Knowledge that Transforms

European unemployment rose sharply beginning in the mid-1970's and remains very high today, yet policymakers seem reluctant to pursue fiscal and monetary actions that would greatly stimulate aggregate demand. Traditional Keynesian policies may be impeded by a belief that rising unemployment is not so much Keynesian, arising from shortfalls in aggregate demand, as it is classical, originating from a failure of real wages to adjust to changing market conditions, particularly reduced rates of productivity growth. To determine the extent of classical vs. Keynesian unemployment, we apply a theoretical approach developed by Hickman (1987) to econometric models of labor supply and demand in selected European countries and the United States. The models are used to determine the time paths of the natural unemployment rate, potential output, and the full-employment real wage that clears the labor market at the natural rate of unemployment. The computed potential paths are benchmarks for measuring shortfalls of aggregate demand and excesses of actual over full-employment real wages. Effects of eliminating wage gaps are studied in counterfactual simulations, which provide information for decomposing unemployment into its natural, Keynesian, and classical components.

Large classes are an important element of higher education in the United States today. Pressures of increased enrollment and shrinking financial support are likely to insure the continued existence of large classes in our colleges and universities, even though a sizable proportion of both students and faculty view this technique of instruction as unsatisfactory. With increased size have come changes in the organization, atmosphere, activity, and acceptability of the classroom scene. In the typical large enrollment course, the professor meets the students en masse several times a week for lectures and demonstrations, and once a week the students are expected to attend small recitations

Economists have devoted considerable attention to the analysis of the advantages and disadvantages of the negative income tax (NIT) as a mechanism for income redistribution. Surprisingly little attention has been given to any significantly different alternative to the NIT most analyses simply compare one variant of the NIT to another. But recently several writers have suggested that a form of wage subsidy offers significant advantages over the NIT.1 This paper is an attempt to provide a more complete comparision of these two forms of transfer programs with an emphasis on the aggregate labor market consequences. Needless to say, no attempt is made to consider all repercussions of these policies. Instead, emphasis is focused on labor supply effects and related conditions for economic efficiency. Section I is an analysis of the effects of implementing a NIT when no other transfer programs are present. Section II is a similar analysis for a form of wage subsidy which will be referred to as the negative wage tax, or NWT. Section III uses the analysis of the preceding sections to provide a comparison of the NIT and NWT on two counts: their incidence and welfare cost.

Much of the complexity of the collective bargaining process can be conceptually reduced to the choice by a union of some point along a given derived-demand curve for labor. Many union actions often labeled ,restrictive or featherbedding do not, however, easily fit into this framework. Instead they appear to result in a wage-employment combination which lies entirely off the derived-demand curve for labor. They involve either fixing the total amount of employment or fixing the laborcapital (or labor-output) ratio, in addition to setting the wage rate.' Unions have also used more subtle measures, essentially taxes on output or capital, which can have a similar effect to direct controls.2 Analytically, these actions bear a close resemblance to vertical integration, tying arrangements, or other forms of vertical control by firms with market power over a product which can be used in variable proportions as an input in a downstream production process.' For example, suppose that a powerful union in a competitive product industry wishes to increase the earnings per hour of its members, but is unwilling to force up the wage rate because of the output and substitution effects on employment. Vertical control can be used to reverse the substitution effect. Since formal vertical integration by unions is rare, assume the union imposes a tax or royalty on the final product. If the union wishes to increase earnings per worker with no change in employment, it can raise the royalty rate while simultaneously reducing the wage rate. The fall in the quantity of labor demanded due to the effect of the higher royalty rate on output can thus be balanced by the increase in labor demanded due to the effect of a lower wage-rental ratio on the labor-output ratio. Assuming that the elasticity of demand for the product eventually becomes greater than unity, this balancing act can continue until some finite maximum level of earnings per worker (from wages and royalties) is reached. The crucial requirement for the process to work, of course, is that the elasticity of substitution between labor and other inputs be greater than zero, since in the absence of a substitution effect there is no difference between the effects of a tax on labor and a tax on output. This incentive for vertical control by *Assistant professor of economics, Washington University, St. Louis. I would like to thank Charles Berry, Edward Kalachek, Robert Parks, and Lee Benham for helpful comments. I Examples include requiring a minimum number of musicians per theater orchestra; minimum crew sizes and absolute cmployment levels in railroading; and work rules in Pacific Coast longshoring which, until the 1960 Mechanization and Modernization Agreement, required firms to employ a fixed quantity of labor inputs or required that labor be used in fixed proportions to other inputs or outputs. For numerous other examples, see Lloyd Ulman, pp. 53666. 2The United Mine Workers finances its Welfare and Retirement Fund by a royalty on each ton of coal produced in unionl mines; the Mechanization and Modernization Fund in West Coast longshoring is financed on a tonnage basis while the unemployment fund on the East Coast is financed by a royalty on containers proportional to the degree of anticipated labor displacement; airline pilots are paid according to a complex formula which closely resembles a tax on either output or capital: and the Teamsters Union has negotiated mileage-rate differentials based on truck size and cargo capacity, and a royalty payment on the transport of highway trailers on railroad flatcars. Unions may desire such arrangements for several reasons. For example, the airline pilot wage structure has resulted in large benefits to seniority and has facilitated bargaining in an industry with rapid productivity increases. In addition, tying wages to particular equipment may have enabled price discrimination by the union. Some union practices also regularize employment or spread the same amount of work over a larger number of employees. Nevertheless, all these measures can be used to achieve a wage-employment combination off and to the right of the derived-demand schedule for labor. 3For an analysis of vertical control by firms, see the author ( 1974).

The pool of women with highly specialized trainiing is increasing and the tolerance of such women for accepting occupational seg,regationi and narrow views of their career potentials is dimiiinishinig. It is crucial that we understand the differences between lab-or markets for men anid women at professionial levels, the resulting differellces in career patterns, and how barriers to full career development for women impinge on occupational rewards. Only then can we plani effcctively for the generation of younig womento come. Particularly important at this time is analysis of the market for h-elds anid occupations that are atypical for women. Overall societal attitudes toward the proper role of women are evolving, yet on the demand side employers' perceived differences as to the employability of women (whether real or imaginary) result in barriers that vary in intensity by occupation. Economics, a stereotypically male profession, has relatively intense barriers for women on the demand side over and above variations in aggregate demand.1 The demand-side barriers are different from those associated with stereotypically female occupations. On the supply side, barriers to full career development for women are likely to be those common to all professional occupations plus the effect of women's perceptions of the intensity of the demand-side barriers for the particular profession (i.e., any lack of support of male colleagues, professional isolation and lack of access to information network, or employers' lack of perception of the women's career potential). One group of supply-side barriers includes presence of children, husband's unfavorable attitudes, guilt feelings of the women related to a high sense of responsibility for monitoring consumption at home, and poor earlier education choices based on limited perception of career possibilities. In addition, the two probably most important are geographic mobility or immobility, related to demands of family, and lack of the on-the-job-training, caused by either gaps in the women's career patterns or diminished opportunities for investment in human capital for women when working. The purposes of this paper are to use preliminary data from the Committee on the Status of Women in the Economics Profession (CSWEP), American Economic Association (AEA) 1974-75 Survey of Economists to test a model showing that two supply curves exist for economists, instead of one, with the division related to nonpecuniary returns for women, and then consider whether more than two supply curves should be formulated to allow for whether workers are major earners in the family, equal earners, or secondary earners.2 The model used as a starting point, * Professor of economics, Southern Methodist University. I wvant to thank Patricia Kirby and Anna Fay IFriedlander for help in computing and prograimming. 1 For a qualitative discussion of such barriers, see Kenneth E. Boulding and Barbara B. Reagani. 2 Informationi on the sampling and survey procedure anid qualityof sample may be obtained from the author.