Knowledge that Transforms

This paper provides a unique opportunity to observe how a public policy affected the earnings of various interest groups at different stages of implementation. Specifically, we examine how the earnings of women, union members, and supervisory and professional staff were affected by various proposed and implemented comparable worth pay plans in Iowa. We find that large relative gains to women in the original proposed plans were reduced as the process evolved. As a result, some of the original gains to women were redistributed to union members, supervisors, and professionals.

This paper examines the entry implications of physician advertising. Evidence suggests that advertising inhibits entry into this market. Nevertheless. experienced physicians (incumbents), to whom advertising would offer the greatest financial benefit, in fact advertise less--a paradox that may be explained by nonfinancial concerns, such as unwillingness to break well-internalized professional norms against advertising. Physician advertising has risen sharply in recent years, and it appears that this trend will continue. If incumbents increasingly resort to advertising, there could be a substantial redistribution of income from less-well-established physicians to better-established ones.

Why do the countries of the world display considerable disparity in long-term growth rates? This paper examines the hypothesis that the answer lies in differences in national public policies that affect the incentives that individuals have to accumulate capital in both its physical and human forms. Our analysis shows that these incentive effects can induce large differences in long-run growth rates. Since many of the key tax rates are difficult to measure, our procedure is an indirect one. We work within a calibrated, two-sector endogenous growth model, which has its origins in the microeconomic literature on human capital formation. We show that national taxation can substantially affect long-run growth rates. In particular, for small open economies with substantial capital mobility, national taxation can readily lead to "development traps" (in which countries stagnate or regress) or to "growth miracles" (in which countries shift from little growth to rapid expansion). This influence of taxation on the rate of economic growth has important welfare implications: in basic endogenous growth models, the welfare cost of a 10 percent increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.

Historical evidence indicates that hyperinflations can disrupt individuals' normal trading patterns and impede the orderly functioning of markets. To explore these issues, we construct a theoretical model of hyperinflation that focuses on individuals and their process of economic exchange. In our model buyers must carry cash while shopping, and some transactions take place in a decentralized setting in which buyer and seller negotiate over the terms of trade of an indivisible good. Since buyers face the constant threat of incoming younger (hence richer) customers, their bargaining position is weakened by inflation, allowing sellers to extract a higher real price. However, we show that higher inflation also reduces buyers' search, increasing sellers' wait for customers. As a result, the volume of transactions concluded in the decentralized sector falls. At high enough rates of inflation, all agents suffer a welfare loss.

This paper develops a model of sectoral labor mobility and tests its main implications. The model nests two distinct hypotheses on the origin of mobility: (a) sectoral shocks and (b) worker-employer mismatch. We estimate the relative importance of each hypothesis and find that the bulk of labor mobility is caused by mismatch rather than by sectoral shift. We then try to put a value on society's match-specific information. That is, we ask to what extent the availability of the option to change jobs raises GNP. We find that the mobility option raises expected earnings by roughly between 8.5 percent and 13 percent of labor earnings, which translates to an increase in GNP of between 6 percent and 9 percent.

This article assesses the significance of sanctions against employers of illegal aliens for resource allocation and income distribution in the United States. Data from the 1980 Census of Population are used to identify the industries likely to be monitored most closely by the immigration authorities. A general equilibrium incidence analysis then is carried out using alternative assumptions about the overall level of enforcement. Estimates are made of the effects sanctions will have on the real wages of legal U.S. workers.

The literature evaluating tax changes within an intertemporal general equilibrium framework subdivides into representative agent and overlapping generations formulations. Papers in the former class have developed techniques analogous to those routine for static analyses. I show that the same general approach works for the overlapping generations model. The context is the system from Auerbach and Kotlikoff's Dynamic Fiscal Policy. The proposed methodology allows one to examine stability and determinancy issues for the model, it deals precisely with small policy changes, and it can easily handle bundles of changes. I present comparative static results for comparison with existing work.

A monetary model of asset pricing is used to explain observed correlations between money velocity and stock prices. Output stocks cause velocity and nominal stock prices to move in opposite directions but may cause velocity and deflated stock prices to move in the same direction. Although monetary shocks are neutral, changes in monetary expectations have real effects because of their impact on the expected purchasing power of money balances carried into the future. Thus changes in expected monetary growth alter expected real equity returns and inflation, and changes in monetary uncertainty alter the equity risk premium.