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Teaching Modern Macroeconomics at the Principles Level

John B. Taylor
American Economic Review 2000 90(2), 90-94
Ideas taught at the macroeconomics principles level should satisfy two goals. First, they should be simple enough to be both understandable and memorable for the beginning student. Second, they should be consistent both with the modern economy and with the macroeconomic models of this economy that are used in practice for policy evaluation. There is no necessary conflict between these two goals. The greater the consistency between the ideas taught in the classroom and the models used in practice, the easier the ideas are to understand and the worthier they are of being remembered. It would be an exaggeration to say that a consensus now exists in advanced research about how macroeconomics should evolve in the future. Debates continue, for example, about the usefulness of models with representative agents or what it means to have a fully articulated model of money. Nevertheless, at the practical level, a common view of macroeconomics is now pervasive in policy research projects at universities and central banks around the world. This view evolved gradually since the rational expectations revolution of the1970s and has solidified during the 1990s. It differs from past views, and it explains the growth and fluctuations of the modern economy; it can

Who Benefits Most from Employee Involvement: Firms or Workers?

Richard B. Freeman; Morris M. Kleiner
American Economic Review 2000 90(2), 219-223
Employee involvement (EI) programs are the leading-edge form of personnel and labor relations in the United States. While many managers believe that these programs raise productivity and profits, the statistical evidence that EI improves the performance of firms is equivocal. The coefficients on measures of EI in production functions are usually positive but often insignificant or small (Commission on the Future of Worker–Management Relations, 1994 Ch. 2; Peter Cappelli and David Neumark, 1999) or contingent on other factors (Sandra E. Black and Lisa M. Lynch, 1997; Casey Ichniowski et al., 1997). A detailed case study of EI has further confirmed these small effects that were found in large data sets (Kleiner et al., 1999). If EI programs do not greatly affect productivity, why does business think so highly of them? In this study, we argue that the main beneficiaries of EI are workers and managers. We estimate the effects of EI on productivity using panel data on firms and the effects of EI on workers using a survey of employees and find that EI barely affects firm productivity but substantially improves worker well-being. We offer two explanations for this result.