Knowledge that Transforms

In this paper we develop and estimate the first complete and internally consistent model of the effect of Social Security on the labor supply of the aged. We develop a simple life-cycle model that captures the effect of Social Security on the joint choice of the date of retirement and hours of work immediately after retirement. We show that in the presence of Social Security the budget constraint relating these choices is highly complex and nonlinear, and we develop a maximum likelihood procedure for the model that yields consistent parameter estimates. Our procedure avoids the selectivity biases present in prior studies that have ignored the nonlinearity of the constraint or have examined only self-selected subsamples that exclude nonretirees. Our results show that Social Security has a significant, though relatively small, effect on the age of retirement and postretirement hours of work, and that the effect of Social Security grows with advancing age.

In this paper we investigate the reasons for the growth in the female labor force in America during the twentieth century. In our research, we study the longer-term trends since 1900 and conduct a more intensive examination of developments after the Second World War. On the basis of our work, we conclude that rising real wages accounted for 60% of the total growth in the female labor force. Half of this wage effect in expanding labor supply was the fertility-reducing consequence of a higher female wage.

This paper summarizes results from a validation study in which administrative records from a large manufacturing company are used to validate survey responses of a sample of workers from that company. Relatively little evidence of bias is found in reports of prior-year earnings and unemployment, the more salient fringe benefits, and union status. Quite diverse amounts of error variance are found in the survey reports, ranging from very small for reports of job tenure, annual earnings, and annual unemployment to very large for work hours and especially for a measure of hourly earnings constructed by dividing annual earnings by annual work hours. Furthermore, it is found that the conventional assumptions regarding measurement error in earnings models are not justified. In particular, there appears to be an important correlation between the measurement error in the reports of earnings and the level of job tenure, producing a bias in the estimated payoff to job tenure of roughly 30%. This result suggests a need for a greater understanding of the correlates of survey response errors.

This paper studies a fulfilled-expectations equilibrium in situations in which intermediaries provide personal opinions on the likelihood of success of personnel, projects, or investments. Each referee must recommend some candidates from a group of people about whom he has private information. The employer uses the recommendations to choose the workers, using his expectations about the quality of the recommended and the nonrecommended applicants. Although the referees use their information strategically, the competition among them produces optimal use of the information in the sense that employers make the same choices in equilibrium as they would if they had the same information as the referees.

The failure of many divorced fathers to comply with court-mandated child support awards has been identified as a major reason why a growing number of children live in poverty in female-headed households. This paper presents a model that seeks to explain why so many divorced fathers allow their children's welfare to suffer as a consequence of divorce. The point of departure is the recognition that children are collective consumption goods from the point of view of the father and mother. Within marriage, proximity and altruism serve to overcome the "free-rider" problem associated with the provision of public goods. However, on divorce the noncustodial parent suffers a loss of control over the allocative decisions of the custodial parent and it is not feasible for the couple to achieve a Pareto-optimal allocation of their joint resources. A model of optimal marriage contracts is constructed in which a couple decides on the allocation of resources within marriage and on the terms of a settlement in the event of divorce. The settlement consists of the determination of custody and transfer of income to the custodial parent. Divorce is endogenous in our model and its occurrence depends on a random variable introduced into the family budget constraint that measures the quality of the marriage match. The analysis yields several useful insights. In addition to explaining the apparently insufficient support by custodians we explain why custody rights and alimony transfers often go in the same direction, most commonly to the wife, and why uneven distribution of income between the spouses increases the probability of divorce.

The term "added worker effect" usually refers to a temporary increase in the labor supply of married women whose husbands have become unemployed. This paper presents a new approach to the empirical study of the added worker effect, which emphasizes the role of employment uncertainty and credit constraints in generating short-run participation and employment patterns. The estimates are based on employment transition probabilities rather than static measures of labor supply and are used in a dynamic simulation of changes in the employment and participation rates of wives following an exogenous increase in unemployment among their husbands. The results show a small but significant added worker effect, at least for white families, and suggest that the apparent disagreement among previous studies may stem from different approaches to measuring responses to a transitory event such as an unemployment spell.

This paper reexamines the empirical basis for two "facts" that seem to be found in most cross-section studies of immigrant earnings: (1) the earnings of immigrants grow rapidly as they assimilate into the United States; and (2) this rapid growth leads to many immigrants' overtaking the earnings of the natives within 10-15 years after immigration. Using the 1970 and 1980 U.S. censuses, this paper studies the earnings growth experienced by specific immigrant cohorts during the period 1970-80. It is found that within-cohort growth is significantly smaller than the growth predicted by cross-section regressions for most immigrant groups. This differential is consistent with the hypothesis that there has been a secular decline in the "quality" of immigrants admitted to the United States.

Increasing returns from specialized human capital is a powerful force creating a division of labor in the allocation of time and investments in human capital between married men and married women. Moreover, since child care and housework are more effort intensive than leisure and other household activities, married women spend less effort on each hour of market work than married men working the same number of hours. Hence, married women have lower hourly earnings than married men with the same market human capital, and they economize on the effort expended on market work by seeking less demanding jobs. The responsibility of married women for child care and housework has major implications for earnings and occupational differences between men and women.