Knowledge that Transforms

A high proportion of skilled workers in the labor force implies a large market size for skill-complementary technologies, and encourages faster upgrading of the productivity of skilled workers. As a result, an increase in the supply of skills reduces the skill premium in the short run, but then it induces skill-biased technical change and increases the skill premium, possibly even above its initial value. This theory suggests that the rapid increase in the proportion of college graduates in the United States labor force in the 1970s may have been a causal factor in both the decline in the college premium during the 1970s and the large increase in inequality during the 1980s.

From the viewpoint of a company's controlling shareholder, the optimal ownership structure generally involves some measure of dispersion, to avoid excessive monitoring by other shareholders. The optimal dispersion of share ownership can be achieved by going public, but this choice also entails some costs (the cost of listing and the loss of control over the shareholder register). If the controlling shareholder sells shares privately instead, he avoids the costs of going public but must tolerate large external shareholders who may monitor him too closely. Thus, the owner faces a trade-off between the cost of providing a liquid market and overmonitoring. The incentive to go public is stronger, the larger the amount of external funding required. The listing decision is also affected by the strictness of disclosure rules for public relative to private firms, and the legal limits on bribes aimed at dissuading monitoring by shareholders.

How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.

This paper attempts to provide microfoundations for the knowledge production function in an idea-based growth model. Production of new ideas is made a function of newly reconfigured old ideas in the spirit of the way an agricultural research station develops improved plant varieties by cross-pollinating existing plant varieties. The model shows how knowledge can build upon itself in a combinatoric feedback process that may have significant implications for economic growth. The paper's main theme is that the ultimate limits to growth lie not so much in our ability to generate new ideas as in our ability to process an abundance of potentially new ideas into usable form.

This study investigates the economic consequences of rights to paid parental leave in nine European countries over the 1969 through 1993 period. Since women use virtually all parental leave in most nations, men constitute a reasonable comparison group, and most of the analysis examines how changes in paid leave affect the gap between female and male labor market outcomes. The employment-to-populations ratios of women in their prime childbearing years are also compared with those of corresponding aged men and older females. Parental leave is associated with increases in women's employment, but with reductions in their relative wages at extended durations.

Using segment information from Compustat, we find that the investment by a segment of a diversified firm depends on the cash flow of the firm's other segments, but significantly less than it depends on its own cash flow. The investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single-segment firms. The sensitivity of a segment's investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm's other segments.

This paper offers a theory of training whereby workers do not pay for the general training they receive. The superior information of the current employer regarding its employees' abilities relative to other firms creates ex post monopsony power, and encourages this employer to provide and pay for training, even if these skills are general. The model can lead to multiple equlibria. In one equilibrium quits are endogenously high, and as a result employers have limited monopsony power and provide little training, while in another equilibrium quits are low and training is high. Using microdata on German apprentices, we show that the predictions of our model receive some support from the data.

This paper examines the role of skilled labor in the growth of total factor productivity. We use panel data from manufacturing industries to assess the extent to which productivity growth in yearly cross sections is tied to industry shares of skilled labor inputs. We find robust evidence that productivity growth was increasingly concentrated in high-skill industries during a unique ten-year period beginning in the early 1970s. We do not find any positive association of productivity growth with new capital investment.

We analyze the role of debt in persuading an entrepreneur to pay out cash flows, rather than to divert them. In the first part of the paper we study the optimal debt contract—specifically, the trade-off between the size of the loan and the repayment—under the assumption that some debt contract is optimal. In the second part we consider a more general class of (nondebt) contracts, and derive sufficient conditions for debt to be optimal among these.