Knowledge that Transforms

A comparison of the correlations between brothers and neighboring boys in their adult earnings suggests that the earnings resemblance between brothers stems more from growing up in the same family than from growing up in the same neighborhood. Much of the neighbor correlation is explicable in terms of the large earnings differential between urban and nonurban areas combined with the strength with which urbanicity of childhood neighborhood predicts urbanicity of adult location. This pattern is subject to a variety of interpretations, but it is quite different from the usual view of neighborhood effects.

The aim of this article is to analyze the effects of housing discrimination on the wages and unemployment rates of black workers. The unemployment effect is first analyzed using a simple minimum‐wage model. An efficiency‐wage model is then adopted in order to endogenize both unemployment and wages. Under both models, suburban housing discrimination leads to a higher unemployment rate for blacks in the central city than in the suburbs. Under the efficiency‐wage model, black wages are also lower in the center. The analysis thus generates a link between unemployment and a seemingly unrelated phenomenon: racial discrimination in the housing market.

The 1918–47 employee records of the Ford Motor Company provide a rare opportunity to study a firm willing to hire black workers when similar firms would not. The evidence suggests that Ford did profit from discrimination elsewhere, but not by paying blacks less than whites. An apparent “wage‐equity constraint” prevailed, resulting in virtually no racial variation in wages inside Ford. An implication was that blacks quit Ford jobs less often than whites, holding working conditions constant. Arbitrage profit came from exploiting this nonwage margin, as Ford placed blacks in hot, dangerous foundry jobs where quit rates were generally high.

We examine the impact of immigration on self‐employed natives. In a new general equilibrium model of self‐employment and wage/salary work, a range of plausible parameter values implies small negative effects of immigration on native self‐employment rates and earnings. Using 1980 and 1990 Census microdata, we then examine the relationship between changes in immigration and native self‐employment rates and earnings across 132 of the largest U.S. metropolitan areas. We find evidence suggesting that self‐employed immigrants displace self‐employed natives but do not have a negative effect on native self‐employment earnings. The effects are much larger than those predicted by the theoretical model.

This article uses variation in the labor supply of twelfth‐grade students created by interstate variations in child labor laws to estimate the effect of school‐year work on twelfth‐grade math achievement. The instrumental variable estimates in this article indicate that an exogenous decrease in school‐year hours worked of 10 hours per week would result in a 0.2 standard deviation increase in math scores. Comparisons to ordinary least squares estimates suggest that failure to account for the endogeneity of the labor supply decisions of high school students will result in underestimates of the negative impact of school‐year work on academic achievement.

This study examines the effects of teen alcohol use and availability on educational attainment. We demonstrate that teens who faced a lower minimum legal drinking age (MLDA) were substantially more likely to drink. However, we find that changes in MLDA had small and statistically insignificant effects on educational attainment. Using matched cohorts from two data sets, we also report two‐sample instrumental variables estimates of the effect of teen drinking on educational attainment. These estimates are smaller than the corresponding ordinary least squares estimates and statistically insignificant, indicating that teen drinking does not have an independent effect on educational attainment.

We analyze the relationship between how long an employer has been in business (firm age) and wages. Using data from special supplements to the Survey Research Center’s monthly Survey of Consumers, we find that firms that have been in business longer pay higher wages (as previous studies found), but when we control for worker characteristics, the relationship becomes insignificant or negative. There is some evidence that the relationship is not monotonic, with wages falling and then rising with years in business. Established employers appear to make greater use of back‐loaded compensation, consistent with their higher probability of remaining in business.

In this article, I estimate how labor supply responds to anticipated wage growth, unanticipated wage growth, and wage risk using the 198993 panel section of the Bank of Italy Survey of Households' Income and Wealth (SHIW), which collects individual expectations of future wages. The use of subjective expectations has several advantages. First, they provide information on the evolution and riskiness of future wages that the econometrician may never hope to observe. Moreover, this avoids the need for specifying instruments for the growth rate of wages. Finally, forecast errors can be directly controlled for, thus avoiding inconsistency in short panels.

Swedish data on workers matched with firms’ balance‐sheet reports are used to examine the relation between wages and firms’ ability to pay. Results indicate that experienced and highly educated workers are sorted into profitable firms. Wages are positively correlated with profits and the capital‐labor ratio, after controlling for worker quality, degree of effort supervision, job characteristics, local unemployment, firms’ employment history, and employer size. Lester’s “range of pay” due to rent sharing is around 12%–24% of the mean wage in Sweden, which is close to the estimates for the United States and United Kingdom.

More mothers engage in marketplace work today than ever before, with over 33% returning to work by the time their child is 3 months old. This article identifies the effects of maternal marketplace work in the initial months of an infant’s life on the child's cognitive development. Results suggest that such work in the first year of a child’s life has detrimental effects. Where significant, the results also indicate negative effects of maternal employment in the child’s first quarter of life. However, the negative effects of maternal marketplace work are partially offset by positive effects of increased family income.