Knowledge that Transforms

The first part of this paper considers the interaction between productive and nonproductive savings in a growing economy. It employs an overlapping generations model with capital accumulation and various types of rents, and gives necessary and sufficient conditions for the existence of an aggregate bubble. The second part is a series of thoughts on the definition, nature, and consequences of asset bubbles. First, it derives some implications of bubbles for tests of asset pricing. Second, it demonstrates the specificity of money as

This paper describes the equilibrium wage distribution and unemployment rate when firms recruit (search for) employees. A model in which firms' inability to distinguish workers who refuse job offers increases their expected recruiting costs, is contrasted with one in which indistinguishable low-productivity workers decrease firms' expected gains from hiring. In both, work force heterogeneity enhances search uncertainty, firms recruit less intensively than otherwise, and so the equilibrium unemployment rate rises. Heterogeneity reflects searchers' incomplete knowledge of desirable trading partners' locations and will likely be a confounding influence and source of unemployment in large economies with imperfectly observable sector-specific shocks.

The formation of implicit contracts in labor markets with heterogeneous employees is studied. If layoffs occur, the firm finds it optimal to offer differing contracts to differing employees, with employees who place a higher priority on leisure accepting contracts with higher layoff probabilities. The firm can do so without violating the constraint that employees voluntarily sort themselves into these contracts. Under plausible assumptions, the contracts match the empirical observation that relatively low wage rates and high unemployment probabilities tend to be correlated. Finally, an average or composite wage rate varies over states of nature, calling into question the ability of implicit contracts models to account for the constant, representative wage rate often found in macroeconomic models.

This paper examines real wage measures that include leisure and nonlabor income in consumption decisions with respect to the advantages and disadvantages of partial versus complete welfare orderings and of utility-based versus utility-free wage indices. In addition, we argue that the usefulness of a real wage measure beyond welfare comparison has been ignored. To test the robustness of utility-based indices, these real wage measures are calculated for two different utility-function specifications, the indirect addilog system and the linear expenditure system. Further comparisons are made against index bounds that are independent of the functional form for preferences.

This paper describes trends in labor force participation of Spanish women since 1900. Earnings-generating functions and logit participation models are estimated using a 1979 survey of married women. Estimates are shown to overpredict historical changes in labor force participation rates. A new specification of the participation model using average experience of married women as endogenous variable produces estimates that fit time-series data. These results suggest an increasing effect of education on participation, which confirms Schultz's hypothesis of increasing returns to various quality components of the labor force in modernizing economies.