Knowledge that Transforms

This article investigates the hypothesis that when measures of specific human capital (such as job tenure) are included in earnings functions, there may be a sample selection bias because of job‐matching effects—because workers with high unobserved match quality receive and accept high wage offers. We develop a model for wage offers in a labor market characterized by both specific human capital and job matching. The model provides a theoretical basis for empirical earnings functions containing specific capital, and it demonstrates that sample selection bias reduces the estimated return to specific human capital and tenure.

This article examines whether the Mortensen‐Pissarides matching model with productivity changes can explain the time pattern of wage inequality. The main finding is that the model produces counterfactual results. The main source of failure seems to be the exogenous matching function and/or the exogenous surplus share, neither of which allows firms to use wage policies to direct workers’ searches.

I study how education affects the allocation of talent into different sectors of the economy. I focus on two forces. First, education adds to a worker’s information capital and, thus, may change her self‐confidence. Second, performance contracts give a worker incentives to choose a sector according to her abilities. The baseline model predicts that workers with intermediate ability educate, while the most able skip education. In an extension, I compare the U.K. and the U.S. bachelor’s degrees and, moreover, discuss hybrid educational systems, common in Europe, that offer both U.K. and U.S. types of bachelor’s degrees.

This article calculates retirement income–replacement rates for all labor market cohorts across the last 25 years and describes the changing contributions made by private pensions, social security, and assets. The factors on which replacement rates are sensitive include position in the income distribution, the use of after‐tax instead of pretax incomes, the changing family composition of households between their pre‐ and postretirement years, and differential underreporting of income by age. The debate about reforming the U.S. retirement income system starts from a base where the current system offers high income‐replacement rates for most households, especially low‐income households.

Making use of performance data for baseball players, this article provides empirical evidence in support of Lazear’s (1998) theoretical predictions that (1) risky workers will earn a premium for their upside potential, (2) this risk premium will be higher the longer a worker’s work life, and (3) firms must enjoy some comparative advantage in the labor market to be willing to pay a premium to risky workers. The validity of Lazear’s predictions carries implications for wage differentials between young and old workers and between men and women.

Policies designed to protect female workers have controversial effects on labor market outcomes, both in theory and in practice. The analysis uses repeated cross‐sections of household survey data for Taiwan to estimate the impact of working‐hours restrictions and maternity benefits. Differential coverage across industrial sectors and demographic groups provides a unique opportunity to identify the impact of both policies in a single natural experiment framework. While working‐hours restrictions have a negative impact on women's actual hours worked and employment, maternity benefits increase these labor inputs, implying that women value the opportunity to return to jobs they might otherwise have to leave.

This article analyzes Becker’s ([1957] 1971) theory of employer discrimination within a search and wage‐bargaining setting. Discriminatory firms pay workers who are discriminated against less and apply stricter hiring criteria to these workers. The highest profits are realized by firms with a positive discrimination coefficient. Moreover, once ownership and management are separated, both highest profits and highest utility can be realized by firms with a positive discrimination coefficient. Thus, market forces, like entry or takeovers, do not ensure that wage differentials due to employer discrimination disappear.

A structural approach is used to examine who matches with whom. A two‐sided matching model that allows for marital sorting in response to marriage market flexibility and agents’ preferences is utilized. Estimation is based on imbedding the numerical solution of a matching model within a maximum likelihood procedure. Results indicate that wage is more desirable than education in predicting marriageability for white men; education is more desirable for black men. The marriage market for white men is more flexible. Both marriage market flexibility and the chance of being classified correctly using agents’ wage and education decrease with age for white men.

This article explores the claim that college‐educated workers are increasingly likely to be in “noncollege” occupations. We provide a conceptual framework that gives analytical content to the previously vague distinction between “college” and noncollege jobs. We show that, when there is heterogeneity in preferences, equally productive college workers can be in college and noncollege jobs. This framework is also used to show that skill‐biased technological change will lead to a decline in the proportion of college workers in noncollege jobs. This prediction is supported by the data.

This article develops and estimates an on‐the‐job search model of the entry of highly skilled immigrants from the former Soviet Union into the Israeli labor market. The estimated parameters of the model, together with information on the wages of immigrants from earlier waves, imply that, on average, immigrants can expect lifetime earnings to fall short of the lifetime earnings of comparable natives by 57%. Of this figure, 14 percentage points reflect frictions associated with nonemployment and job distribution mismatch, and 43 percentage points reflect the gradual adaptation of imported schooling and experience to the local labor market.