THE market for new law school graduates has undergone considerable change in recent years, with starting salaries increasing rapidly following the enormous increase in rates of the major New York firms in 1968' and enrollments into law programs skyrocketing in the late 1960's. What explains these and earlier developments in the market for new lawyers? Does the influx of students reflect economically responsive supply behavior with respect to salary and other labor market incentives? What factors underly changes in the salaries of starting lawyers? This paper investigates these questions with a variant of the recursive model of the market for highly-trained workers originally used to analyze engineering shortages and surpluses (Freeman, 1971). Application of the model to a profession which differs substantially from engineering and related sciences but has a similar fixed time delay in producing new specialists provides a test of its general validity, as well as insight into the operation of the legal labor and education markets. This paper begins with a brief description of the empirical phenomenon under study -patterns of change in the number of law students, legal salaries, and activity in the profession. Section II develops a recursive cobweb-type model to explain these developments. Section III presents estimates of the supply and salary equations of the model. The final section examines the endogenous cyclic fluctuations in the market and summarizes the major findings.

JOB skills and human capital are acquired by a variety of activities in diverse institutional settings, ranging from parental investment in children to on-the-job training at work places. The purchase of occupational training from for-profit 'proprietary' schools and institutes is a significant, often neglected, mode of obtaining skills.' In 1971, approximately 1.4 million students enrolled in proprietary schools to prepare for work in such areas as truckdriving, electronics, cosmetology, cooking, and floristry, to name just a few. The schools provide an important example of the competitive for-profit education of voucher and performance contract proposals. With recent concern about the allocation of educational resources between academic and vocational schooling,2 possible differences in the social rate of return to for-profit and academic training have obvious policy implications. This paper investigates proprietary school job training in the United States and its impact on the earnings and occupational position of male workers. Section I presents information about proprietary schools and their distinctive operating characteristics; Section II estimates the effect of training on the earnings and occupational status of male workers and uses these estimates to obtain private and social rates of return under various assumptions about direct and indirect (= time) costs of education. I. The Proprietary School Training Market

THE ease of substitution between labor and other factors of production is an important determinant of the elasticity of demand for labor and thus of the economic effects of unionism. All else the same, the greater the elasticity of substitution, the greater is the elasticity of derived demand and the greater the displacement of labor for a given union-induced wage increase. In sectors where this elasticity is large, unions are likely to be relatively weak and able to win only slight wage gains (Freeman and Medoff, 1981 and forthcoming) or, if they win large gains, will have to pay a high price in terms of lost jobs. In the sectors where the elasticity is small, unions may be able to extract a substantial wage premium at little cost in terms of employment. Moreover, as a simple general equilibrium model indicates, the elasticity of substitution between labor and other factors in the unionized sector is a key parameter in determining the impact of the IIunion wage effect on the earnings of nonunion workers and on the efficiency of the economy (Johnson and Mieskowski, 1970). Despite the importance of the elasticity of labor demand for an analysis of unionism, little attention has been given to the absolute and magnitude of this elasticity under collective bargaining. While there is some discussion of technological change and the substitution of capital and nonproduction workers for organized production workers in the institutional literature (e.g., Slichter, 1941; Slichter, Healy and Livernash, 1960; Bok and Dunlop, 1970), modern econometric work provides no estimates of the relevant parameters. As a result, Johnson and Mieskowski (1970), Rees (1963), Lewis (1964) and others have been forced to evaluate union effects with guesstimates of the elasticities of concern in union settings. This paper attempts to fill some of the gap in our knowledge by providing estimates for U.S. manufacturing of the constant output elasticity of demand for unionized and nonunionized production workers and of the elasticity of substitution between these workers and other inputs. The analysis concentrates on what we call the relative inelasticity hypothesis, which states that the demand for production workers will be more inelastic in the presence of a union for two reasons: the likelihood that unions have organized and survived in sectors with low elasticities, and the effects of various contract provisions on the ability of management to substitute other factors for production labor. The study is divided into four sections. Section I develops the rationale for the inelasticity hypothesis and describes the nature of the empirical analysis conducted to test its validity. The second section uses a 1972 state by 2-digit Standard Industrial Classification (SIC) industry data file for manufacturing to estimate the elasticity of substitution between production labor and both nonproduction labor and capital in the union and nonunion sectors of U.S. manufacturing industries. Section III provides estimates, based on a 1968-72 sample of manufacturing establishments, of the elasticity of substitution between production and nonproduction labor (the only two inputs for which information is available). The final section briefly summarizes the findings and discusses their implications for understanding the impact of trade unionism on the U.S. economy. To preview the ensuing discussion, our main conclusion is: Substitution between production labor and other inputs is generally lower in union Received for publication March 6, 1978. Revision accepted for publication August 17, 1981. * Both authors are with Harvard University and the National Bureau of Economic Research. Supported by U.S. Department of Labor Grant No. J-9-M-6-0094, National Science Foundation Grant No. APT77-16279, and the National Bureau of Economic Research (under its program of research on labor economics). We are especially grateful to Jane Mather for her invaluable assistance on this project and to Greg Bialecki, Charles Brown, Gary Chamberlain, Kathy Coons, Jon Fay, Martin Van Denburgh, and Lori Wilson for their significant contributions. The study has not been reviewed by the Board of Directors of the National Bureau.

T HE impact of unions on wages is likely to depend on the extent to which they organize workers in the relevant product market.1 As the organization in a market increases, the opportunity for substituting nonunion for union products will be reduced, lowering the elasticity of demand for organized workers and the potential loss of employment for a given wage increase. As a result, the wages of union workers are likely to be higher, all else the same, the greater the percentage organized. The wages of nonunion workers may also be influenced by the extent of organization, though the direction of the effect is not clear. On the one hand, union wage gains due to greater coverage may induce increases in nonunion wages because of the threat of organization and/or because of shifts in demand favoring nonunion producers brought about by the increased relative cost of union labor. On the other hand, the supply of labor to nonunion firms may increase as a result of reduced employment in the union sector, which would most likely depress nonunion wages. Whether the threat plus demand effect or the supply effect dominates is an empirical issue. The impact of the percentage organized on the union wage differential (the difference between the natural logarithms of union and of nonunion wages) depends on the relative magnitudes of the likely positive impact on union wages and the positive or negative impact on nonunion wages. This paper seeks to disentangle the relation between the percentage of workers organized in a product market and the wages received by union workers and by nonunion workers. In contrast to most of the literature on the union wage effect, which either relates some average of wages in an industry to the percentage organized or which relates the wages of individuals to their membership in a union, our analysis examines the impact of the percentage organized on the compensation of union labor and nonunion labor taken separately.2 By relating the wages of unionized workers to the percentage covered by collective bargaining in the relevant product market, we estimate directly the extent to which unionized workers in highly organized markets receive higher wages than unionized workers in less organized settings. By relating nonunion wages to the percentage covered, we provide direct estimates of the extent to which, as a result of threat, demand, and supply effects, nonunion workers in highly organized markets receive higher or lower wages than nonunion workers in less organized industries or areas. Two sets of data are used in the study: information on individuals from the 1973, 1974, and 1975 May Current Population Surveys (CPS), which contain data on usual weekly earnings, usual weekly hours, union membership status, and key personal characteristics; and information on establishments from the Bureau of Labor Statistics' 1968, 1970, and 1972 Expenditures for Employee Compensation Surveys (EEC), which contain data on the components of compensation, labor hours, collective bargaining coverage, and some relevant establishment characteristics. The availability of both individual and establishReceived for publication April 24, 1980. Revision accepted for publication May 27, 1981. * Harvard University. We have benefited from the comments of K. Abraham, C. Brown, H. G. Lewis, and L. Summers. We are most grateful to G. Bialecki, J. Fay, C. Ichniowski, L. Nelson, M. Van Denburgh, L. Wilson, and J. Zax for research assistance. The study has been supported by the National Science Foundation (Grant APR 77-16279) and the National Bureau of Economic Research (under its program for research on labor economics). Any opinions expressed are not necessarily shared by the individuals who have aided us, NSF, or NBER. I Throughout our theoretical discussion we refer to a product market, which is the appropriate unit of observation for an analysis of the relationship between percentage organized and wages. However, in the empirical work we focus on either a 3-digit Standard Industrial Classification or Census industry (in the manufacturing analysis) or a Current Population Survey state group (in the construction analysis). Unfortunately, the data used do not permit a closer correspondence between the theoretical and empirical parts of our study. 2 For an early attempt to disentangle this relation, using average wages in an industry and percentage organized, see Rosen (1969). For more recent related analyses, see (in alphabetical order) Donsimoni (1978), Hendricks (1975), Kahn (1978), and Lee (1978). For a trenchant treatment of the analysis, see Lewis (1980).

This paper investigates the magnitude of the elasticity of demand for labor in time series data using more general and complete models of demand than have been previously employed. It argues that previous analyses have imposed two invalid constraints in calculations, which bias downward estimated elasticities. The first invalid constraint is the assumption that real capital prices have an equal opposite effect to real wages in the demand equation. We show on measurement error grounds that this constraint should not be imposed in econometric work even when longrun homogeneity of prices correctly characterizes the market. The constraint is rejected in the data. The second invalid constraint is that all explanatory variables have the same lag distribution. We argue that this constraint is invalid when decisions are made under uncertainty and find that it is also rejected by the data. The principal positive empirical finding is that with the constraints relaxed, the elasticity, of demand with respect to real wages is much larger than the estimates in the literature, indicating much greater price responsiveness on the demand side of the labor market than has previously been thought.