Knowledge that Transforms

In recent years, Congress has considered a variety of work-subsidy programs designed to encourage work among welfare recipients. Many of these programs would subsidize individuals only if they work some minimum number of hours. Commonly used techniques cannot give direct answers to relevant policy questions since a tied offer is involved, and hence the offer cannot be treated as a simple wage change. The essence of the problem involves utility comparisons between two or more discrete alternatives. Such comparisons inherently require information about consumer preferences in a way not easily obtained from ordinary labor-supply functions. To make such comparisons, I present a method for directly estimating consumer indifference surfaces between money income and nonmarket time. Once these surfaces are determined, they can be used to compare a variety of alternative programs to investigate whether or not there is scope for Pareto-optimal redistribution of income transfers and time, improving the general level of welfare of the community at large without reducing the welfare of individuals receiving income transfers. Knowledge of these indifference surfaces allows us to estimate reservation wages to estimate the value of nonworking-women's time (Gronau 1973), laborforce participation functions, hours-of-work functions, and welfare losses due to income tax programs (Harberger 1964). I demonstrate that direct estimation of indifference surfaces allows us, at least in principle, to relax

By the time children enter first grade, significant differences in verbal and mathematical competence exist among them.'These differences reflect variations in (1) inherent ability, and (2) the amounts of human capital acquired before the children reach the age of six.2The stocks of acquired human capital reflect, in turn, varying inputs of time and other resources by parents, teachers, siblings, and the child.The process of acquiring preschool human capital is analogous to the acquisition of human capital through schooling or on-the-job training.Assuming a constant rental rate for human capital, earnings can be interpreted as a measure of capital stocks at later ages.The IQalso can be interpreted as such a measure of human capital stocks.It is related to some commonly used inputs of human capital, for it is well known that measured IQ is not independent of years of schooling acquired before the age of testing.At preschool ages IQmeasures should be related to human capital inputs in early childhood as well as to inherent genetic ability.Viewing measured ability as an index of the stock of human capital puts a different light on earnings functions which include ability and schooling.If contemporaneous ability and schooling measures are used to predict earnings (as itt Hansen, Weisbrod, and Scanlon 1970), it is not surprising to find that earnings are more closely related to an ability measure, which