Knowledge that Transforms

A multiperiod, general equilibrium model of the labor market is developed in which risk-averse workers are faced with job-related uncertainty and labor turnover is costly. If a worker is unlucky and suffers a bad job match, he quits and joins another firm, hoping that he will like its work environment more. Because the quality of a job match is unobservable, workers cannot insure against the risk of a bad match. The firm provides implicit insurance against job dissatisfaction, typically by paying workers more than their net marginal products in their early years with the firm and less subsequently. Since the probabilities of the insured-against events (the quit rates over time) are affected by the amount of such insurance provided, this implicit insurance is characterized by moral hazard. Individuals quit when in the absence of insurance they would not. The equilibrium contract balances out efficiency in risk bearing with efficiency in turnover incentives. We show that the equilibrium contract is not (constrained) efficient and indicate why.

Economists have often found it useful to look at the average length of an unemployment spell in evaluating labor market conditions and in considering the labor market experience of the unemployed. Usually this statistic has to be estimated from grouped observations on interrupted (incomplete) unemployment spells. This paper is a comparative study of some nonparametric and parametric methods of estimating this quantity using Australian Department of Social Security data on unemployment benefit recipients.

We develop a search model that focuses on the expected result of search. The model focuses on four conceptually different steps which are taken in changing jobs. First, the person is either voluntarily or involuntarily terminated. Second, the person who decides to quit (or who is involuntarily terminated with prior notification) chooses whether to search on the job or full time (i.e., by becoming unemployed). Third, as each job offer is received, the person decides either to accept it or to continue searching for a better offer. The fourth step occurs after the person has evaluated the "experience-good" aspects of the job. At that point he or she can determine whether the new job is better than the previous job. The question we ask is whether the type of termination and/or the experience of unemployment affects the probability that the person will find the new job preferable to the previous job. The model predicts that the type of termination will affect the probability of moving to a better job but the experience of unemployment will not. This prediction is verified using 1978-79 data from the PSID to estimate a bivariate probit model.

Until recently, the aggregate female labor force participation rate in Japan has shown a secular declining trend throughout the postwar period of economic development. Participation of paid female employees alone exhibits a steadily rising trend, more or less comparable to that in the United States and European countries. Although the fertility rate dropped drastically shortly after World War II, in the subsequent period increases in female education and a relative improvement of female wages appear to have promoted a substantial increase in paid female employment. Labor supply equations for paid employees estimated from time-series data provide negative income and positive wage elasticities. Cross-sectional analysis gives reasonable results, particularly for middle-age wives. Absolute values of estimated wage elasticity, notably, have almost always been smaller than income elasticity, unlike many research findings in the United States.

Labor force participation of married women increased from 49.1% to 83.5% during the past 2 decades. By cross-section estimates on micro data of the probability of labor force participation in 1967, 1973, and 1980 and by using these estimates for predicting changes in labor force participation, we have found that increases in own wage has been by far the most important explanatory factor. Women's real wages have increased relative to husband's after-tax earnings both as an effect of the introduction of compulsory separate taxation in 1971 and as an effect of dramatically decreased sex differentials in pay partly associated with increased female education.

This paper discusses three independent inquiries into consequences of the rise in women's labor force participation rate (LFPR) in the United States since 1946. (1) The growth in women's LFPR is decomposed by decade, age, marital status, presence of age-specific children, and years of schooling. (2) Evidence on the impact of the growth on the inequality in income among husband-wife families is summarized and the impact on income inequality in other family structures is discussed. The effect on the level of family real income is considered and "money illusion" in measuring the change in income is noted. (3) Bivariate autoregressive time series are estimated with annual data from 1950 to 1980, indicating that lagged values of women's LFPR are systematically correlated with measures of flow fertility, marriage, schooling, and men's income, while only fertility has a strong, persistent lagged correlation with LFPR.

A structural life-cycle retirement model with an improved specification over previous models is used to analyze and compare the long-run effects on the labor supply of older workers of the 1983 Social Security reforms. The effects of separate provisions from the 1983 amendments are examined. These include the raising of the normal retirement age to 67, the increase in the delayed retirement credit to 8%, and the lowering of the reduction rate for earnings over the test amount to $1.00 for every $3.00 of earnings.

Except in special cases, market work and household membership are jointly chosen. A Nash bargaining model of family behavior is used to specify stochastic structural relationships (two indirect utility functions and a market and a reservation wage function) that jointly determine work, consumption, and household membership. The maximum likelihood estimates of the implied trinomial probit model differ sharply from those obtained when either market work or household membership is taken as exogenous. This application to white male youths from the National Longitudinal Surveys shows the insurance function of families: parents insure their sons against poor market opportunities.

This paper is a survey of analyses of women's labor force growth in 12 industrialized countries, originally presented at a conference in Sussex, England, in June 1983. The main focus of the conference papers and of the current survey is on growth of the labor force of married women in the years 1960-80. Trends in fertility, wages, and family instability also receive attention as related developments. Married women's labor force growth is observed in all countries, except for the USSR after 1970, where labor force rates of women reached the level of men. Growth rates differ among countries. They apparently respond to growth in real wages and to growth in education, but response elasticities differ among countries. Estimates of these elasticities contained in the country papers were helpful in predicting the trends. Other findings include ubiquitous declines in fertility and growth of divorce in the 1970s. Both developments are related to long-run labor force growth. In all countries, wages of women were lower than wages of men. The 1960 average gap of 38% narrowed to 29% in 1980. Factors related to these trends, including public policy, are discussed in the survey.

Despite the rise in the feminist movement, the enactment of equal opportunity legislation, and the rapid increase in women's labor force participation, a substantial sex differential in wages has persisted in the United States for at least 4 decades. Measured by hourly earnings of year-round workers, this wage gap was 31% in 1955, widened to a 35%-37% range by the 1960s and early 1970s, and then narrowed to 33% by 1982. This paper examines the extent to which changes in the characteristics of men and women in the labor force and other factors can account for the observed pattern. The main finding is that increases in women's labor force participation were initially associated with a declining skill level of employed women relative to employed men, where skill is measured by years of schooling and job tenure. More recently the work experience of employed women has been increasing, which helps account for the recent narrowing trend in the wage gap. During the 1970s the wage gap probably woul have narrowed more significantly had it not been for high levels of unemployment combined with the downward pressure on wages of less skilled workers arising from rapid increases in the supply of young workers and women. Gains by younger women in work expectations, work experience, and college enrollment and other work-related investments point to a further narrowing of the wage gap in the next decade.