Knowledge that Transforms

The following sections are included:INTRODUCTIONSPECIFICATION OF THE IMPORT EQUATIONRESULTSCONCLUSIONSREFERENCESAPPENDIX (This abstract was borrowed from another version of this item.)

THIS paper explores empirically the hypothesis that product market imperfections affect the earnings of labor in U.S. manufacturing industries. To the extent that labor shares in the excess return due to product market power, any policies designed to reduce this power may restrain or reduce wages in the affected industry. Thus workers may oppose antitrust action aimed at their own industry. Workers may oppose increased import competition that restrains market power not only because of potential unemployment but also because this increased competition indirectly reduces future wages. In addition, measures of the social loss due to product market power are understated if some portion of costs are actually return to market power. The transfer from consumers to producers, including labor as a factor of production, is also understated. Past results attempting to isolate empirically the relation between product market power, usually represented by product market concentration, and labor earnings have been mixed. This paper argues and demonstrates that economic profitability is a superior measure to concentration in summarizing the relative extent of product market power across industries. After developing a model of the division of the total excess return available to an industry between labor and capital, the paper presents empirical results that support the hypothesis that excess return or economic profitability is superior to product market concentration in explaining the interindustry variation in wages. The results indicate that labor receives 7% to 14% of the total excess return. For empirical analysis other determinants of interindustry wage variation must be controlled. The first section of the paper briefly discusses certain relevant labor force characteristics. The second section examines the relationship between wages and product market power. The third section discusses the data and presents empirical results. If possible, variables are measured as four-year averages over 1967-1970, to avoid single-year disturbances in the data and to approach long-run equilibrium observations. The final section presents concluding comments.

Andrea H. Beller, The Effect of Economic Conditions on the Success of Equal Employment Opportunity Laws: An Application to the Sex Differential in Earnings, The Review of Economics and Statistics, Vol. 62, No. 3 (Aug., 1980), pp. 379-387

While the rationale for conventional rate-of-return regulation has recently come into question, regulation designed to protect consumers by altering product quality has blossomed. In 1973, for example, eighteen major consumer bills were considered by Congress, among them requirements covering questions of product labelling, unit pricing, and truth in advertising. Currently there are 26 consumer offices scattered throughout the federal government, and over 200 city and state offices. In this paper, I try to explain variance in consumer complaints across different types of products. The tendency of consumers to complain about some products and not others is assumed to depend on some characteristics of both the industry producing that product and the people consuming it. The hypotheses generated are tested using data from the New Haven area. This paper is a first, exploratory study into the economic determinants of consumer complaints.

B ECAUSE many capital assets lose value as they age, it is important both for tax policy and for national income and wealth accounting to be able to measure the pattern of this depreciation. The economic theory of depreciation was first presented by Harold Hotelling in 1925. There was a gap of fifty years before this seminal piece was developed in discussions of depreciation/replacement' rates by Jorgenson (1975) and by Hulten and Wykoff (1976). The desire to add together capital with different characteristics and of different vintages to form an aggregate usable in national wealth accounting stimulated further work in the estimation of depreciation patterns and rates. In 1969 Taubman and Rasche investigated depreciation for office buildings, while in 1970 Wykoff did likewise for automobiles. The purpose of this article is to present a technique for estimating depreciation/replacement rates for the residential stock of housing using data for the United States, 1950-1970, and to compare these estimates with rates calculated by others for specific types of residential housing. This research relies upon the following assumption made explicit in Wykoff (1970): all housing capital, regardless of type, depreciates in the same fashion. Though this assumption is called into question by the results of Wykoff's research for automobiles, it is not formally tested here because of data limitations. In addition, depreciation/replacement rates are calculated in two ways. The first uses benchmarks that reflect the change in price or market value of units over time only, and the second uses benchmarks that reflect this price change plus the cost of maintenance and repair expenditures for the units. In the following section the theory underlying the depreciation/replacement rate estimation technique is presented, and the calculation of benchmarks for housing units of new equivalents, an essential step in the process, is covered in detail. Section C contains comparisons of benchmarks and depreciation/replacement rate estimates, and in section D, conclusions are drawn from the research as a whole.

Jacob S. Dreyer, Andrew Schotter, Power Relationships in the International Monetary Fund: The Consequences of Quota Changes, The Review of Economics and Statistics, Vol. 62, No. 1 (Feb., 1980), pp. 97-106

reported here was supported by funds granted to the Institute for Research on Poverty at the University of Wisconsin-Madison by the Department of Health, Education, and Welfare pursuant to the provisions of the Economic Opportunity Act of 1964. The conclusions expressed herein· are those of the author.. f' This paper empirically investigates the relationship between earnings and capability requirements in the United States. Emphasis is on the need to use data on the capability requirements of an individual's job rather than on an individual's capability endowments. Data are taken from the 1950 and 1960 Censuses and from the Dictionary of Occupational Titles (DOT). Using factor analysis, the DOT data are searched for some underlying basic capabilities; next, implicit capability prices are estimated. Non-:-linearity in the earnings function is analyzed, and price changes over time are studied as well.

T HE Employee Retirement Income Security Act of 1974 (ERISA) has provoked considerable debate about the desirability of various retirement plan provisions and the appropriate role of government in regulating the private pension plan contract. Among the issues debated is the question of who presently pays for private retirement benefits, and who should. An answer to at least the first of these questions is provided by the theory of differences. In competitive markets, a firm that provides pension benefits should pay lower wages than one that does not, thereby offering the same equilibrium value of total compensation to all workers of equal productivity. By the same token, firms that offer pension benefits on relatively desirable terms are expected to offer lower wage rates than firms offering pension benefits on very restricted terms. These simple notions imply that (1) workers pay for their own pensions by accepting lower wages, and (2) government regulation of the content of private pension plans may not significantly alter labor costs or the expected lifetime income of workers. From this perspective, contributions to private pension plans serve the exclusive purpose of enabling individuals to reallocate their resources over time according to their diverse tastes, and do not affect total labor compensation. The primary purpose of this paper is to examine the empirical validity of the equalizing differences hypothesis. By examining the relationship between wages and pension plans, we also hope to improve our ability to account for wage differentials. Contributions to private retirement plans have grown rapidly in recent years-from 1.7% to nearly 4.0% of private sector wages between 1950 and 1979, and coverage has increased from 22% to more than 45% of all private wage and salary workers.' Most previous studies of wage determination have ignored fringe benefits, let alone pension plans.2 But if the growth of pension plans continues and the equalizing differences hypothesis is correct, continuing neglect of pension provisions implies an increasing inability to account for wage differentials across firms, industries, occupations, race, sex, and age, or by the same token, an increasing tendency to attribute such differences to the wrong factors. The paper begins by reviewing the properties of competitive equilibriuni in labor markets in which compensation consists of current and deferred wages.3 Building on this foundation, we demonstrate how the annual cost of a pension plan depends on its various provisions, including vesting, early retirement, normal retirement, and benefit formula. With data on the earnings and pension provisions of individual workers in 133 large firms, we find some support for the equalizing differences hypothesis. We also observe that the extent of equalization diminishes with age, suggesting a redistribution of compensation from younger to older workers.

Mario I. Blejer, Leonardo Leiderman, On the Real Effects of Inflation and Relative-Price Variability: Some Empirical Evidence, The Review of Economics and Statistics, Vol. 62, No. 4 (Nov., 1980), pp. 539-544

A basic notion derived from the observation of a high and increasing degree of manager control in large American corporations (see Berle and Means (1932)) is that managers may have objectives different from the assumed profit maximization motive of owners of firms.' The issue remains unresolved-theoretical work has been of an ad hoc nature (e.g., Monsen and Downs (1965)) and the empirical evidence is mixed (e.g., Kamerschen (1968); Monsen, Chiu, and Cooley (1968); and Larner (1970)). This study conducts an empirical analysis of the relative performance of owner controlled and manager controlled banks. The study is unique in three respects. First, it focuses upon cost and growth as well as profit performance. Second, and more important, it is not confined to the largest 200 or 500 firms as has been the case with most previous studies.2 The sample in this study includes the lead bank of most of the 1,735 bank holding companies in the United States in 1975.3 Third, we test for nonlinearity to determine empirically at what percentage (if any) of ownership performance differences become apparent.