Knowledge that Transforms

We estimate how 1970–90 changes in an outcome‐based measure of school quality (state average test scores) affected changes in earnings for those leaving high school to enter a state’s labor force. We find that a one standard deviation deterioration in a state’s relative test score performance is associated with a 3% (or .5 SD) reduction in average wages of young entrants to the labor force. We also find a similar decline in college matriculation. There is weak evidence that the school quality effect on earnings diminishes as labor force entrants acquire experience.

We model the endogenous emergence of social perceptions about occupations and their impact on occupational choice. In particular, an individual’s social approval increases with his community's perception of his skill in his chosen career. These perceptions vary across communities because individuals better assess the skill of those in occupations similar to their own. Such imperfect assessment can distort choices away from comparative advantage. When skill distributions differ across occupations and/or correlate positively, the community perceives one occupation more favorably. This favored sector experiences overcrowding, but misallocation occurs across both sectors. Furthermore, a positive skill correlation can produce multiple steady states.

This article studies a particular kind of gaming responses to explicit incentives in a large government organization. The gaming responses we consider occur when agents strategically report their performance outcomes to maximize their awards. An important contribution of this work is to examine whether this behavior diverts resources (e.g., agents’ time) from productive activities or whether it simply reflects an accounting phenomenon. We evaluate the efficiency impact of the behavior we identify and find that it has a negative impact on the true goal of the organization.

We examine the empirical relationship between early employment activity and school continuation decisions for young American women using a dynamic, sequential discrete‐choice framework that estimates schooling, labor supply, and birth decisions jointly, controlling for unobserved heterogeneity and the endogeneity of these life cycle decisions. That the rate of school withdrawal increases as work intensity rises helps explain the higher departure rates of Hispanic girls from secondary school and the premature departure of young black women from college. The disturbing implication is that youth employment induces long‐run wage stagnation for early school leavers and potentially increases race and ethnic inequities.

Wages for black and white workers are substantially lower in occupations with a high density of black employees, following standard controls. Such correlations can exist absent discrimination or as a result of discrimination. In wage level equations, partial correlations fall sharply after controlling for occupational skills. Longitudinal estimates accounting for worker heterogeneity indicate little wage change associated with changes in racial composition. Results support a “quality sorting” rather than discrimination explanation, with racial density serving as an index of unmeasured skills. Discrimination reflected in racial wage gaps occurs within occupations or across occupations in a manner uncorrelated with racial composition.

To get a more complete picture of how labor supply is affected by economic incentives, the effects on absenteeism should be taken into account. In particular, absenteeism due to sick leave can be considerable. We examine whether the level of sick leave compensation affects sick leave behavior. Using long time series data (1955–99) for Sweden with numerous changes of the compensation level, we generally find strong effects. Reforms implying more generous compensation for sick leave tend to be associated with permanent increases in sick leave, and vice versa. These findings are reinforced in a panel study covering the 1983–91 period.

We compare welfare effects of tournaments and piece rates in contracts with heterogeneous ability agents and demonstrate that tournaments that mix players of unequal abilities create a league composition effect. When leagues are fixed and the time horizon sufficiently long, piece rates improve welfare over tournaments. Using contract production data for broiler chickens, we estimate the variances of growers’ abilities, common production shock, and grower’s idiosyncratic shock. Growers' abilities are heterogeneous, and common production shocks are significant. Leagues in broiler tournaments disintegrate rapidly over time, suggesting that tournament contracts offer more welfare than piece rates.

We analyze recent changes in the occupational structure of French manufacturing firms. Firms employ a greater proportion of engineers working on the design and marketing of new products and a lower proportion of high‐skill experts working in administration‐related activities. Firms have also reduced the share of production‐related activities at both the levels of high‐skill and low‐skill workers. We develop a labor demand model that shows the role played by technological change. New technologies make it possible to allocate more human resources to the activities that are the most difficult to program in advance.

We investigate an unexplored avenue through which unemployment insurance increases unemployment. As unemployment insurance benefits rise, workers lose incentive to “preempt” impending layoffs by changing jobs. We formalize this prediction in a job search model and investigate it empirically by estimating a proportional hazard model with data from the 1979 National Longitudinal Survey of Youth, using state‐ and year‐specific algorithms to compute each worker’s expected unemployment insurance benefits. Our estimates reveal that an exogenous increase in benefits deters job quits by a small but statistically significant amount.

Existing empirical estimates of net migration models are not identified because they lack an explicit measure of expected future conditions. I find that using actual one‐period‐ahead net migration at the state level to control for expectations reduces the strength of the relationship between current wages and net migration by more than one‐third. I use the case of Michigan to show how existing empirical models mischaracterize the response of migration to shocks that are expected to be transitory. I add migration to a labor market model and simulate responses to permanent and transitory demand shocks.