Knowledge that Transforms

We specify a model of municipal labor demand when resource flows available to the municipality are uncertain. The model allows us to test the hypothesis that employment decisions are rational in the sense that they incorporate all available information at the time that the decisions are made. We find that, for our sample of communities, on the whole one cannot reject the hypothesis that labor demand is consistent with intertemporal utility maximization under uncertainty. However, small and large communities exhibit different behavior. The employment decisions of small communities are consistent with the model, while those of large communities are not.

Unionization affects cost of production through compensation premia, technology shifts, and deviations from the least-cost combination of inputs. The first two are familiar, but the last is not. This article distinguishes the three effects, illustrates the factor-use effect, and suggests that it may resolve several apparent inconsistencies: union-induced cost effects appear larger than those implied by union compensation and productivity differentials; union compensation and productivity differentials suggest a larger effect on labor intensity of output than is observed; and employers complain that union work rules reduce productivity when there is little evidence that this is so.

A standard efficient-contracts model of employment determination in a unionized labor market is contrasted with a naive model of labor supply and demand that allows for the possibility of monopsony in the market for public school teachers. The standard model is consistent with the data and suggests that employment contracts are strongly efficient, but a more surprising result is that the simple supply/demand model is not rejected by the data either. Estimates of the latter suggest that the demand for teachers is inelastic and that the supply curve is slightly upward sloping, rather than perfectly elastic, at the union wage.

This article integrates human capital theory with a theory of information accumulation and labor mobility. A model is constructed for the determination of human capital accumulation, job matching, and mobility that accounts for heterogeneity on both sides of the labor market. The model provides explanations for observable relationships between earnings, mobility, age, and job tenure. It also provides comparative static results of how the labor market equilibrium is affected by changes in the economic environment.

This article relaxes the assumption of separability of preferences over time that, although implausible, is usually maintained in life-cycle labor-supply models. An empirically tractable rational habits model is specified and estimated on the basis of a 10-year sample of men from the Michigan Panel of Income Dynamics. The effect of past hours of work in determining current hours decisions is found to be very important and well determined, having allowed for permanent individual differences and for time effects.

This article examines the impact of unemployment insurance (UI) on the allocation of labor across industries. An overlooked aspect of UI is the effect of imperfect experience rating on hiring. Firms in more stable industries generally pay more into the UI system than their workers ever receive in benefits, thus subsidizing more volatile industries. The results indicate that industry employment shares are significantly affected by UI and that there is a net shift of resources from the service industry to the construction industry. The estimates also imply that layoff unemployment is increased by about 5% because of UI-induced employment shifts.

This article examines the reasons for the observed discrepancy between workers' actual and required levels of schooling and the resulting differences in returns to schooling. "Overeducated" workers are found to be younger and to have lower amounts of on-the-job training than workers with the required level of schooling. They also have higher rates of firm and occupational mobility, characterized by movement of higher-level occupations. The findings suggest that overeducation can be explained by the trade-off between schooling and other components of human capital and by the mobility patterns of overeducated workers. Copyright 1991 by University of Chicago Press.

Previous structural models of job search behavior have been based upon the reservation wage property. This article provides estimates of a more general search model that nests models with the reservation wage property. The estimates lead to rejection of the reservation wage property. The model includes hours of work in the utility function, but other nonwage job characteristics can be included as well. An experiment based on the estimated parameters indicates that a significant proportion of job offers would be mistakenly predicted to be accepted or rejected under the restrictions implied by the reservation wage property.

Empirical models of local government unionization reveal substantial reductions in union membership due to right-to-work laws. Free riders, rather than underlying antiunion sentiments, are probably responsible because the unionization models include better measures of sentiments than right-to-work laws. Furthermore, these laws reduce the probability that bargaining unions form by more than they reduce the probability that nonbargaining associations form in three of five local government functions. These results also confirm the importance of free riders because union security clauses that prohibit free riders in states without right-to-work laws exist only in collective-bargaining contracts.