Knowledge that Transforms

The arrival of the post--World War II baby boom cohorts in the job market raises many questions of effects associated with a rapidly declining average age of the labor force. This paper first summarizes 1967-75 wage behavior, showing that relative wages between schooling groups have not changed for prime-aged workers, but there is some evidence, for new job-market entrants, that wages of more educated workers have fallen relative to wages of less educated workers. However, changes among schooling groups are small in comparison to those between new entrants and peak earners within schooling group. The evidence is very direct: as work-experience distributions shifted toward increased proportions of young workers, their relative wages fell. After examining a career-phase model in which workers at different phases are imperfect substitutes, estimates of empirical relationships between cohort size and wages are presented. The main result is that income-depressant effects of (own) cohort size decline over the career but do not vanish altogether. Initial effects include reductions in wage rates and in hours and weeks worked, while persistent effects extend only to wages.

[This paper demonstrates that price dispersion can exist even within the context of a very simple model. Identical buyers with elastic demand curves sample sequentially from a known price distribution, at a fixed cost per observation. Firms are assumed to be perfectly informed of buyers' reservation prices and demand functions. Given the firms' distribution of marginal costs, firms' behavior as monopolistic competitors results in their offering a distribution of prices which is consistent with expected utility maximization by buyers and with expected profit maximization by sellers.]

[This paper has two purposes: First, it shows that Keynes's definition of "involuntary unemployment" and his policy recommendations in the General Theory (in particular, inflation) rely on a vague theory of justice. Thus the "generality" of the General Theory is questioned. Next the paper shows that the dynamic process described in the General Theory relies on the existence of nominal contracts in both the labor and the financial markets. The paper concludes that the IS-LM-type models have not much in common with the model presented in the General Theory.]

We extend the neoclassical theory of demand so that marginal consumers play a significant role in the determination of the elasticity of aggregate demand. Price-induced demand changes are decomposed into three effects: an aggregate substitution effect, an aggregate income effect, and an aggregate change-of-commodity effect. The final effect measures the rate at which consumers switch consumption to a similar commodity when the price of the commodity which they are currently consuming rises. Theories of consumers who pick one unit of one type of a differentiated commodity as well as the neoclassical theory obtain as special cases.

In much of the theoretical literature on development the standard assumption is that of a constant wage in agriculture. In this paper we cite some evidence, obtained in our detailed analysis of a recent large-scale survey of rural labor households by the National Sample Survey in India, of how the existing theories of wage determination by biological or institutional factors leave much to be explained in terms of the observed data. We then proceed to construct a modified theoretical framework which generate comparative-static hypotheses which seem to be consistent with many of the stylized facts.

Using data on adult male workers, we first investigate the incremental effect of 1 year of schooling on unemployed hours and use this calculation to explain the difference in the proportional effects of schooling on earnings and wages. Schooling apparently reduces unemployed hours by reducing the incidence of unemployment spells, but it does not significantly affect their duration. We next test whether unemployed hours represent real constraints on worker behavior. To do this we develop and estimate life-cycle models of labor supply for workers with and without spells of unemployment, using longitudinal data. The results imply that perhaps three-quarters of the unemployed hours of male workers are part of the offer to sell labor.

This paper describes two alternative institutional setups for trading in assets and goods. One setup corresponds to a "beginning-of-period:" asset equilibrium specification; the other suggests both beginning and end-of-period equilibrium. It is shown that: (a) each model is internally consistent and the two models are consistent with each another; (b) the two models abide by Walra's law and in neither of them is there a need for a separate "balance-sheet constraint"; and (c) the continuous time version of the two models is well defined.