Knowledge that Transforms

This paper tests Mincer's minimum-wage model by estimating reduced-form wage and employment equations for both the covered and uncovered sectors in nine regions of the United States. As theory predicts, in regions with comparatively small covered-sector demand elasticities, the northern and midwestern regions, the uncovered-sector wage increases after a minimum-wage hike; and in regions with comparatively large demand elasticities, the southern and western regions, the uncovered-sector wage decreases. Because of data limitations the uncovered-sector employment effect could not be estimated sharply, and so its relationship to the covered-sector demand elasticity is weak.

The wages and employment of typographers are examined to see whether they can be usefully characterized as the outcome of a process by which the union maximizes an objective function containing wages and employment and is constrained by a trade-off between these two variables as represented by the employer's labor demand function. Our functional form assumptions permit investigation of some familiar special cases of union behavior. The parameter implications of both the wage bill maximization hypothesis and the rent maximization hypothesis provide inferior explanations of the movement of wages and employment of these workers compared with our more general formulation.

This paper explores some of the implications for econometric practice of the principle that people's observed behavior will change when their constraints change. In dynamic contexts, a proper definition of people's constraints includes among them laws of motion that describe the evolution of the taxes they must pay and the prices of the goods that they buy and sell. Changes in agents' perceptions of these laws of motion (or constraints) will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess. Until very recently, received dynamic econometric practice ignored this principle. The practice of dynamic econometrics should be changed so that it is consistent with the principle that people's rules of choice are influenced by their constraints. This is a substantial undertaking and involves major adjustments in the ways that we formulate, estimate, and simulate econometric models.

The paper investigates whether compensation among local jurisdiction is, by itself, sufficient to ensure efficient provision of local public goods. Jurisdictions have fixed boundaries, and each has an entrenched government with the power to tax and supply the public good. Residents can move costlessly among jurisdictions. It is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency. Though residents can "vote with their feet," land is immobile. Hence, governments can unsurp some land rents for their own ends. Increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power.

This paper asks whether the continued accumulation, or mild dissaving, observed among the retired can be explained by uncertain lifetime. In the absence of annuities, after an initial period influenced by borrowing constraints, under constant relative risk aversion, uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is "small." Illustrative computations, based on actual income and survival data, show that plausible elasticities are sufficiently small to give this effect. The reduction in consumption is large enough to explain much of the lack of decumulation by the elderly.

[In a general equilibrium model of a labor economy, the size of government, measured by the share of income redistributed, is determined by majority rule. Voters rationally anticipate the disincentive effects of taxation on the labor-leisure choices of their fellow citizens and take the effect into account when voting. The share of earned income redistributed depends on the voting rule and on the distribution of productivity in the economy. Under majority rule, the equilibrium tax share balances the budget and pays for the voters' choices. The principal reasons for increased size of government implied by the model are extensions of the franchise that change the position of the decisive voter in the income distribution and changes in relative productivity. An increase in mean income relative to the income of the decisive voter increases the size of government.]