IN recent years there have been notable advances in the methodology used in empirical studies of state and local public spending. The rather ad hoc econometric studies of the mid-1960s are being replaced by more carefully specified models, e.g., Barr and Davis (1966), Ohls and Wales (1972), Borcherding and Deacon (1972), and Bergstrom and Goodman (1973). Most of these efforts share the common feature that expenditures are viewed as responses to collectively exercised demands. While these studies have yielded insights, all have been partial equilibrium in nature and none has incorporated the possibility of substitution among public services in response to changes in relative costs. A goal of the present paper is to fill this gap by directly modeling and estimating such substitution effects in collective consumption. To accomplish this, it is convenient to view expenditure decisions in the public sector as analogous to consumer choices in the private sector, i.e., as if generated by utility maximization subject to a budget constraint. Quite aside from any advantages this approach holds for empirical analysis, this view of the public decision-making process has been highly attractive to theoretical researchers. Although the utility maximization paradigm has never been subjected to a direct empirical test, it has been employed to predict the effects of intergovernmental grants and spillovers across jurisdictions, and to examine other topics. A second aim of this analysis, therefore, is to provide empirical evidence on the tenability of this view of the local public sector.

R ECENT theoretical and empirical analysis of unemployment has emphasized its dynamic character: flows into and out of unemployment are very substantial in relation to the stock of unemployed individuals,' and groups with high unemployment rates tend to be those whose members experience short but frequent spells of joblessness (Hall, 1970). This view of unemployment has afforded important new insights into the question of why average unemployment rates differ so markedly across certain labor force groups, and has led to major shifts in the focus of labor market policy. For example, the discovery that the higher unemployment rates of blacks are due almost entirely to the higher frequency of jobless spells they experience (Perry, 1972) has shifted emphasis away from policies that stimulate demand toward policies that will help to reduce job turnover. Existing studies have focused almost exclusively on differences in the average values of the duration and frequency of spells of unemployment between certain labor market groups; none has examined systematically the variation in unemployment spell lengths and frequencies across individuals. This paper seeks to fill this gap by examining the relative contributions of unemployment frequency and unemployment duration to the distribution of total hours of unemployment across individuals within each of several important labor force groups. Dispersion in the distribution of unemployment across individuals results when either the length or frequency of unemployment spells is unevenly distributed across individuals. This dispersion is reinforced when the length and frequency of spells are positively correlated, i.e., when those individuals who have the greatest difficulty finding jobs (the last hired) tend to be the same individuals who experience the greatest difficulty keeping them (the first fired). The principal contribution of our study is that it enables the variations in individual unemployment experience to be linked explicitly to individual variations in the length and frequency of unemployment spells. Section II below outlines a probabilistic model of individual labor market transitions that serves as the basis for our empirical estimation procedures. In section III we then describe the data employed in our study (the National Longitudinal Survey) and present our estimates of the distributions of individual transition probabilities for each of four demographic groups. Section IV examines the effect of a business cycle downturn on the unemployment experienced by individuals in these groups.

THE hypothesis that firms with market power pay higher wages than competitive industries has implications that are important to many areas of policy. If firms with market power do pay higher wages, the excessive portion of those wages would be a rather large addition to the social costs of monopoly. In addition, wages that are inconsistent with labor market characteristics and not uniformly sensitive to business cycles will hamper the implementation of macroeconomic stabilization programs. Previous studies in this area have usually tested the market power hypothesis by determining the relationship between industry concentration and industry wages.' In addition, studies focusing upon other aspects of interindustry wages, such as the effect of unions2 and plant size3 have included concentration as an explanatory variable in their models. Results of these studies have differed with respect to their findings on the importance of concentration. Some studies found concentration to be important in the wage determination process while others did not. The research reported in this article indicates that the concentrationwage relationship changes significantly over the business cycle making cross sectional studies sensitive to the year used for the analysis. This finding is consistent with the results of models developed to describe the wage determination process over time. The method of analysis used here focuses upon the concentration-wage relationship at two points in the business cycle. A cross sectional test of a model of interindustry wage determinants in manufacturing is presented for the years 1958 and 1967. The results of these tests indicate that six independent variables can explain over 72% of the variation in wages found in each of the two test years, with each of the six coefficients statistically significant in both years. However, the impact of the independent variables change considerably over the business cycle. Of particular interest are findings that support the hypotheses (1) that concentration's effect upon wages appears to change over the business cycle, thus providing support for the spillover hypothesis and (2) that the wage-concentration relationship is not linear.

Albert A. Hirsch, Saul H. Hymans, Harold T. Shapiro, Econometric Review of Alternative Fiscal and Monetary Policies, 1971-75, The Review of Economics and Statistics, Vol. 60, No. 3 (Aug., 1978), pp. 334-345