pay differentials between job levels consistent with relative compensation? Is pay dispersion between levels higher in noisy environments? Is the dispersion affected by the number of tournament participants? Is average pay lower in firms with more compressed pay structures? Does wider pay dispersion enhance firm performance? Most of the predictions gain support in the data.

This paper reconsiders the empirical evidence connecting inflation to its higher-order moments. In particular, we examine the statistical properties of the observed positive correlation between the sample mean and the sample cross-sectional skewness of price changes. This correlation has attracted substantial attention over the years and has recently been the focal point of a debate among macroeconomists. We show that the sample mean-skewness correlation suffers from a small-sample bias that accounts for the entirety of the observed correlation. In other words, we establish that one of the stylized facts in the literature on aggregate price behavior need not be a fact at all.

Traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption. The full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure, excludable income, and deductible consumption are a Hicksian composite good. Microeconomic estimates imply a deadweight loss of as much as 30% of revenue or more than ten times Harberger's classic 1964 estimate. The relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed $2 per $1 of revenue.