Ittner, Lambert, and Larcker (J. Accounting Economics (2003) this issue) present compelling evidence that new economy firms rely more on stock-based compensation than do old economy firms, based on 1998 and 1999 data from a proprietary sample of companies. I complement the ILL results by analyzing data over a longer time period (1992–2001) and, more importantly, document the effect of the 2000 market crash on stock-based pay in new economy firms. Finally, I offer evidence supporting the conjecture that differences in pay practices between new and old economy firms reflect accounting considerations, perceived costs, and competitive inertia.

Research in incentives has focused on performance measures and pay-performance sensitivities but has largely ignored the “performance standard”, which generates important incentives whenever plan participants can influence the standard-setting process. “Internally determined” standards are directly affected by management actions in the current or prior year, while “externally determined” standards are less easily affected. I show that companies choose external standards when prior performance is a noisy estimate of contemporaneous performance. In addition, companies using budget based and other internally determined performance standards have less-variable bonus payouts, and are more likely to smooth earnings, than companies using externally determined standards.

Economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance, and yet efforts to document this relationship have been largely unsuccessful. In this paper, we argue that previous cross-sectional studies have omitted important variables which seriously bias their results. Using data that focus on individual executives over time, we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales. The results are robust to the stock market performance measure utilized.

Using the March Current Population Surveys and the 1960 census, this article describes earnings and employment changes for married couples in different types of households stratified by the husband's hourly wage. While declines in male employment and earnings have been greatest for low-wage men, employment and earnings gains have been largest for wives of middle- and high-wage men. These findings cast doubt on the notion that married women have increased their labor supply in the recent decades to compensate for the disappointing earnings growth of their husbands.

The "human capital earnings function," in which earnings are expressed as a quadratic in potential experience, is probably the most widely accepted empirical specification in economics. In spite of its widespread acceptance, the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience. The standard formulation understates early career earnings growth by about 30%-50% and overstates midcareer growth by 20%-50%. However, simple alternative specifications that fit the data are available.

We treat rising inequality as an equilibrium outcome in which human capital investment fails to keep pace with rising demand for skills. Investment affects skill supply and prices on three margins: the type of human capital in which to invest, how much to acquire, and the intensity of use. The latter two represent the intensive margins of human capital acquisition and utilization. These choices are substitutes for the creation of new skilled workers, yet they are complementary with each other, magnifying inequality. When skill-biased technical change drives economic growth, greater inequality reduces growth.

This paper looks at the work of Gary S. Becker, American economist, professor of sociology, friend, and colleague of Kevin M. Murphy. Murphy discusses the traditional approach of Becker's teaching and ideas as they were expressed through his wealth of content and style in course design; his discussions on the role of preferences, technology, and constraints as they influence household production; and his emphasis on the importance of markets and desire for more. Murphy recognizes Becker's teaching style as groundbreaking, unapologetic, and pure economics.

In 1940 the average worker in the United States had 9.2 years of schooling; by 1990 the average had increased to 13.3 years. Although education levels show a dramatic upward trend, there is no corresponding long-term trend toward lower economic rewards from schooling. In fact, the return to schooling increased in three of the five postwar decades and is higher in 1990 than it was in 1940.1 In our opinion, the tremendous growth in the supply of more-educated labor with no corresponding reduction in relative wages is evidence that the demand for education increased greatly between 1940 and 1990 (see Murphy and Welch [1992] for a similar argument for the 1970-1989 period). In this paper we examine changes in the occupational wage and employment structure at ten-year intervals from 1940 to 1990 in an attempt to identify and quantify some of this increased demand for skill. Our analysis is based on the five Decennial Census files from 1940 to 1980 and the Current Population Surveys for 1978-1982 and 1989-1991. Not surprisingly, our findings support the view that the demand for skill increased significantly over the 1940-1990 period. Over the full period and for each of the five decades, we find that employment shifted from less-educated and lower-paid occupations toward more-educated and higher-paid occupations. We interpret this shift in employment patterns as evidence of a shift in demand. We do not find that the demand for skill grew particularly rapidly during the 1970's and 1980's, a period when wage inequality expanded in comparison to the three earlier decades when the trend was either toward less wage inequality or when wage inequality increased only modestly.