Knowledge that Transforms

sumer reliance upon advertising since these mechanisms substitute as sources of product/vendor information. One can predict, therefore, that when relative prices favor consumer reliance upon advertising as information, producers will respond accordingly. This prediction also received empirical verification-advertising intensity by sellers in the mobile Washington, D.C. area greatly exceeded advertising intensity in the relatively stable Baltimore, Maryland area.

A bstract-A portfolio choice model is formulated which focuses on the possibility of inflation hedging motives in housing demand in the 1970s. An asset demand equation is used to estimate the capitalization of inflation expectations into house prices through tax, mortgage, and hedging effects. The empirical results indicate that, even after accounting for tax and mortgage effects, the hedging motive was significant in bidding up house prices. One implication is that the tax effects of inflation may have been overstated in previous research that ignored inflation risk.

In estimating a production function for an economy, constant returns to scale has been a traditionally maintained hypothesis. In modelling Switzerland's gross output as a function of labor, capital and imports, a general functional form is selected which displays increasing returns to scale and is not Hicks-neutral. It is a technology which is labor saving, import saving and capital using. This paper also quantifies the mismeasurements associated with using a constant returns to scale model to estimate such variables as own-elasticities of demand, elasticities of substitution, impacts on factor income and rate of technical progress.

A bstracct-Increased uncertainty about inflation is shown to encourage inflation hedging which, in turn, reduces the macroeconomic costs of that uncertainty. Portfolio theory and empirical evidence support the contention that only the portion of inflation volatility that cannot be hedged has real economic effects. Additional empinrcal results suggest that: (i) increased inflation volatility in the early seventies was eventually followed by portfolio reallocations that allowed for greatly improved inflation hedging, and (ii) the deletenrous effect of inflation uncertainty on real economic activity shown in previouis studies is significantly smaller after 1975.

A number of studies have found that unions lower profits, but controversy continues over whether the union impact is or is not greater in more concentrated markets. This empincal controversy is linked to two underlying issues: whether unions distort capital investment decisions, and the total volume of monopoly profits in the U.S. economy. Research on the supermarket industry reveals that unions lower profits substantially in this sector and that indeed their impact is greater when local markets are more concentrated. Recently there has been an explosion of research concerning the union impact on profits and the associated question of whether or not unions reduce profits more in noncompetitive than competitive sectors (for a review of studies, see Voos and Mishel, 1986). This has become an important empirical issue for a variety of reasons. One concern has been whether unions distort capital investment decisions. Insofar as unions merely capture monopoly rents, as opposed to reducing the rate of return in competitive industries, the presumption is that unions create less distortion. A separate issue has been whether or not previous research has underestimated the extent of total monopoly rents in the U.S. economy. This would occur if observed profits are less than total profits in noncompetitive sectors because in those sectors a portion of monopoly rents is being redistributed to unionized employees. While most studies find that unions lower profits, there is some controversy regarding whether or not unions reduce profits more in industries with less competitive market structures. Freeman (1983) and Karier (1985) both find that unions have a much larger effect in concentrated industries. However, Hirsch and Connolly (1985) question that conclusion and Clark (1984) reports contrary evidence with regard to market share. All previous investigations of this issue utilize manufacturing inter-industry data, cross-sections of predominantly-manufacturing firms, or 2-digit SIC manufacturing industry observations disaggregated by state. This paper reports the results of research designed to ascertain whether unions reduce profits in one relatively homogeneous nonmanufacturing industry, supermarkets, and if their impact is larger when local markets are more concentrated. Lamm (1982) and Marion et al. (1979a and 1979b) have explored the impact of unions and of concentration, respectively, on food prices. Moreover, excellent data on supermarket profits exist. The data give our study several unique qualities. Because observations are on firms in specific geographic markets in a single disaggregate industry, any estimated union profit effect cannot be said to result from a correlation between unionism and unobserved industry specific factors. The study is also the first to be based on evidence from the nonmanufacturing sector. The Data Utilized and the Model Estimated The data on which this research was based were gathered under subpoena by the Joint Economic ComReceived for publication July 8, 1985. Revision accepted for publication October 17, 1985. * University of Wisconsin and Industrial Union Department, AFL-CIO, respectively. Special thanks to Frederick Geithman, for many helpful suggestions and for research assistance, and to Bruce Marion for making the data available to us and for commenting on our results. All opinions, as well as errors, are the authors' own. Funds for a portion of this research came from the University of Wisconsin Graduate School. During a portion of this research, Mishel was affiliated with Cornell University.

This paper investigates whether the parameters of labor demand functions are sensitive to alternative methods of estimation.The assumption that the production technology is of the Generalized Leontief type implies that the demand system can be estimated by analyzing cross-section differences in earnings across labor markets, by studying longitudinal changes in earnings within a labor market, or by investigating cross-section differences in labor force participation rates across labor markets.The estimation of these models on the 1970 and 1980 Public Use Samples from the U.S. Census reveals that the estimates of labor demand functions are indeed quite robust to major specification changes.

A bstractNewly collected data from the Health Care Financing Administration are utilized to construct an unprecedented quarterly series on Medicaid enrollments to study the economic and institutional determinants of program size. The results suggest that while increased unemployment added nearly one million people to the rolls during an eighteen month interval between 1981 and 1982, net enrollments actually fell by 6.6% over this period mostly because Reagan-sponsored legislation tightening eligibility requirements disenrolled approximately 2 million people. The methodology employed is a first difference regression specification utilizing a GLS correction for serial correlation.