Knowledge that Transforms

Economists are now beginning to recognize that an understanding of layoffs is crucial for a proper analysis of unemployment. In manufacturing, about 75 percent of those who are laid off return to their original More generally, among all persons classified as losers, layoffs account for about 50 percent of all unemployment spells. Temporary layoffs are an even larger fraction of cyclical changes in the number of losers. While this group includes some seasonally unemployed, most layoffs are induced by short random or cyclical fluctuations in demand. The conventional model of search unemployment is inappropriate for those and the modern theory of the Phillips curve requires substantial modification because of the size and cyclical variation of unemployment. I In a previous paper (1976), I showed analytically that our current system of unemployment insurance (UI) provides a substantial incentive for increased unemployment.2 The present paper provides micro-economic evidence that UI actually such a powerful effect. The estimates imply that the incentive provided by the current average level of UI benefits is responsible for approximately one-half of unemployment. It is important to note that the current study shows that UI increases the amount of unemployment, but does not deal with the mean per spell. This distinction deserves emphasis because nearly all previous empirical work focused the potential effect of UI duration. This focus is both unfortunate and surprising since UI can actually increase total unemployment while decreasing the mean per spell. While UI increases the of any given spell of unemployment, it may also induce more very short spells of unemployment. This possibility of reduced mean is clear in my 1976 theoretical analysis. An additional practical *Professor of economics, Harvard University. I am grateful to the National Science Foundation for support of this research, to David Ellwood and Joseph Kahan for assistance with the statistical calculations, and to Richard Freeman, Zvi Griliches, Daniel Hamermesh, James Medoff, Melvin Reder, and Jeffrey Sachs for discussions and comments. Earlier versions of this paper were presented at seminars at Chicago, Harvard, and Yale universities. IIn my 1975 paper, pp. 737-42, I discuss the implications of layoffs for the theory of search unemployment, the Phillips curve, and wage inflexibility. Although the standard criterion of unemployment is active seeking within the past four weeks, individuals are officially classified as unemployed without any inquiry about recent job-seeking activity if they state that they are on awaiting recall by their employers. Some of those look for jobs or alternative permanent employment, but the vast majority do return to their original Readers should not be confused by the two quite separate meanings of the term layoff in the Department of Labor's lexicon. In manufacturing establishment data, a is a separation initiated by the employer (not a quit) and may be permanent or In the Current Population Survey (CPS), an individual is if he is not working but has a job to which he is expecting to be recalled by his employer. To emphasize that I am dealing with those layoffs expected to terminate in recall, I use the adjective temporary. Unfortunately, the CPS uses the word in a different and quite confusing way: persons are divided into an indefinite duration group (in which the individual does not have an expected date of recall within thirty days) and a temporary group (when such a date is known). When it is useful to distinguish these groups, I use the terms indefinite duration and fixed duration; in my usage, the term includes both groups. 2My 1976 paper is really an explicit proof of arguments made more informally in my earlier study for the Joint Economic Committee (1973). For a similar development, see Martin Baily.

Formal proof is presented of an earlier article (Northwestern Univ. Law Rev., 55; 62-95 (Apr. 1960)) in which Meyer Burstein argued that the variable-proportions incentive for vertical integration has relevance for antitrust enforcement. Burstein's proposition also argued that there are alternatives to vertical integration by tying nonmonopolized inputs. It also implies that the economic effects of vertical integration and tying are identical, which raises the question of why the two are treated differently by present antitrust laws. Both are found to improve downstream production efficiency, although the new welfare effects are ambiguous. 16 references.

One of the sophisticated financial arrangements available at your neighborhood bank is Savings. In this plan you are committed to regular weekly deposits until some date in November when all the money is there with accumulated interest to spend for Christmas. It doesn't accumulate quite as much interest as regular savings. The reason people accept less interest on Christmas savings is that the bank protects these funds a little more than it protects ordinary savings. Regular savings are reasonably well protected against robbery, embezzlement and insolvency; and insurance takes care of what protection cannot do. But there is one predator against whose ravages the bank is usually impotent-you. With a Christmas account, the bank assumes an obligation to create ceremonial and administrative barriers to protect your account from yourself. Some people cheat on the withholdingtax forms they fill out for their employers. They understate their dependents, so that the Internal Revenue Service takes more than it deserves all year-a free loan from the taxpayer-in return for which the taxpayer gets a reduced shock the following April. Many of us have little tricks we play on ourselves to make us do the things we ought to do or to keep us from the things we ought to foreswear. Sometimes we put things out of reach for the moment of temptation, sometimes we promise ourselves small rewards, and sometimes we surrender authority to a trustworthy friend who will police our calories or our cigarettes. We place the alarm clock across the room so we cannot turn it off without getting out of bed. People who are chronically late set their watches a few minutes ahead to deceive themselves. I have heard of a corporate dining room in which lunch orders are placed by telephone at 9:30 or 10:00 in the morning; no food or liquor is then served to anyone except what was ordered at that time, not long after breakfast, when food was least tempting and resolve was at its highest. A grimmer example of a decision that can't be rescinded is the people who have had their jaws wired shut. Less drastically, some smokers carry no cigarettes of their own, so they pay the higher price of bumming free cigarettes. In these examples, everybody behaves like two people, one who wants clean lungs and long life and another who adores tobacco, or one who wants a lean body and another who wants dessert. The two are in a continual contest for control; the iistraight one often in command most of the time, but the wayward one needing only to get occasional control to spoil the other's best laid plan. As a boy I saw a movie about Admiral Byrd's Antarctic expedition and was impressed that as a boy he had gone outdoors in shirtsleeves to toughen himself against the cold. I resolved to go to bed at night with one blanket too few. That decision to go to bed minus one blanket was made by a warm boy; another boy awoke cold in the night, too cold to retrieve the blanket, cursing the boy who had removed the blanket and resolving to restore it tomorrow. The next bedtime it was the warm boy again, dreaming of Antarctica, who got to make the decision, and he always did it again. I didn't realize then how many contests of that kind, some pretty serious, I would eventually have with myself, trying to stop smoking, to exercise, to study for an examination, to meet a deadline, or to turn off an old movie on TV. At a gathering like the annual meeting of the American Economic Association most of us are exquisitely aware of that form of academic delinquency that is probably our greatest occupational hazard: We cannot make ourselves write those papers, articles, and dissertations *Harvard University.

There have been a number of points at which anthropology and economics have come to confront one another over the last several decades-development theory; preindustrial history; colonial domination. Here I want to discuss another where the interchange between the two disciplines may grow even more intimate; one where they may come actually to contribute to each other rather than, as has often been the case, skimming off the other's more generalized ideas and misapplying them. This is the study of peasant market systems, or what I will call bazaar economies. There has been by now a long tradition of peasant market studies in anthropology. Much of it has been merely descriptiveinductivism gone berserk. That part which has had analytical interests has tended to

An abstract of this article, from a report by the authors, may be found in EAPA 1: 02316. It is re-announced here because of its better availability in Science. (LMT)