Knowledge that Transforms

McKinley Blackburn, David Neumark; Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials*, The Quarterly Journal of Economics, Volume 107,

This paper develops a theory of direct legislation to explain (i) why some issues are resolved by popular vote and others by elected representatives, and (ii) why citizens vote on some ballot propositions and abstain on others. Evidence is provided by a new data set describing 871 California propositions. The main findings are the following. "Good government" issues were usually resolved by legislative measures and distributional issues by initiatives. Citizen-initiated legislation was more common when representatives were unresponsive to the electorate. Voter turnout was higher on distributional propositions than good government propositions. Voter participation on ballot measures has been increasing over time.

In hiring new workers, risk-neutral employers equate the present expected value of a worker's compensation to the present expected value of his/her productivity. Data detailing how present expected compensation varies with the age of hire, therefore, embed information about how productivity varies with age. This paper infers age-productivity profiles using data on the present expected value of earnings of new hires of a Fortune 1000 firm. For each of the five occupation/sex groups considered, productivity falls with age, with productivity exceeding earnings when young and vice versa when old.

We analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier, and suppliers have private cost information. An intriguing feature of split awards is that the equilibrium bids are implicitly coordinated. Because a split award price is the sum of offered split prices, each supplier can unilaterally veto a split award by bidding very high for the split. The need to coordinate is reflected in a split price that does not vary with private information. We also explore conditions under which split award auctions may be preferred to winner-take-all auctions.

We use trends in self-reported disability to gauge the impact of the growth of disability transfer programs on the labor force attachment of older working-aged men. Our tabulations suggest that between 1949 and 1987, about half of the 4.9 percentage point drop in the labor force participation of men aged 45–54 and between one quarter and one third of the 19.9 point drop among men aged 55–64 represented a movement of men out of the labor force and onto the rolls of transfer programs targeted at the disabled. Since the expansion of transfer programs represents only one of the forces behind this movement, these figures represent upper bounds on the impact of such programs on work force attachment.

The microeconomic forces that influence real wages are not fully understood. This paper studies pay determination using data on approximately 600 labor contracts. It finds that the real wage is an increasing function of past profitability in the employer's industry, and a decreasing function of the level of unemployment in the employer's region. These results are consistent with rent-sharing theories.

Laboratory data from bargaining experiments have started a debate about the prospects for various parts of game theory as descriptive theories of observable behavior, and about whether, to what extent, and how a successful descriptive theory must take into account peoples' perceptions of “fairness.” Plausible explanations of the observed bargaining phenomena advanced by different investigators lead to markedly different predictions about what should be observed in three different games. A sharp experimental test is thus possible on this class of games, and the present paper reports the results of such a test.

This paper examines why Canadian poverty rates fell relative to U. S. poverty rates during the periods 1970–1979 and 1979–1986. During the 1970s the principal reason for declining Canadian poverty rates is higher economic growth. During the 1980s, however, differences in government transfer policy are the main cause of relative poverty change in the two countries. Virtually all of the 3.3 point fall in relative Canadian/U.S. poverty rates from 1979 to 1986 can be attributed to expansions in the Canadian transfer system and simultaneous contractions in U. S. transfers.

An increase in margin requirements in the First Section of the Tokyo Stock Exchange is followed by a decline in margin borrowing, trading volume, the proportion of trading performed through margin accounts, the growth in stock prices, and the conditional volatility of daily returns. The nonmarginable Second Section stocks show a smaller change in volatility and only a delayed weak price response. The hypothesis that margin requirements restrict the behavior of destabilizing speculators can explain these correlations but cannot explain the observation that individuals, the most active users of margin funds, appear to be good market timers.

This paper argues that the macroeconomically interesting features of inventory behavior are well captured by a model in which firms face only demand uncertainty with a nonnegativity constraint on inventories. Empirical implications of the "stockout-avoidance" model of inventory behavior are derived and then tested on disaggregated automobile industry data. The results largely support the model, though they suggest a small role for production-smoothing as well. Subsidiary evidence on the relative variance of demand and cost shocks suggests that demand shocks are indeed more important.