Knowledge that Transforms

This paper partially fills a theoretical void by developing an integrated model of the various branches of the medical community. A consistent and general framework is adopted to analyze equilibrium within the market for medical services under a stylized form of socialized medicine, without invoking demand shifting. The optimization problem faced by each agent is specified and the equilibrium is defined. The effect of various parameter changes on the market for medical services is analyzed. The predictions are not contradicted by the stylized facts.

Life-cycle models of training/working that allow a leisure/effort trade-off are examined. A two-stage maximization problem is proposed encompassing models previously studied. In one stage, preferences are maximized by selecting a lifetime plan of consumption, leisure, and nonleisure subject to a budget constraint involving a conditional earnings function. In the other stage, the conditional earnings function is maximized by selecting a training and working plan. A new feature is the introduction of a technology, transforming stocks of human capital into leisure/effort efficiency units. Empirical predictions and conditions disallowing a two-stage separation are discussed.

The ability of unions to raise the wages of their members above the wages of similar but nonunionized workers is well documented. This paper examines empirically the implications of that wage differential for resource allocation and economic efficiency. This is accomplished by explicitly solving a numerically specified general equilibrium system with and without the wage differential. Comparison of the two solutions yields the desired information. The findings indicate that the wage premium results in adjustments in prices and quantities of factors and commodities that vary widely across industries. These adjustments are found to carry a small deadweight loss, as measured by the Hicksian equivalent variation.

Longitudinal estimates of the variability of individual wages, hours, and weeks worked over the course of changing demand states are provided for all workers generally and for workers of varied levels of job experience. Emphasis is placed on that part of job experience represented as years on current job, a commonly used proxy for the magnitude of firm-specific skills. Interpretation of resulting estimates in the context of the labor market contracting literature is attempted. Generally significant procyclical patterns are found for real weekly wages, weekly hours, and weeks worked. The extent of weekly wage variability is much greater than is generally suggested in the literature. Furthermore, workers with greater tenure exhibit greater cyclical wage and hours variability and less weeks variability. Finally, empirical distinctions are drawn separately for white-collar and blue-collar as well as union and nonunion workers.

Our paper provides an explanation why cost-of-living adjustment (COLA) provisions and their characteristics vary widely across U.S. industries. We develop models of optimal risk sharing between a firm and union to investigate the determinants of a number of contract characteristics. These include the presence and degree of wage indexing, the magnitude of deferred noncontingent wage increases, contract duration, and the trade-off between temporary layoffs and wage indexing. Preliminary empirical tests of some of the implications of the model are described. One key finding is that the level of unemployment insurance benefits appears to influence the level of layoffs and the extent of COLA coverage simultaneously.

By combining features of rationing models and hedonic models in a novel way, this paper develops a structural model of categorical labor force behavior to help explain several puzzles in data on unemployment and discouraged workers. It traces the links among minimum wages or other rigidities, hiring and firing decisions by firms, and labor force participation decisions by individuals of differing skill levels. A key comparative static result is that a rise in an effective minimum wage increases the labor force participation of more skilled marginal workers but reduces the participation of less skilled marginal workers.

A model of the labor market is constructed in which unemployment is generated by labor turnover and the process of selecting new recruits. Firms' recruitment policies affect workers' job-finding probabilities and are known to job seekers by reputation. The value of visiting a firm thus depends on the probability of being hired as well as on the terms of employment and, in equilibrium, is equal at all firms. The principal results obtained are that the equilibrium unemployment rate is efficient and that there are no external effects of search by workers or recruitment by firms.

This paper surveys union wage effect estimates drawn from empirical cross-section wage equations fitted to macro (aggregated) data in 34 post-1963 studies containing such equations. Each estimate is the partial derivative of the dependent wage variable (in logarithmic units) with respect to the extent-of-unionism (fraction unionized) variable in the equation. This paper shows that these estimates contain a mixture in uncertain ratio of the union/nonunion wage differential or wage gap, on the one hand, and an "extent-of-unionism" effect, on the other. Therefore the Macro estimates should not be interpreted as wage gap estimates.