The article studies the U.S. earning trends since 1950 and gives explanations for the inequality in earnings. Both slow growth and increased inequality appear in the comparison of adult male earnings distributions for 1979 and 1987. Trends in women's earnings paint a somewhat brighter picture. Women, like men, have experienced slow hourly wage growth and growing wage inequality. But in terms of annual earnings, both factors have been offset by changes in hours worked. The result is a significant increase in the proportion of women who earn $20,000 a year or more. A combination of shifts in supply and shifts in demand is necessary to explain the observed trends between these groups. A critical aspect of supply shifts was the entry into the labor market of the well-educated baby boom generation. Demand shifts can be characterized as a long-term trend toward increasing relative demand for highly skilled workers. The growth in within group earnings inequality has many potential explanations, but it is not well understood and contains opportunities for future research

The author would like to acknowledge support for prior work on this topic from the U.S. Department of Health and Human Services, and helpful comments from three anonymous referees, Rebecca Blank, Howard Chernick, John Fitzgerald, Irwin Garfinkel, Peter Gottschalk, Edward Gramlich, David Greenberg, Judith Gueron, James Heckman, V. Joseph Hotz, Robert Hutchens, Michael Keane, Frank Levy, Larry Mead, Michael Murray, Robert Plotnick, Anuradha Rangarajan, Philip Robins, Howard Rolston, Jeffrey Smith, and Daniel Weinberg. All opinions and errors are those of the author alone

THE THICK VOLUME under review, by Richard Layard, Stephen Nickell, and Richard Jackman, is an extensive econometric and theoretical study, using time-series and cross section data, of the central tendency of the unemployment rate and its fluctuations in 19 OECD countries since the mid-50s. It thus joins the company of several recent macroeconometric studies of employment determination using international time-series data. Of these it is easily the most far-ranging study to date though in its microscopic examination of social legislation it has somehow neglected a range of macro factors right under its nose. Readers will find an abundance of arresting claims and provocative positions to keep the critical juices flowing. For me the volume is significant not (or hardly at all) as an assemblage of particular modelings and findings but primarily as an early econometric expression of the paradigm shift we are now witnessing in macroeconomics. Once nearly made extinct by a neoclassical winter, a school of economists are today furiously at work on unemployment considered as an equilibrium phenomenon' springing from en

We analyze the value to firms of being able to renegotiate covenants in their debt contracts. Covenants control agency problems, but also reduce firms' flexibility to pursue profitable investments. Initial covenants will be more severe for renegotiable contracts, because they can be relaxed selectively when the lender believes they pose an inefficient constraint. We show firms with high ex ante credit risk find the option to renegotiate most valuable. The model is used to explain why bank loans and privately placed debt typically have harsher covenants than public debt and to predict which firms will borrow using closely held debt. Journal of Economic Literature Classification Numbers: D82, G21, G32.

This paper shows that a debt contract with warrants for the lender and cash/equity settlement options for the entrepreneur-borrower is the optimal contract in a setting with moral hazard and unverifiable states of nature. This contract makes it possible to contract optimally ex ante on unverifiable states; debt obligations are adjusted to state realizations so that debt is made safer. Moral hazard is reduced as a result

We examine the design of compensation contracts and determination of investment policies when a manager has private information regarding the effect of investment on both the firm's cash flows and the private benefits she is able to extract from employment. We show that, in general, the optimal mechanism is characterized by a menu of salary and option contracts. When the manager's private information relates only to the firm's cash flows, the firm overinvests relative to the Pareto optimal level. On the other hand, if the private information relates only to private benefits, the firm will underinvest.

This paper studies distinctions between fixed-price and Dutch auction self-tenders for common stock. We find that fixed-price tenders pay higher premiums to retire greater equity fractions than Dutch offers yet generate similar total returns to stockholders. Accordingly, total returns are significantly higher in Dutch auctions after controlling for tender and firm characteristics. In addition, wealth transfers to owners of repurchased shares are significantly higher in fixed-price offers. The Dutch mechanism thus appears to induce increases in firm value with smaller disbursals of cash. These cost savings to investors who maintain their ownership may explain the popularity of the new technique

This paper develops a model of security broker behavior under price uncertainty. The model examines the process of matching orders and the determinants of equilibrium brokerage commission rates. Institutional arrangements, search efficiency, execution costs, volume, risk, and the unit price of the security are shown to affect equilibrium brokerage commission rates. Some stylized facts of security brokerage are explained

This paper analyzes the optimal financial structure for a firm in which the top manager must provide incentives to a subordinate in addition to exerting directly productive efforts. Optimal capital structure is shown to involve a moderate level of debt with a substantial penalty for default, and passive shareholders. In a two- or three-layer hierarchy, optimal leverage is shown to decrease as either the number of hierarchical levels or the importance of agents further down the hierarchy increases. This and other implications of the model square well with existing evidence and suggest new directions for empirical work