Knowledge that Transforms

Conventional models predict that workers consider employment opportunities and monetary rewards expected over their lifetimes when making current period decisions such as whether to quit a job. This article tests the hypothesis that later career opportunities affect quit decisions by examining the relationship between teaching and school administration. Evidence on the extent to which administrative positions are available to teachers, and the salary premia associated with them, is presented. Discrete time logit-hazard models of teacher quits, estimated using data from New York State, provide some support for the hypothesis, though the magnitudes of the estimated effects are small.

Around 1980, the trend toward racial wage convergence essentially stopped. I ask whether this break in the convergence trend can be explained by school quality. Department of Education surveys provide earnings data for the high school Class of 1972 in 1979 and the Class of 1980 in 1986, both linked to data from the respondents' high schools. By several measures, differences between schools attended by blacks and whites were already rather small in the 1970s. Furthermore, I find that measurable school inputs generally have little effect on wages. Thus school quality explains little of the recent black/white wage trend.

This article examines the responses of black and white workers to their employer's relocation from downtown Detroit to suburban Dearborn. Estimates of move and quit probabilities demonstrate that white employees whose commutes lengthened because of the relocation were more likely to move, but no more likely to quit, than white employees whose commute shortened. Black employees whose commutes lengthened were more likely to both move and quit in the wake of the relocation. In effect, the restrictions on black residential choice imposed by segregation forced approximately 11.3% of black workers to quit in the wake of the relocation.

This article investigates how human capital investment, labor turnover, and wages are jointly determined when the current employer knows more about a worker's productivity than potential employers. Results derived are quite different from, or unexplored by, the standard human capital theory. The authors show that the information asymmetry can cause an externality distortion in human capital investment because higher productivity due to the investment may not be recognized by the market. The investment level increases in the degree of firm specificity of human capital. The underinvestment problem is more severe when human capital is general than when it is firm-specific. Copyright 1996 by University of Chicago Press.

This article presents evidence that internal mobility, defined as a promotion or other position change, is an important source of wage growth. It accounts for approximately 15% of wage growth over the life cycle for white and black men, but less for women. The incidence of promotions and other position changes appears tied to the wage level: better paid workers are more likely to be promoted. The life-cycle incidence of internal mobility looks similar to that for conventionally defined job mobility. Most moves are made early in the career; mobility declines both with time in position, and with experience.

Risk aversion enters many theoretical models of human capital investment, but attitudes toward risk have not been incorporated in empirical models of human capital investment. This article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion. Using data from the Survey of Consumer Finances, I find that wage growth is positively correlated with preferences for risk taking. More-educated individuals are also more likely to be risk takers, thus risk taking explains a portion of the returns to education.

This article analyzes the choice between internal promotion and external recruitment within the framework of an economic contest. Opening up the competition for a position to external candidates reduces the chance of promotion for existing workers and therefore their incentive to work. Increasing the prize for winning can maintain incentives but is limited by moral hazard and potentially disruptive office politics. Alternatively, a competitive handicap can be awarded to existing workers to boost their chances. This strategy is consistent with the general observation that an external candidate is recruited only if she is significantly superior to the internal contestants.

A firm's decision to contract out for business support services may be influenced by the wage and benefit savings it could realize, the volatility of its output demand, and the availability of specialized skills possessed by the outside contractor. Analysis of newly available establishment-level data shows that all three of these factors help to explain observed contracting behavior. The reported empirical findings are relevant both for understanding the recent growth in business support service contracting and for understanding firms' relationships with their own employees.