Knowledge that Transforms

This paper uses CPS data to analyze gender differences in black-white annual earnings trends over the 1970s and 1980s. We find that in at least two respects black women fared better than men over this period. First, due to decreasing relative annual time inputs for black males, but not black females, black women experienced increases in both annual earnings and estimated wages compared to white women, while black men gained only in terms of wages compared to white men. Second, since the gender earnings gap among whites was narrowing during this time, as black women's wages rose relative to white women's, they also made faster progress relative to white males than did black males. In other important respects, however, the experience of black men and women over the period was similar. First, for both groups, while earnings and wages relative to whites of the same sex rose during the 1970s, they stagnated or declined during the 1980s. Second, in contrast to the 1960s, younger blacks did not fare better than older blacks during the 1970s and 1980s. While in 1971, both unadjusted wage ratios and adjusted earnings ratios were highest within each sex group for labor market entrants, by 1988 these ratios were fairly similar across experience groups.

The egalitarian wage policies of labor unions in the United States have been attributed to low-skilled majorities pursuing their self-interest in a majority rule environment. For this hypothesis to be more than a formalization of stylized facts requires evidence that unions are not egalitarian when the work place is not characterized.by a low-skilled majority. The author considers the impact of high-skilled majorities on (1) voting behavior in certification elections and (2) rent distribution policies in existing unions. Neither analysis supports the belief that union rent distribution policies are driven by skill-group coalitions pursuing their self-interests.

Newly available data from the U.K. market for indexed securities are used to test the Fisher hypothesis. For monthly observations of interest rates at 14 maturities, the hypothesis that the after-tax nominal interest rate is a constant plus anticipated inflation proves to be a reasonable approximation of reality. For longer maturities, the coefficients on the expected rate of inflation are approximately equal to one. The Mundell- Tobin effect is in evidence for shorter maturities. The inverted Fisher effect is in evidence for shorter maturities. The inverted Fisher effect is decisively rejected. The evidence suggests that past difficulties encountered in trying to prove the Fisher effect have been due to the lack of a direct measure of inflation expectations and real interest rates.

This paper discusses appropriate methodology for measuring the effect of an event on the value of a firm's equity. Th e key points are (1) cumulative abnormal returns do not measure the effect of an event on firm value if there are dividends during the event window; (2) it is generally appropriate to use pre-event parameters of the return-generating process even if the event alters the parameters during the event window, and (3) controlling for fact ors other than the return on the market portfolio improves the power of the estimation. The formula for the effect of an event on the value of a firm when there are dividends during the event window is developed a nd applied to a study of the effect of the Bhopal disaster on the value of Union Carbide.

We analyze taxpayer choices of return preparation services. We distinguish between two types of nonpaid preparers, six types of paid third parties, and self-preparation. Among other things, we find significant differences in the factors which explain the demand for paid third parties who are and are not able to represent clients before the IRS. Among these factors are increases in IRS audit rates and the frequency of IRS penalties.

Two commonly used sources of aggregate expenditure data are personal consumption expenditures in the National Income an d Product Accounts and the Consumer Expenditure Surveys administered by the Bureau of Labor Statistics. The author adjusts b oth data sources to incorporate the service flows from owner-occupied housing and other consumer durables. A comparison of the two estimat es of aggregate expenditure reveals that the differences between the tw o data sets have been growing over time. By 1989 the level of aggregat e expenditure in the national accounts exceeds that reported in the Consumer Expenditure Surveys by $1224 billions. Less than half of th is difference can be attributed to definitional differences in the two data sources.

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Nasser Daneshvary, Henry W. Herzog, Jr., Richard A. Hofler, Alan M. Schlottmann, Job Search and Immigrant Assimilation: An Earnings Frontier Approach, The Review of Economics and Statistics, Vol. 74, No. 3 (Aug., 1992), pp. 482-492

Subal C. Kumbhakar, Arunava Bhattacharyya, Price Distortions and Resource-Use Efficiency in Indian Agriculture: A Restricted Profit Function Approach, The Review of Economics and Statistics, Vol. 74, No. 2 (May, 1992), pp. 231-239

Federally insured student loans constitute an area that is almost completely unexplored by researchers despite intense scrutiny that federally insured loans are receiving after the savings and loan collapse. Based on a probit model of default for two thousand guaranteed student loans, the authors find that individual characteristics (including parents' income, presence of two parents at home, student's graduation, and student's race) have a significant impact on default rates, while institutional characteristics (four year vs. two year college, private vs. public, school size, and individual school dummies) have little significant effect. The results imply that proposals to penalize colleges with high default rates are premature.