Knowledge that Transforms

This article brings together the market for products, the market for talent, and firms’ organizational form. While the organizational design determines the allocation of blame and fame within the firm, the value of a good reputation depends on the market structure. Consequently, the market structure dictates the optimal organizational design. If competition becomes tougher and the market thicker, transparent firms decentralize while nontransparent firms concentrate control, transparency itself is improved, corporations switch from unitary to multidivisional form, and the turnover of managers increases. The model rationalizes recent trends in both executive pay and organizational design.

We model team formation as a random matching process influenced by agents’ preferences for team size and gender composition. We then test if the coauthorship pattern in articles published during 1991–2002 in three top economics journals is gender neutral, exploiting variation in female presence across subfields. Controlling for author, team, and field characteristics, we find that the gender gap in the propensity to coauthor with a woman increases in the presence of women in the subfield. We also find that women single author significantly more than men. These findings allow us to reject gender neutrality in team formation in economics.

The article embeds child labor in a standard general equilibrium, two‐sector model of a small open economy facing perfectly competitive markets, efficiency wages, and free trade. The modern sector uses skilled adult labor and capital, and the agrarian sector uses unskilled (child and adult) labor and skilled adult labor. Trade policies, foreign direct investment, or both that increase the modern‐sector output reduce the incidence of child labor. Emigration of skilled (unskilled) workers reduces (increases) the incidence of child labor. Child‐wage subsidies increase the incidence of child labor, and a ban on child labor benefits unskilled adult workers but hurts skilled workers.

Between 1997 and 2000, the Canadian province of Quebec reduced its standard workweek from 44 to 40 hours with the aim of stimulating employment growth. Unlike the European work‐sharing policies examined elsewhere, the Quebec policy contained no suggestion or requirement that employers provide wage increases to compensate workers for lost hours. For this reason, among others, the Quebec policy provides a better test of the potential of work‐sharing as a job‐creation strategy. The evidence suggests that, despite a 20% reduction among full‐time workers in weekly hours worked beyond 40, the policy failed to raise employment at either the provincial level or within industries where hours of work were affected relatively more.

We study the economics of employment relationships in large law firms. Our point of departure is the “property‐rights” approach that emphasizes the centrality of ownership’s legal rights to control significant nonhuman assets of the enterprise. From this perspective, law firms are an interesting object of study because the key asset in these firms is knowledge, particularly knowledge of the needs and interests of clients. We argue that two distinctive organizational features of law firms—the use of “up‐or‐out” promotion contests and the practice of having winners become residual claimants in the firm—emerge naturally in this setting.

We consider why the gender division of labor is so often enforced by custom and why customary gender divisions of labor generally involve both direction and prohibition. In our formal model, agents first learn skills and then enter the marriage market. We show that wasteful behavior may emerge due to strategic incentives in specialization choice and human capital acquisition and that both problems may be mitigated through a customary gender division of labor. This division is not Pareto improving. Both the distributional effects and welfare gains of a customary gender division of labor decrease as opportunities for market exchange increase.

Since the days of Henry Ford, employers have argued that higher pay induces employees to provide additional effort. While the converse is also thought to be true, there is little empirical evidence testing this hypothesis. Not only are significant company‐wide pay cuts rarely observed in practice but measures of employee effort are typically difficult to quantify. This article examines the effort responses of U.S. commercial airline pilots following a recent series of large, permanent pay cuts. Using airline on‐time performance as proxy for unobservable pilot effort, we find only limited support for the hypothesis that pay cuts lower employee effort.

In this article we document the patterns of employment adjustment at the micro level. We find clear evidence of lumpy adjustment consistent with the presence of nonconvexities in the adjustment technology—inaction is pervasive, action spells are short‐lived, and extreme adjustment episodes are responsible for a nontrivial share of employment adjustment. We also find that the probability of employment adjustment increases with the duration of inaction. The skill structure of the workforce, the type of employment contract, and the proportion of low‐tenure workers, which we interpret as proxies for the magnitude of adjustment costs, all influence the probability of adjustment.

Little is known about the mechanisms underlying the transfer of economic status between generations. This paper addresses the question of whether inter-generational correlations in health contribute to the perpetuation of economic status. We examine inter-generational correlations in birth weight, a key indicator of the health of newborns that we link to future educational attainment and earnings using a unique data set based on California births from 1960s to the present. We use names and birth dates to link the records of mothers and children. We also identify mothers who are siblings. We show that there is a strong intergenerational correlation in the birth weight of mothers and children, but that a measure of household income at the time of the mother's birth is also predictive of low birth weight and that there is an interaction between maternal low birth weight and poverty in the production of low birth weight. Together these findings suggest that intergenerational correlations in health could play a role in the intergenerational transmission of income. Parent's income affects child health, and health at birth affects future income.