Knowledge that Transforms

This paper compares technologies across space and time on the basis of factual and counterfactual substitution elasticities and argues that differences in estimated substitution elasticities should be decomposed into two counterfactual components. While the first component is designed to indicate how the ease of substitution is altered by varied economic circumstances, the second addresses the question of how technologies would compare under genuinely comparable situations. This argument is illustrated by the example of energy-price elasticities of capital before and after the oil crisis of the early 1970s.

Previous experimental research has shown that people's decisions can be influenced by options they have encountered in the past. This paper uses PSID data to study this phenomenon in the field, by observing how long people commute after moving between cities. It is found, as predicted, that (i) people choose longer commutes in a city they have just moved to, the longer the average commute was in the city they came from and (ii) when they move again within the new city, they revise their commute length, countering the impact their origin city had on their initial decision.

Many studies find that parental resources importantly determine children's human capital, schooling returns, and earnings. The collective household approach suggests that, in addition, parental resources of marital partners may importantly affect resource distributions within marriage. This paper presents empirical results consistent with this framework. They suggest that parental wealth continues to play roles in augmenting welfare of children into adulthood beyond provision of human capital in early life-cycle stages or direct financial aid during adulthood, and that actual transfers from parents to adult children do not fully measure influences of parental wealth on behaviors and welfare of adult children.

We study the effects of a change in financial aid policy introduced by a Northeastern university in 1998. Prior to that time, the university s financial aid packages for low income students consisted of grants, loans, and campus jobs. After the change, the entire loan portion of the package for low-income students was replaced with grants. We find the program increased the likelihood of matriculation by low-income students by about 3 percentage points, although the effect is not statistically significant. The effect among low-income minority students was about twice that size and statistically significant at the 10 percent level.

The maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners. In the period after the last payment, homeowners experience an increase in their disposable income. Our study interprets this event as an anticipated increase in income, and tests whether households smooth consumption over the transition period as predicted by the rational expectation Life-Cycle/Permanent-Income Hypothesis. We find households do not alter nondurable goods consumption in the period following the last mortgage payment. Instead, they increase both financial savings and savings in durable goods such as housefurnishings and entertainment equipments in the year of the last mortgage payment.

A structural labor demand model is developed that allows for worker heterogeneity regarding firing costs and productivity. It is estimated for a firm in demise when 3,650 workers were made redundant in a restructuring following bankruptcy. This was the largest mass layoff in the history of the Netherlands. The model produces sharp predictions on how firing thresholds depend on individual worker characteristics. The signs of the estimated coefficients are consistent with these predictions. The model correctly predicts 68% of individual worker displacement. The results provide new in-depth knowledge on how firing costs influence personnel decisions.

Employers became more willing to hire a range of disadvantaged workers during the 1990s boom—including minorities, workers with certain stigmas (such as welfare recipients), and those without recent experience or high school diplomas. The wages paid to newly hired less-skilled workers also increased. On the other hand, employers' demand for specific skill certification rose over time, as did their use of certain screens. The results suggest that the tight labor markets of the late 1990s, in conjunction with other secular changes, raised hiring costs and induced employers to shift toward screens that seemed more cost-effective.

We would expect that the process of globalization between 1870 and 1914 and subsequent disintegration of the world economy during the interwar period would have led first to income convergence and then to income divergence between the participating countries. But in fact we find stronger evidence for income convergence during the interwar period than during the first globalization. Similarly, the average level of import protection in the world cannot be shown to have either helped or hampered convergence. The evidence for trade-induced convergence is therefore weak.