Knowledge that Transforms

JOB skills and human capital are acquired by a variety of activities in diverse institutional settings, ranging from parental investment in children to on-the-job training at work places. The purchase of occupational training from for-profit 'proprietary' schools and institutes is a significant, often neglected, mode of obtaining skills.' In 1971, approximately 1.4 million students enrolled in proprietary schools to prepare for work in such areas as truckdriving, electronics, cosmetology, cooking, and floristry, to name just a few. The schools provide an important example of the competitive for-profit education of voucher and performance contract proposals. With recent concern about the allocation of educational resources between academic and vocational schooling,2 possible differences in the social rate of return to for-profit and academic training have obvious policy implications. This paper investigates proprietary school job training in the United States and its impact on the earnings and occupational position of male workers. Section I presents information about proprietary schools and their distinctive operating characteristics; Section II estimates the effect of training on the earnings and occupational status of male workers and uses these estimates to obtain private and social rates of return under various assumptions about direct and indirect (= time) costs of education. I. The Proprietary School Training Market

THIS paper presents a cross-sectional analysis of the distribution across population classes of of work performed in the United States. The novelty of the study resides in its measurement of types of work. The approach adopted is to focus on a matrix of coefficients describing the nature of the task involved in each occupation of a very fine occupational classification, the elements of which matrix are here referred to as characteristics. For example, the vector of job characteristics employed includes indicators of physical working conditions, repetitiveness, position on the hierarchy of relationships to people, and skill demands, inherent in a job. Sections II and III describe data sources and the process of compiling a data file, respectively. Section VI compares sample mean job characteristics by race and by sex, these being the mean values of the left-hand variables employed in section VII. The latter reports estimates of functions in the general class Zja= F(ga) + Ea (1) where Zja 1 if the occupation performed by person a has job characteristic j, 0 otherwise, ga a vector of attributes, or personal characteristics, of person a, Ea -a disturbance term. The vector ga includes race, sex, age, schooling and union membership. The particular specification chosen within the general class (1) is given in section IV, and V is a cautionary note on interpreting the results of sections VI and VII.

It is also perhaps worth considering the case in which the alternative model y Zy + co contains the same regressors as the true model (i.e., Z X). Then the above proof shows that the probability limit of the estimated error variance is smaller when the true value of p is used to perform the Orcutt transformation than when any other value po is used. (This, in fact, constitutes a relatively simple proof of the consistency of the maximum likelihood estimate of p, for a correctly specified model.)

, and , Reply, Review (Federal Reserve Bank of St. Louis, Apr. 1969), 12-16. DeLeeuw, F., and J. Kalchbrenner, and Fiscal Actions: Test of Their Relative Importance in Economic Stabilization Comment, Review (Federal Reserve Bank of St. Louis, Apr. 1969), 6-11. Goldfeld, S., and A. Blinder, Some Implications of Stabilization Policy, Brookings Papers on Economic Activity (3:1972), 585-640. Gramlich, E., Usefulness of Monetary and Fiscal Policy as Discretionary Stabilization Tools, Jozurnal of Money, Credit and Banking, 3 (May 1971), 506-532. Guttentag, J., Strategy of Open-Market Operations, Quarterly Journal of Economics, 80 (Feb. 1966), 1-30. Hendershott, P., The Neutralized Money Stock: An Unbiased Measure of Reserve Policy Actions (Homewood, Ill.: Richard D. Irwin), 1968. Lombra, R. E., and R. G. Torto, Endogenous Reserve Open Market Operations in a Macro-Econometric Model: First Report. Presented at the Winter Meeting of the Econometric Society, 1971. and Federal Reserve 'Defensive' Behavior and the Reverse Causation Argument, Southern Economic Journal, 40 (July 1973), 4755, and Staff Economic Studies, no. 75 (Board of Governors of the Reserve System), 1972. Silber, W., St. Louis Equation: 'Democratic' and 'Republican' Versions and Other Experiments, this REVIEW, 53 (Nov. 1971), 362-367. Waud, R., and Fiscal Effects on Economic Activity. Presented at the Winter Meeting of the Econometric Society, 1972. Wood, J., A Model of Reserve Behavior, in George Horwich (ed.), Monetary Process and Policy (Homewood, Ill.: Richard D. Irwin), 1967, 135-166.

T HE concept of exploitation, while primarily associated with Marxian economics, has a long if somewhat neglected history within the neoclassical tradition. Pigou and other neoclassicists concerned with the welfare implications of their theory found it natural to define exploitation of labor as the difference between labor's marginal product and its real wage.' Whether or not the normative connotation of the term, exploitation, is deserved, the Pigouvian definition opens important questions for positive economics. In particular, the level of exploitation can be interpreted as a measure of the relative bargaining power of labor and employers in an imperfect market economy. In this context, Pigouvian exploitation provides a useful way of introducing and testing many of the interesting insights of bargaining theory in a more rigorous framework.2 Despite its theoretical importance, Pigouvian exploitation has received little empirical attention.3 However, the development of reliable data and econometric tools for estimating production functions has made the quantification of the concept quite feasible. While most studies of production have been oriented toward questions of growth, technological change and input substitution, there is no reason why these same techniques cannot be used for exploring theories of the income distribution and exploitation. Indeed, two recent research efforts, those of Thurow, and Hildebrand and Liu, have derived marginal products from the partial derivatives of empirically estimated production functions.4 While the first of these studies is based on time series data for the entire United States economy and the second on cross-sectional data for manufacturing industries, both suggest that labor is paid substantially less than its marginal product.5 Given the existence of Pigouvian exploitation, the natural question is what factors determine its extent. The purpose of this paper is to explore this question at both the macro and micro levels. Specifically, we concentrate on testing several well-known (if somewhat intuitive) arguments drawn from labor economics. The emphasis on the level of exploitation, rather than on the real wage rate, allows for the supposition that in a market economy, wages are limited by marginal productivity. Hopefully this effort will demonstrate the importance and feasibility of research concerning Pigouvian exploitation. Received for publication December 18, 1972. Revision accepted for publication May 28, 1973. * We would like to thank the referee and our colleagues of the Department of Economics, University of Alabama in Birmingham for many helpful comments. 1A. C. Pigou, (1952) pp. 555-560 and pp. 883-884. To be sure, this definition has been subject to a good deal of criticism on the grounds that such a divergence may not be a deliberate result of employer actions. For a discussion of this minor controversy see A. M. Cartter (1959), pp. 6570. Moreover Pigou, himself, was careful to distinguish the level of exploitation from the level of unfairness, i.e., the divergence between factor payments and marginal productivities which would hold in a perfectly competitive economy in equilibrium. 2 The authors feel that the normative interpretation of exploitation is important. The common content of principles courses and the long standing interest in refuting the distributional implications of the labor theory of value, belie the pure positivist position. For perhaps the strongest normative statement concerning marginalist analysis see John Bates Clark (1899). For a statement of the more widespread positive approach see Schumpeter (1954), pp. 868870 and pp. 883-884. 3 This lack of attention is probably due to the fact that marginal productivity, unlike the average labor productivity of Marxian economics, eludes easy quantification. Indeed, some neoclassicists may have regarded the Pigouvian definition as desirable precisely because of these difficulties. 4 Lester Thurow, (1968), G. H. Hildebrand and T. C. Liu (1965). Both Thurow and Hildebrand and Liu used variants of the Cobb-Douglas production function estimated directly from data concerning labor and capital. Thus, they avoid the generally indefensible approach which uses wage data to estimate production functions on the assumption that marginal products are equated to wage rates by an invisible hand. 5 Thurow finds that the rate of Pigouvian exploitation, defined as the ratio of marginal product to wage rate, has fallen from about 177% in 1930 to about 159% in 1965, although the rate of decline has been sporadic. Hildebrand and Liu compute rates of exploitation of production workers to vary between 171% in the stone, clay and glass industries and 87% in the transportation equipment industry. The la ter is the only industry with a rate of exploitation below 100%. It should be noted that Hildebrand and Liu also found substantially higher rates of exploitation among nonproduction workers.

George C. Bitros, Harry H. Kelejian, On the Variability of the Replacement Investment Capital Stock Ratio: Some Evidence from Capital Scrappage, The Review of Economics and Statistics, Vol. 56, No. 3 (Aug., 1974), pp. 270-278

T HIS paper attempts to show that there is merit in the long-standing but much abused distinction between 'informative' and other types of advertising, and that this difference is revealed in a differential effect on economic performance. After a brief literature survey, section II develops a theoretical distinction between informative and goodwill advertising. Section III outlines a test of the hypothesis that the different kinds of advertising will have opposite effects on market performance. Section IV presents the results of this test. Section V summarizes and relates the results to other recent work on the economics of advertising.

STUDIES investigating the relationship between market structure and market performance generally focus on allocative efficiency and progressivity. Almost no empirical analysis exists which examines the relationship-between market structure and another important dimension of market performance -the degree to which industries experience excess capacity.1 Of the three empirical studies dealing with the relationship between market structure and excess capacity (Bain, 1962; Meehan, 1967; Scherer, 1969), only Bain's directly relates the degree of excess capacity to market structure.2 However, given the small sample employed, Bain's observation that excess capacity did not appear in his six substantial or very high barriers sample industries and did appear in his three moderate to low barriers industries, generates only tentative conclusions with respect to the relationship between excess capacity and barriers to entry. This paper employs multiple regression analysis and investigates the quantitative relationship between market structure and a direct measure of excess capacity for 35 American manufacturing industries. In order to capture chronic excess capacity, the dependent variable is measured over a period of rising aggregate demand, 1963-1966. The results suggest that partial oligopolies experience significantly more excess capacity during periods of growing aggregate demand than do tight oligopolistic or atomistic industries. Section I of this paper has a discussion of the various hypotheses linking market structure and excess capacity. Section II describes the model and presents the major empirical results. Section III discusses the implications of the empirical results with respect to antitrust policy.