Knowledge that Transforms

Life-cycle models of labor supply predict the presence of an unobserved individual effect in the labor-supply equation that is correlated with observed explanatory variables, leading to an omitted variables bias in the cross section. I examine the sensitivity of parameter estimates to the presence of these effects, using fixed- and random-effect Tobit models. The estimated effects of children are too large in the cross section. The estimated intertemporal substitution elasticity ranges from 1.1 to 1.7. The results are similar for fixed- and random-effects models and for models using different specifications of the dependent variable.

This paper explores the differential nature of labor-supply decisions regarding weeks of work per year and hours of work per week among female household heads. A model of labor supply that separates the weeks/hours decision is presented and estimated, allowing for simultaneity in the weeks/hours decision, as well as for the presence of either fixed costs or weeks and hours constraints. The results indicate that not only are weeks and hours decisions separate from the labormarket participation decision, but they are also quite different from each other, although they appear to be simultaneously determined.

This article develops and tests an implication of risk-shifting in labor market implicit contracts. A 2-period implicit contract model is presented. The optimal contract, in the face of bankruptcy constraints, calls for a real wage that responds asymmetrically to permanent and temporary shocks to the firm's revenue function. In particular, the real wage responds more to a permanent shock than to a temporary shock of the same size. This implication is tested on 12 4-digit Standard Industrial Classification (SIC) code industries. Eleven of the 12 industries sampled show evidence that supports the asymmetric wage response implication.

Previous studies of optimal unemployment insurance (UI) design ignore the impact of UI on human capital investment decisions. We show that fully experience-rated UI increases investment in human capital when future employment opportunities are not known with certainty. In the presence of wage taxation, the optimal level of UI trades off full insurance and the impact, through human capital, of UI on the wage tax base. This trade-off, in turn, depends on the extent to which human capital accumulation reallocates labor between market and untaxed nonmarket activities. Taxation of UI benefits increases the optimal level of UI provision.

Recent developments in rationing theory are used to examine the differences between the effects of in-kind and cash transfers on labor supply. It is not possible to tell a priori which type of transfer will cause the greater reduction in hours of work; the answer depends on the extent to which in-kind transfers distort consumption choices and on the relationship between the transferred commodities and leisure. Hicks-Allen complements can cause greater reductions in labor supply than equally generous cash transfers, while strong Hicks-Allen substitutes can induce increases in market work.

"We argue that the postwar baby boom [in the United States] caused substantial fluctuations in both the economic rewards to education and educational attainment over the last 3 decades. If substitutability between young and old workers diminishes with education, the present value of lifetime earnings for a boom cohort is depressed more for highly educated workers, reducing incentives for educational attainment. The opposite is true for pre- and postboom cohorts. The diminishing substitutability hypothesis explains the declines in both the returns to college and college completion rates in the 1970s and predicts a substantial increase in educational attainment for postboomers."

A general selection model is estimated in which workers select across four labor markets-private/nonunion, privat e/union, public/nonunion, and public/union. Evidence is found of posi tive selection bias in the private/nonunion sector and of negative se lection bias in the public/union sector. Union wage differentials in the public and private sectors as well as public/private wage differe ntials are contrasted. The authors discuss when it is appropriate to use each type of differential. Copyright 1988 by University of Chicago Press.

A general stochastic model of optimal job separation behavior is developed in the paper. The model nests both the job training and the job-matching hypotheses of the wage-tenure relationship as special cases. The purpose of the paper is to compare the implications of the two hypotheses for job turnover. That expected wealth-maximizing separation strategies are qualitatively identical under the two hypotheses is the principal theoretical result. Although the empirical implications of the two hypotheses for observations on the distribution of completed job-spell lengths are similar as a consequence, they are not quite identical.

This article evaluates the quality of workers' information regarding pension offerings using both administrative records and worker reports of pension provisions. Missing and incorrect information is wide-spread. Unionized employees, higher income workers, better educated workers, and those with seniority are better informed about their pensions. There are also demographic differences: minorities have less pension knowledge than whites, but women are better informed than men along several pension dimensions. Myopia about pension incentive structures is troubling since workers may save or consume suboptimally, change jobs, or retire earlier than they would have if equipped with better pension information.

This article investigates racial differences in 1985-86 salaries of individual professional basketball players. White and black players earn similar mean compensation; however, controlling for a variety of productivity and market-related variables and for the endogeneity of player draft position, we find a significant ceteris paribus black compensation shortfall of about 20%. Further, we find that all else equal, including team performance and market factors, replacing one black player with an identical white player raises home attendance by 8,000 to 13,000 fans per season. The compensation and attendance results together are consistent with the idea of customer discrimination.