When this year's Nobel Laureate, Robert Solow, and Ely Lecturer, Alan Blinder, teamed their impressive talents several years ago to ask, Does Fiscal Policy Matter?, the answer they gave was a resounding yes. Working in a then sophisticated neo-Keynesian IS-LM tradition, Blinder and Solow presented a parsimonious macroeconomic model and some statistical and historical evidence suggesting that changes in the weighted standardized government surplus did indeed substantially affect real economic activity. The profession was pretty much convinced that the permanent income hypothesis (PIH) or life cycle hypothesis (LCH) almost provided a sufficient framework for analyzing consumption and saving and hence the effects of fiscal policy. Curiously, the large Keynesian effect of a tax-induced rise in current disposable income was reconciled with the very small effect predicted by the longerhorizon models with more of a whimper than a bang. Since then, the profession has moved some distance from complete acceptance of the life cycle and permanent income hypotheses and perhaps even further from the traditional consumption function specification in vogue at that time. Indeed, Robert Barro (1974) rekindled the notion that a tax-fordebt swap would have no real effects. An avalanche of analytical and empirical research has sharpened our understanding of the issues involved, the econometric difficulties in estimating the relevant parameters, and even the care necessary in defining what is meant when one asks whether fiscal policy has any real economic effects. Surprisingly, despite numerous caveats, new and' improved data and estimation techniques, and improved perspectives offered by analytical insights not yet prevalent when Blinder and Solow wrote their paper, my conclusion is that their answer is essentially correct: fiscal policy does matter, both for short-run stabilization purposes and for long-run capital accumulation. I believe the preponderance of the evidence strongly supports this view, although the empirical research suggests that the impact of, say, tax cuts on consumption is perhaps only one-third as large as the typical Keynesian estimate of two decades ago, but much larger than the neutrality predicted by Ricardian equivalence or the very small effect predicted by the PIH or LCH.

Much attention has been focused recently on the effects of unions on economic stability, resource allocation and income distribution. Almost always, the discussion begins with the effects of unions on labor earnings or wages.' Yet substantial agreement on the magnitude of the effect of unions on wages or earnings hardly seems close at hand. Among other studies on this subject, it is noted that the classic study by H. Gregg Lewis estimates a union/nonunion wage differential of about 10-15 percent in 1957-58; Leonard Weiss estimates about the same differential as Lewis; and Victor Fuchs, Frank Stafford, Adrian Throop, and Orley Ashenfelter and George Johnson estimate a much larger differential. The question such studies should attempt to answer is whether and how much union membership increases wages facing individuals, holding constant other things such as education, race, sex, age, and occupation. The studies mentioned above are not entirely appropriate to answer this question. For example, some suffer from a potentially severe aggregation bias in examining average wages or earnings and the percentage of the labor force unionized and/or fail to disaggregate by race and sex. Those that attempt to examine opportunities facing individuals are forced to employ data on earnings rather than wages and thereby build (at least partially) voluntary labor supply and demand decisions into their estimates. The purpose of this paper is to present new evidence on the relative wages of union and nonunion workers by applying recent advances in the hedonic method of price measurement to a new and rich source of data on individual workers. In Section I, an equation relating wages to personal characteristics is developed which focuses on union membership and its interaction with race, sex, occupation, and geographical area. The equation extends work in this area by Robert Hall. In Section II, a brief discussion of the data is presented together with empirical estimates of the union/nonunion wage differential. Formal tests are made of some interesting hypotheses about the pattern of the relative wages of union and nonunion workers by race, sex, occupation, and geographical area. The results are in much closer accord with the estimates of Lewis and Weiss than those of Fuchs, Stafford, and Throop. In Section III, some concluding remarks are offered, including some observations on the limitations of this type of study.