Knowledge that Transforms

This paper shows how to estimate a model in which an unknown transformation of the dependent variable is a linear function of explanatory variables plus an unobserved random variable, U, whose distribution is unknown. The model nests many familiar parametric and semiparametric models, including models with Box-Cox transformed dependent variables and proportional hazards models with and without unobserved heterogeneity. The paper develops root-n consistent, asymptotically normal estimators of the transformation function, coefficients of the explanatory variables, and distribution of U. The results of Monte Carlo experiments indicate that the estimators work well in samples of size one hundred.

Using Canadian data, I investigate the relationships among sectoral mobility, unemployment spells, and total unemployment. Recent North American evidence suggests that incidence shifts toward high wage-high tenure workers may increase equilibrium unemployment through decreasing sectoral mobility and increasing spells. Using a multiple spell transition model, I find that, while shifts toward such workers may have these effects, composition changes that lead to higher mobility can also increase unemployment. A further investigation into the relative roles of mobility and spell lengths in driving total unemployment indicates that the influence of the former is comparatively small.

We investigate the effect of tenure on employee retention under varying labor market conditions. Using a competing risks analysis of recall and new job acceptance applied to layoff unemployment spell data from waves 15 and 16 (1982-83) of the Panel Study of Income Dynamics, we find that adverse conditions (sectoral employment decline) significantly reduce the positive tenure effect on recall probabilities. This result is consistent with firm default on delayed payment contracts and does not appear to reflect the effect of technological change on the value of firm-specific investments.

This article presents a model of labor market adjustments as a sequential process of reallocation among various market and nonmarket sectors. Training costs introduce friction into the process, while fixed costs of working limit work sharing, resulting in unemployment. Adjustments in sectoral labor market variables to demand shocks can follow very different patterns, depending on relative demands and the expected duration of the shocks. In particular, a permanent boom in a sector may result in an initial increase in unemployment and reduction in working hours even as employment increases, reflecting contemporaneous substitution between the margins and intertemporal substitution in recruitment.

This article analyzes the causes of workers' multiskill training and, based on a survey of manufacturing plants and workers in Korea, concludes that multiskill capability arises from specific on-the-job training paid for by the firm. I describe various aspects of multiskilled workers and set up a theoretical model in which multiskilled workers are assumed to be more productive than specialized workers for producing a new product but less productive for producing an existing product. The model entails several implications, including a positive cross-sectional correlation between the proportion of multiskilled workers and the growth rate of labor productivity.

This article develops a model, with deferred compensation and severance pay, that predicts that workers bear all the costs and receive all the returns of human capital investments and that specific investments yield higher returns than general investments. This model also predicts that pensions, which efficiently defer compensation, will be positively related to specific investments. Evidence from the National Longitudinal Survey of Older Men confirms these predictions; participation in company-sponsored training programs, proxying for specific investments, increases the probability of pension receipt and the level of benefits. More general training outside the firm has much smaller effects on pensions.

A model of employed and unemployed job search is estimated from a panel of new entrants into the labor force as well as prime-age workers. After investigating the relative efficiency of the two main search methods within a representative agent framework, I estimate the model under a specification that encompasses comparative advantages using the quit/layoff distinction and pretransition earnings. Overall, the data indicate that unemployed search is slightly more effective for younger workers and, particularly, for those with low earnings but significantly less effective than employed search for mature workers.

We use unique data to analyze employer tax compliance with Unemployment Insurance (UI) provisions. The data indicate that employers may have underreported $728 million of UI taxes nationally in 1987 alone. To formally examine this noncompliance, a theoretical model of payroll tax evasion is developed showing that increasing payroll tax rates, among other things, likely increases noncompliance by risk-neutral firms. This prediction is empirically verified. The finding that UI tax evasion is systematically related to various firm characteristics suggests that UI audits may be effectively targeted by statistical profiles derived from our model, thereby improving compliance.

This article analyzes a minimum wage in a market with imperfect information and job search. It establishes that employment effects of a minimum wage do not generally indicate welfare effects. It shows that researchers interested in welfare consequences should ask two questions. First, is the existing minimum wage binding? Second, do some firms that would be bound by a new minimum wage presently experience labor shortages? If the answers to these questions are no and yes, respectively, this article supports the conclusion that a higher minimum wage is welfare improving, regardless of its effect on the unemployment rate.

This article analyzes an experimental program that offered payments to unemployment insurance (UI) recipients who found a job quickly. The experiment provided exogenous differences in individual incentives which I use to test labor supply and search theories of unemployment. I examine predictions about the timing of exits from unemployment and the effect of the fixed-amount bonus on different wage level groups. I also argue that the experimental evidence does not show the desirability of a permanent program. A permanent program would sharply increase the compensation for short UI spells, likely increasing the claims rate and possibly increasing unemployment.