Knowledge that Transforms

The authors discuss the concept of parental uncertainty about their childrens altruism and the consequences for investment in childrens human capital. In this paper we show that if parents are uncertain about their childrens altruism but are at least sure that they will receive some support from their children then the unique optimal investment is...the efficient one. Uncertainty over the exact level of the retirement gift does not alter the conclusion of the perfect-certainty case even when parents are risk-averse....Alternatively parents may not know enough about their childrens altruism to feel completely confident that some gift will be forthcoming regardless of the size of their investment. Under this assumption we show that the optimal investment must be less than the efficient amount. (EXCERPT)

This paper analyzes the relationship between changes in unionization and firm growth. Average growth is significantly low er in manufacturing firms that experience successful union elections bu t these strong "effects" are largely illusory. The authors find no evidence of a significant relationship between unionization and firm growth, despite a strong cyclical pattern in election activity. Thei r results suggest that the significant negative effect of organizing activity on a firm's market value is not accompanied by any growth changes. The authors, therefore, cannot reject the hypothesis that t he equity losses from union election activity represent a simple transf er of wealth from shareholders to workers.

The core of international microeconomics remains the Heckscher-Ohlin factor-proportions model. Although the page count in recent academic journals is decidedly against the Heckscher-Ohlin model, this is more a reflection of how economists spend their research time than what they believe. Time will tell whether the flurry of formal models with scale economies and strategic interactions will be able to squeeze the Heckscher-Ohlin model to a small part of economists' collective consciousness. Frankly I doubt that this will happen. After all, the Heckscher-Ohlin model has competed for decades with these other viewpoints and has done so quite successfully. The theories of international trade are novel in a linguistic sense, discarding the English-only language of an earlier generation in favor of the language of modern mathematical modeling. There is no doubt that linguistic innovations are important and are capable of driving the profession one way or the other at least on a temporary basis. Recall that even the word protection is a metaphor intended to make tariffs seem attractive. I wonder how the commercial-policy debate would go if tariffs were labeled instead of protection. I hope that there is something about the content of the message, separate from the language, that determines the ultimate course of the intellectual currents of our profession. Insightfulness, validity, usefulness, and the like ought to matter and may be decisive. Linguistic novelty is one possible reason for the recent interest in scale economies and industrial strategies as explanations of international trade. Another possibility is that, in the marketplace of ideas, demand creates its own supply. There is a new thirst for isolationism on the part of a substantial segment of the U.S. population, who in the last several decades have found their earnings under attack from foreign competition. It would be unseemly and counterproductive for this group of workers/owners to petition the U.S. government merely to increase their own earnings. They demand (and they have been supplied) some substantial intellectual foundation to justify their complaints about reduced earnings. The trade theory does the job quite nicely, thank you. A not insubstantial reason why economists should cling to the Heckscher-Ohlin model is that it gives trade barriers the label that they genuinely deserve: highway robbery. Of course, this robbery is often more in the style of Robin Hood than Jesse James, but nonetheless, when the metaphors are peeled away, every trade barrier that I have ever seen is a device to transfer income from one group to another, or perhaps more frequently to stop the transfer of income that would otherwise take place. Trade barriers may have side effects, but income redistribution is their primary purpose. I find myself at roughly the 10-percent point in this paper without mentioning any empirical facts. First there was linguistic felicitousness and novelty, then there was pandering. What about the facts? Don't they matter? Sorry, they do not matter very much. One important reason why the facts do not matter much is that the Heckscher-Ohlin model (and every other model in economics) is both factually correct and factually incorrect. We have not developed an intellectual culture that can deal with the complexity and ambiguity of real economic phenomena. We teach ourselves a naive *Anderson Graduate School of Management, University of California, Los Angeles, CA 90024.

Among the many disturbing changes in the structure of wages in recent years, the stagnation in the male racial wage gap may be the most disheartening. Race remains America's oldest and most persistent cause of social and economic disparity, but many of us had been encouraged by the steady and significant economic progress since the Second World War. The recent stagnation challenges that optimism. In this paper, I attempt to identify the reasons why the wage stagnation took place. Many Americans, particularly those in the media and political arena, believe they already know the reason. According to them, this stagnation is the predictable consequence of the affirmative-action policies associated with the Reagan administration. One reason why many believe that the Reagan era deserves principal responsibility for the racial stagnation is the belief that Equal Employment Opportunity Commission (EEOC) resources were gutted during this period. EEOC inflation-adjusted budgets grew almost 15 percent per year during the 1970's. While there was some slowdown in the last half of the decade, constantdollar EEOC budgets expanded by 7.2 percent per year during the Carter administration, and almost 1,400 budgeted positions were added to the EEOC (a growth of 50 percent) between 1976 and 1980. There is no question that the Reagan era witnessed an abrupt end to the growth in resources that would have taken place. EEOC constant-dollar budgets actually fell during this period, and the number of positions declined by almost one thousand; and as EEOC resources and personnel fell during the 1980's, so did the measurable outputs. The sharp break in the 1980's was not so much in the aggregate level of activity, but in its composition and the resources available per case. Spurred by the passage of the Age Discrimination Act in 1979, age came into its own during this decade. Starting with only 14 cases in the year after passage of the act, the number of age cases rose at an astonishing pace to over 30,000 by 1992. Even without this explosion in age-related charges, the significance of race was declining. While the number of race charges increased by 10 percent after 1980, sex charges were expanding by 40 percent. By 1992, only 40 percent of all cases involved race issues, compared to 85 percent of all charges in 1970 and 61 percent in 1980. The declining importance of race in the EEOC's agenda reflects a more general dilution of race as the core civil-rights labormarket concern. Since 1965, the road to equal rights has become very crowded. The quest for racial justice was the clear moral force behind the civil-rights act with women added in an unsuccessful attempt to scuttle the legislation. Subsequently, Hispanics have begun to rival blacks in their political clout, and protected minority-group status was extended to men over 40, those with a disability, and gays. The end result is that more than three-quarters of today's labor force enjoy protected minority-group status. Blacks are now a minority within the protected minority class, which itself represents the majority.

New developments in development in the 1980's contravened several widely held tenets about how labor markets and other institutional arrangements affect the performance of low-income countries. If you believe that massive urban-rural earnings differentials due to bias plague Developia, new evidence will ease your concerns: urban workers suffered mightily in the lost-growth decade in many countries. If you fear that government or union interventions in labor markets impede stabilization or structural adjustment, think again: countries with diverse interventions reduced real wages under the gun of economic crisis. If you believe that clear property rules and privatization are necessary for rational economic behavior and transition to a market economy, the decade's growth success, China, should challenge your priors. If you fear that industrial policy is the road to disaster, state interventions in Taiwan, Korea, and Singapore tell a different story. Finally, if you think that military dictatorships that suppress labor necessarily produce high income inequality, the income distributions of Korea and Taiwan should give you pause. These emerging patterns and facts run so counter to conventional views on development as to raise major doubts about the depth of our knowledge and the extent to which narrow perfect competition or political economy perspectives illuminate the growth process.

Myriad politicians express concern over increased competition from abroad, but among economists the home economy is widely believed to benefit from improvement in foreign economies (Jeffrey Williamson, 1991). Work by a few economists (John R. Hicks, 1953; Ronald Jones, 1979; Paul Krugman, 1979) suggests that there is some truth to popular concerns over competitiveness. The effect of foreign competition in reducing the relative price of the goods that the United States formerly exported can lower aggregate real income in the United States even as world income rises. Accordingly, the success of Japan, Western Europe, and more recently many other nations in producing goods that were, as of the end of World War II, virtual monopolies of the United States is another potential candidate for explaining the fall (relative to trend) of the average living standard or real wage in the United States.