Knowledge that Transforms

This paper develops a theory of layoffs in an intertemporal setting in which job separations may occur in each of several successive periods. Theoretical analysis of temporary layoffs in previous studies has been limited to models in which the layoffs occur only in the final period of the model. This multiperiod implicit contract framework enables us to identify distinguishing characteristics of temporary and permanent layoffs that were heretofore blurred or distorted in previous contract analyses.

The paper considers an industry in which individual output follows a stochastic growth process with a cumulative effect. It analyzes the roles of labor mobility and capital market conditions in the determination of wage contracts. Positive costs of mobility are shown to be necessary for the provision of wage and employment insurance when workers have no access to the capital market. When insurance is provided, wages grow less than average productivity. If the capital market is perfect, wage insurance will be provided even in the absence of costs of mobility. In this case, wages grow faster than average productivity.

This paper proposes a simple, new diagnostic indicating the presence of uncorrected heterogeneity in exponential models of duration. The use of the diagnostic is illustrated in an example dealing with unemployment duration in the DIME data. The diagnostic is seen to supplement the information on the fit given by the maximized likelihood value.

This paper examines trends in union membership during the twentieth century. The hypothesis is advanced that the provision of certain social welfare benefits by government substitutes for the private provision by unions, thereby reducing the attractiveness of union membership. The empirical implications of this hypothesis are examined using time-series data on aggregate union membership for the period 1904-80 and using pooled state data for the period 1964-80. These latter data are used to examine the effect of departures from the traditional doctrine of "employment at will." Both the time-series and the cross-section evidence suggest that government supply of "union-like" services reduces union membership.

Theoretical economic models, official labor force statistics, and most empirical studies of young workers disregard employment experience of students under age 16. Evidence from several sources, however, suggests that students ages 14 and 15 acquire substantial employment experience. Moreover, that experience is vastly different for black and white youths. Several policy-related issues, including causes of black-white differences in adult earnings, may deserve to be interpreted differently in the light of differentials in early employment experience. This employment experience of 14- and 15-year-olds in general and its racial pattern in particular should not continue to be ignored.

The effects on consumption and retirement of the length of the horizon are examined. At any given age people will work more and consume less if they expect to live longer. The Terman sample of gifted individuals in 1972 and 1977 is used to relate work status to the length of the horizon, as proxied by parents' longevity. The results suggest the expected positive effect on effort, but its magnitude is quite small. The panel from the Retirement History Survey is used, and effects of the horizon on consumption and retirement jointly are estimated for 1973 and 1975. There is a small positive effect of a more distant horizon (proxied by the number of living parents) on work effort and a stronger but still fairly small negative effect on consumption. Goods and leisure are consumed jointly, suggesting their complementarity in household production, and spending propensities out of social security wealth are far below those out of pension wealth.

We present a model of firm behavior in which firms choose a wage and a hiring standard to maximize their profits. The correlation between productivity and reservation wage affects the relationship among firm size, wages, and hiring standards. In the special case where labor productivity is a linear function of a worker's reservation wage, we find that in the absence of hiring costs wages are monotonically increasing with firm size. Any positive hiring costs, however, result in an interval of sufficiently small firms within which wages decrease with firm size. In all cases, among sufficiently large firms, wages increase with firm size. A review of previous empirical evidence finds that in some occupations the relationship between wages and firm size is U-shaped, while in other occupations wages increase monotonically with firm size. These empirical findings are consistent with our theoretical results.

The paper attempts to integrate new approaches to estimating union wage effects with the analysis of public-private sector wage differentials. Estimates of the union differential in both public and private sectors, allowing for the endogeneity of union status, are presented. The hypothesis that the recently measured rents to public sector employment primarily reflect the recent increase in unionization in that sector is examined, and receives considerable empirical support. There was evidence of positive selection into the union sector, especially for private sector workers. Union status appears to be strongly influenced by the expected wage gain from joining the union sector.

Using a sample of newly hired semiskilled production workers at two manufacturing facilities, I investigate various factors affecting the probability of workers' quitting. Workers who quit a previous job to take the jobs studied are less likely to quit than are workers who were unemployed when they applied for the jobs surveyed. Workers assigned to more complex tasks are more likely to quit their jobs than are workers assigned to simpler tasks. Younger workers are more likely to quit than are older workers. Better-educated workers have lower quit propensities than do less well educated workers. These correlations, which stem from multiple regressions using probit estimation routines, can be explained by a model in which individuals' quit propensities are functions of their alternative opportunities, job satisfaction, and the pecuniary and nonpecuniary costs of quitting.