Recent studies have documented a significant rise in the male black-white earnings ratio since the mid-1960s. The growing difference in nonemployment rates of blacks and whites clouds these optimistic findings. The basic question addressed in this paper is whether selectivity bias, caused by racial differences in employment rates, is a serious problem in the estimation of wage functions for adult males. For males age 21-34 we found no evidence of selectivity bias, but for the older cohort of males age 35-54, the results are quite different. For both whites and blacks, there is strong positive selection bias. It appears that biased estimates of several important coefficients are obtained using simple ordinary least squares procedures. The most interesting of these are the effect of low education for blacks.

R ISK transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity (Working (1962), Evans (1978, p. 80), and Silber (1981)). Risk transfer refers to hedgers using futures contracts to shift price risk to others. Price discovery refers to the use of futures prices for pricing cash market transactions (Working (1948), Wiese (1978, p. 87), and Lake (1978, p. 161)). The significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities. This paper examines the characteristics of price movements in cash (or spot) markets and futures markets for storable commodities. Section II presents an analytical model of simultaneous price dynamics which suggests that, over short intervals of time, the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract. Greater elasticity fosters more highly correlated price changes, and thereby facilitates the risk transfer function. The elasticity of supply of arbitrage services is constrained by, among other things, storage and transaction costs. Thus, futures contracts will not, in general, provide perfect risk transfer facilities over short time horizons. The essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices (Hoffman (1932, pp. 258259)). The model in section II provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery. In section III we develop a model based on section II which is appropriate for estimating the lead-lag relationship between cash prices and futures prices. Section IV presents empirical estimates of the parameters of the model for seven different storable commodities: wheat, corn, oats, frozen orange juice concentrates, copper, gold, and silver. The cost of arbitrage between cash and futures differs across these commodities. For this reason we are not surprised to find inter-commodity differences in the correlation of short-run price changes and in the substitutability of futures contracts for cash market positions. With respect to the price discovery function of futures markets, we find that while futures markets dominate cash markets, cash prices do not merely echo futures prices; there are reverse information flows from cash markets to futures markets as well.

Interregional differences in average wages and earnings have been observed particularly in the North and South of the United States ever since the mid-1800s. That observation has motivated several empirical attempts to determine the source of those differentials, measured both in nominal and real terms, and to explain why they have been maintained over time. The general conclusion reached by the overwhelming majority of these studies is that the labor market has not eliminated these wage differentials even in the face of substantial interregional migration. This result has at least two alternative interpretations. First, it would appear to contradict the theory of compensating differences as applied to the labor market (Thaler and Rosen, 1975), which stresses that under the assumptions of perfect information, free geographic and intersectoral labor mobility, and homogeneous consumer tastes, the nominal wage rates of workers who have similar human capital characteristics, live and work in similar environments and experience similar living costs, are driven to equality. Second, this result may only reflect an aggregation error. In other words, there may be several types of labor that are each paid different equilibrium wage rates and comprise different percentages of the workforce in each region. Even if the real wage paid to each class of workers is interregionally invariant, a situation that instead would support the theory of compensating differences, failure to distinguish accurately between labor types could produce the illusion of a wage differential. This paper considers the two alternative interpretations given above as to why interregional wage differentials might exist. Hedonic real wage equations are estimated for four regions of the United States using observations on individual household heads drawn from the 1976 Panel Study in Income Dynamics (PSID). This sample is of interest because the 1976 PSID data contain unusually detailed measures of education, work experience and occupation, as well as information on workplace and job characteristics. Thus, a more complete specification of the wage equation is permitted and the possibility of aggregation error is reduced, particularly in comparison with other interregional wage differential studies. Several of these studies, for example, have been based on aggregate data from the Census of Manufactures (Fuchs and Perlman, 1960; Gallaway, 1963; Scully, 1969; and Coelho and Ghali, 1971) which provide no direct measurements on the human capital of workers. The remainder of the discussion is organized into three sections. Section II specifies the wage equation and describes the PSID data. Section III, then, reports empirical results which are consistent with the findings, based on aggregate data, of Bellante (1979) and Coelho and Ghali (1971) in that they support the theory of compensating differences. More specifically, for full-time workers, the rewards to attributes relevant in determining real wages apparently are interregionally invariant. However, because this result conflicts with most previous research on interregional wage differentials based on aggregate data and virtually all such research based on microdata (Welch, 1966; Hanoch, 1967; Hanushek, 1973, 1981; Hirsch, 1978; and Sahling and Smith, 1983), a number of empirical comparisons are made between the present study and the approaches taken by other investigators. Conclusions and implications are drawn out in section IV.

T HE Employee Retirement Income Security Act of 1974 (ERISA) has provoked considerable debate about the desirability of various retirement plan provisions and the appropriate role of government in regulating the private pension plan contract. Among the issues debated is the question of who presently pays for private retirement benefits, and who should. An answer to at least the first of these questions is provided by the theory of differences. In competitive markets, a firm that provides pension benefits should pay lower wages than one that does not, thereby offering the same equilibrium value of total compensation to all workers of equal productivity. By the same token, firms that offer pension benefits on relatively desirable terms are expected to offer lower wage rates than firms offering pension benefits on very restricted terms. These simple notions imply that (1) workers pay for their own pensions by accepting lower wages, and (2) government regulation of the content of private pension plans may not significantly alter labor costs or the expected lifetime income of workers. From this perspective, contributions to private pension plans serve the exclusive purpose of enabling individuals to reallocate their resources over time according to their diverse tastes, and do not affect total labor compensation. The primary purpose of this paper is to examine the empirical validity of the equalizing differences hypothesis. By examining the relationship between wages and pension plans, we also hope to improve our ability to account for wage differentials. Contributions to private retirement plans have grown rapidly in recent years-from 1.7% to nearly 4.0% of private sector wages between 1950 and 1979, and coverage has increased from 22% to more than 45% of all private wage and salary workers.' Most previous studies of wage determination have ignored fringe benefits, let alone pension plans.2 But if the growth of pension plans continues and the equalizing differences hypothesis is correct, continuing neglect of pension provisions implies an increasing inability to account for wage differentials across firms, industries, occupations, race, sex, and age, or by the same token, an increasing tendency to attribute such differences to the wrong factors. The paper begins by reviewing the properties of competitive equilibriuni in labor markets in which compensation consists of current and deferred wages.3 Building on this foundation, we demonstrate how the annual cost of a pension plan depends on its various provisions, including vesting, early retirement, normal retirement, and benefit formula. With data on the earnings and pension provisions of individual workers in 133 large firms, we find some support for the equalizing differences hypothesis. We also observe that the extent of equalization diminishes with age, suggesting a redistribution of compensation from younger to older workers.

In this REVIEW some years ago, Edwin Elton and Martin Gruber (1970) used the concepts of market equilibrium and differential tax rates between capital gains and dividend income to structure a theoretical model which they then used empirically to estimate marginal stockholder tax rates. Their specification of an equilibrium condition is appropriate for a security seller who qualifies for preferential tax treatment of capital gains. However, their assumption that such a stockholder is the marginal stockholder in a market equilibrium is questionable. This assumption, along with disregard of transactions and other costs, is essential to their empirical derivation of stockholder tax rates. This note presents an alternative explanation of their empirical results.

Magee, Stephen P., Currency Contracts, Pass-through and Devaluation, Brookings Papers on Economic Activity (1, 1973), 303-323. , Prices, Incomes and Foreign Trade, in Peter B. Kenen (ed.), International Trade and Finance: Frontiers for Research (New York: Cambridge University Press, 1975). Malinvaud, Edmond, Statistical Methods of Econometrics (Amsterdam: North-Holland Publishing Company, 1970). Nerlove, Marc, Spectral Analysis of Seasonal Adjustment Procedures, Econometrica 32 (July 1964), 241-285. Orcutt, Guy H., Measurement of Price Elasticities in International Trade, this REVIEW 32 (May 1950), 117-132. Pearce, Ivor F., International Trade (London: Macmillan, 1970). Robinson, Joan, Foreign Exchanges, American Economic Association, Readings in the Theory of International Trade (Homewood, Illinois: Richard D. Irwin, Inc., 1949). Stern, Robert M. , The Balance of Payments (Chicago: Aldine Publishing Co., 1973). Stern, Robert M., Jonathan Francis, and Bruce Schumacher, Price Elasticities in International Trade (Toronto: Macmillan of Canada, 1976). United States Department of Commerce, The National Income and Product Accounts of the United States, 1929-1965, Statistical Tables, a supplement to the Survey of Current Business (Washington, D. C.: U. S. Government Printing Office, 1966). Survey of Current Business (July editions) (Washington, D. C.: U. S. Government Printing Office, 19681974). Whitman, Marina v. N., Global Monetarism and the Monetary Approach to the Balance of Payments, Brookings Papers on Economic Activity (3, 1975).

Robert D. Auerbach, Jack L. Rutner, The Misspecification of a Nonseasonal Cycle as a Seasonal by the X-11 Seasonal Adjustment Program, The Review of Economics and Statistics, Vol. 60, No. 4 (Nov., 1978), pp. 601-603