Knowledge that Transforms

I present a model where firms decide what types of jobs to create and then search for suitable workers. When there are few skilled workers and the skilled-unskilled productivity gap is small, firms create a single type of job and recruit all workers. An increase in the proportion of skilled workers or skill-biased technical change can create a qualitative change in the composition of jobs, increasing the demand for skills, wage inequality, and unemployment. I provide some evidence that there has been a change in the composition of jobs in the United States during the past two decades.

As measured by the total fertility rate (TFR), fertility in the United States fell sharply beginning in the early 1960’s, dropping to below the replacement level in 1972, and to well below the replacement level in the late 1970’s. Since then, the TFR has hovered below replacement level. Also in the early 1970’s, several states, followed by the U.S. Supreme Court in its 1973 Roe v. Wade decision, legalized abortion. This paper explores whether there is a connection between changes in abortion policy and U.S. fertility. Since the initial legislation legalizing abortion, government abortion policies continue to change, with government policies, in general, becoming less sympathetic to abortion. This shift is most notable in states’ decisions to end federal funding for abortions through Medicaid in the late 1970’s and, most recently, in some of the provisions of the federal 1996 welfare-reform legislation. Specifically, the Personal Responsibility and Work Opportunities Act of 1996 (PROWRA) included ‘‘illegitimacy bonuses’’ for the five states that ‘‘are most successful in reducing the number of out-of-wedlock births while decreasing abortion rates’’ (Committee on Ways and Means, 1996). Proposals to further restrict abortion, as well as proposals to liberalize abortion, continue to receive active consideration. Despite large numbers of abortions (more than one for every three live births) the effect of abortion policy on the number of children born is not clear. In the parallel debate about the oral contraceptive, some claimed that the new contraceptive technology caused the decline in fertility in the mid-1960’s. Others claimed that the oral contraceptive simply made the decline less costly for couples. In the

The average wage is a key aspect of economic well-being in a society. Several alternative wage measures based upon official government statistics are available to analysts. Although these series always have differed in their relative levels, since the mid-1970's their trends have diverged markedly. This paper, which summarizes and updates our earlier work (Abraham et al., 1998), has several goals: to describe several commonly used hourly wage series; to characterize differences in their trends; and to evaluate alternative explanations for these differences.

In my 1987 paper, I modeled contests where the probability of each player winning a prize depends on all players’ efforts, and examined the first-order benefits to one player of making a commitment to a strategy slightly different from his Nash equilibrium strategy. In the special case of a two-player symmetric contest, I found that this first-order effect was zero. Michael R. Baye and Onsong Shin (1999) have taken the useful further step of finding the second-order conditions which ensure that the local stationary point is a local maximum. They also find an example where such a commitment has a third-order benefit. Whether this is of any substantive economic interest remains to be seen. I used the phrase “no local effect” to mean zero first-order effect, which was clearly a sloppy use of language. But some such restriction on the use of “local” is essential. If the phrase “x has no local effect on f (x) at x 5 a” were to mean that all derivatives f (a) are zero, then a Taylor series expansion would show that f (x) 5 f (a) for all x, and “no local effect” would be the same as “no global effect.” Most importantly, symmetric contests were only a very special case of my model. The focus was on the much more interesting and more general situation of asymmetry among the players, where one player’s commitment to a strategy different from his Nash equilibrium strategy does bring him a first-order benefit— the favorite benefits by committing to excessive effort, and the underdog from committing to too little. Others, for example, Kyung H. Baik and Jason F. Shogren (1992), have extended the analysis to endogenize the order of moves and found that it can be in the interests of both contestants to let the underdog make the commitment. In my view these are the more interesting economic issues to do with contests than are third-order effects in the symmetric case.

In skill-biased (de-skilling) technological revolutions learning investments required by new machines are greater (smaller) than those required by preexisting machines. Skill-biased (de-skilling) revolutions trigger reallocations of capital from slow- (fast- ) to fast- (slow- ) learning workers, thereby reducing the relative and absolute wages of the former. The model of skill-biased (de-skilling) revolutions provides insight into developments since the mid-1970's (in the 1910's). The empirical work documents a large increase in the interindustry dispersion of capital-labor ratios since 1975. Changes in industry capital intensity are related to the skill composition of the labor force.

In this comment, it is argued that a balanced-budget rule may cause underinvestment. As a consequence, such a rule is not ex ante efficient: in order to achieve the ex ante optimal outcome, it would be necessary to add an extra rule for the level of public investment. Unfortunately, however, such an investment rule is likely to be very difficult to implement in practice. When there are no rules to prevent underinvestment, it is no longer clear whether a balanced-budget rule is beneficial or not. In some cases, the cost of low levels of investment outweigh the benefits of a balanced budget.

In our paper we have used the New Economics of Labor Migration framework to trace the complex linkages that exist among migration remittances and agricultural productivity [in China]. Constraints in the operation of on-farm labor and capital or insurance markets (or institutions) provide households with a motivation to migrate and distort on-farm operations when labor leaves. In our household sample the net impact of migration and remittances on maize production is negative. (EXCERPT)

Empirical research on the permanent-income hypothesis (PIH) has found that consumption growth is excessively sensitive to predictable changes in income. This finding is interpreted as strong evidence against the PIH. We propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent-income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors. Although the PIH is true, this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth.

During the first fifty years of the American Economic Association (AEA), its leaders considered the teaching of economics to be an important subject for discussion and debate. AEA founders set as a goal ... to educate public opinion about economic questions and economic literature (Elton Hinshaw and Siegfried, 1991 p. 373). During the last 50 years, AEA leaders have largely ceded questions on teaching to specialists. In 1955, the Association created the Committee on Economic Education (CEE) and charged it with improving the status of economic within the profession, stimulating and encouraging professional work on economic education, and arranging economics-education sessions at the AEA meetings. The Association later revised the charge to include actively ... improving the quality of economic at all levels, from pre-college to college, adult and general economic education (Hinshaw and Siegfried, 1991). It is time to direct the attention of the entire profession, not just economic specialists, toward the importance of educating a broad spectrum of the public about economics.

The countries of East Central Europe (ECE) and the former Soviet Union (FSU) entered the transition in 1989–1990 with a common heritage in agriculture: most land, regardless of its ownership, was cultivated collectively in large-scale farms with thousands of hectares and hundreds of member-workers; the commercial production from the collective sector was supplemented by subsistence-oriented individual agriculture based on rural household plots of less than one hectare; product markets and input supply channels were largely controlled by state organizations within an administrative command framework; budget constraints virtually did not exist. The persistent inefficiency of socialized agriculture was usually attributed to collective production, which is rare in countries with a marketoriented economy, and to farm sizes that were too large compared to the observed market ‘‘best practice.’’ The strategy of agricultural transition formulated in the early 1990’s accordingly envisaged a transformation from collective to individual agriculture as the ultimate goal. Individual farmers could form associations to ensure efficient farm services and engage in land transactions to achieve optimal farm sizes. Pragmatic considerations suggested an intermediate stage involving transition to downsized but still relatively large corporate or cooperative farms based on private ownership of land and assets and with radically modified, profit-motivated management.