Knowledge that Transforms

THE purpose of the investigation reported here is to examine factors associated with the amount of money which consumer units spend on life insurance premiums. Life insurance premiums represent an extremely large and stable component of personal saving and one which, unlike mortgage and other debt payments, has no offset in the purchase of a consumer investment item. Their long range future is thus important, and we hope to throw some light on this by seeing what factors are currently associated with high or low proportions of income paid as premiums. In addition to making available the results of this study, this report demonstrates one type of solution to the problems of statistical analysis of data from a sample survey. The survey which is the source of the data used in this study is the Survey of Consumer Finances. This survey has been conducted annually since I945 by the Survey Research Center of the University of Michigan in cooperation with the Board of Governors of the Federal Reserve System. It includes about 3,000 interviews each year with a cross-section of the heads of consumer spending units in the United States. Interviews last about one hour and cover a variety of information about the unit's income, assets, and expenditures as well as about the demographic characteristics of the family and the attitudes of the respondent. The sample design involves selection of individual addresses with known probability. The sample is complex since it involves selection of successively smaller geographical areas in stages, with clustering and stratification at each stage, and the procedures differ in communities of different sizes.' The questions asked about life insurance in the I954 Survey were as follows:

V IRTUALLY the full employment of available labor and resources was tacitly assumed by most of the nineteenth-century wage theorists. Actual full employment has been a rather rare condition in the western world during the last two centuries. However, the economies of both Great Britain and the United States moved decisively toward full employment in the period between the years just before World War II and the subsequent wartime and postwar years. In what ways and to what extent has this relatively new condition of prolonged full employment affected the structure of wages? There are many ways of answering such a question, depending on what aspect of wage structure is considered. For example, it is now reasonably clear that a transition to full employment works toward the narrowing of wage differentials between workers of different grades of skill.' What happens to the relative levels of wages paid by different industries, as an economy moves toward full employment? Comparatively little attention has been devoted to this question. One outstanding study of interindustry wage structure has been the recent analysis by Donald Cullen.2 This painstaking study was mostly concerned with long-period relationships between the average wages paid by different American industries. Cullen found that the rank-order of industries was very stable, even over long periods of time, as regards the average annual earnings of their respective employees. Over a mere ten-year period, there was, naturally, even less change in interindustry wage structure than occurred over longer periods. Thus for the decade I939-49, Cullen's coefficient of rank correlation for seventy American industries was .92.3 These findings suggest that even a sharp change from very considerable unemployment (I939) to virtual full employment (I949) will have little effect on the structure of wages as between industries -at least that such a change will not alter materially the rank-order of the average wages of the various industries. In Great Britain, the full employment conditions of wartime and postwar years provide a similar contrast with the slack employment of the prewar period. Did the relative wages paid by different industries also remain stable in the face of this drastic change in labor market conditions? We shall see presently that the answer depends on how one chooses the method of measurement. Our first test of interindustry wage structure was selected to provide the greatest possible comparability between the British and American wage data and the method and data used by Cullen. We were able to find British and American wage information, prewar and postwar, for 28 industries which were reasonably comparable with the American industries selected by Cullen.4 We used i938 as a repre'E.g., see Harry Ober, Occupational Wage Differentials, I907-I947, U.S. Department of Labor, Monthly Labor Review, August I948; Louis R. Salkever, Toward a Theory of Wage Structure, Industrial and Labor Relations Review, April I953; K. G. Knowles and D. J. Robertson, Differences Between the Wages of Skilled and Unskilled Workers i8881950, Bulletin of the Oxford Institute of Statistics, xm (Apr1l I95I), I09-27 and Earnings in Engineering, I926I948, ibid. (June I95I), I79-200. Our limited purpose is to investigate interindustry differences in average earnings. We are acutely aware of the variability of wages between firms within an industry, between workers of different levels of skill, and the week-to-week variability of the earnings of individual workers. Compare Robert R. L. Raimon, The Indeterminateness of Wages of Unskilled Workers, Industrial and Labor Relations Review, vi (January 1953), I80-94; and K. G. J. C. Knowles and Ann Romanis, Dockworkers' Earnings, Bulletin of the Oxford University Institute of Statistics, xiv (September and Octo-

T is widely held that from the postwar discussion of monetary policy there emerged a new theory of quantitative control.' Over the past few years, much has been made of particular aspects of this theory, for example its emphasis on the availability of credit or the rationing of credit. But this in itself has tended to obscure the fact that this theory is really a composite of a number of lines of argument, each of which is based on a distinct set of considerations. In light of this, it would seem that what is required is a critical examination of the over-all structure of the doctrine. That is the purpose of this essay. In the following pages this theory is briefly described, and then interpreted in terms of conventional supply-demand analysis. Such an interpretation makes possible a convenient synthesis of the many hypotheses involved in the theory, thereby facilitating the task of exploring its internal consistency.

IN recent years, considerable interest has been shown in the growth pattern and turnover rates of the largest firms. Instead of viewing the giant firm with the suspicion born of classical and neo-classical market theory, exponents of the new competition have argued that giant firms are the engines of eco-* nomic progress.1 The role of market forces in determining the growth of firms has been supplanted by the management function.2 This current interest in the giant firm adds relevance to the examination of the hypotheses which are to be tested in this paper.3 The first hypothesis is concerned with the causes of growth of the largest firms, while the second examines the turnover rates of the giants.