Knowledge that Transforms

"The seven-fold increase, since 1920, in the labor force participation rate of married women [in the United States] was not accompanied by a substantial increase in average work experience among employed married women. Two data sets giving life-cycle labor-force histories for cohorts of women born from the 1880s to 1910s indicate considerable (unconditional) heterogeneity in labor-force participation. Employed married women had substantial attachment to their jobs; increased participation brought in women with little prior work experience. Average work experience among cross sections of employed married women increased from 9.1 to 10.5 years over the 1930-50 period. Implications for 'wage discrimination' are discussed."

This article considers the form of the optimal implicit contract when workers have private information about their opportunity wage obtained via costly on-the-job search. It is assumed that the workers' search intensity is unobservable by the firm. Hence, the optimal contract must reconcile the incentives to promote intensive search with the incentives for the worker to reveal truthfully his opportunity wage. Its properties are demonstrated in the case of simple self-selection contracts, contracts with a lower bound on the severance payment, and contracts with involuntary layoffs.

A model is produced in which labor contracts that prespecify (unindexed) nominal wage payments arise endogenously. These contracts function as a self-selection mechanism. Under appropriately different attitudes toward price-level risk (which can either arise directly from preferences or be induced by different patterns of asset holdings), nominal contracts allow high-productivity workers to signal their type by their willingness to accept unindexed contracts. This explanation of nominal contracts does not require that money be used in any particular set of transactions, and nominal contracts enhance the risk faced by all parties accepting them.

A real business cycle model is constructed in which workers are heterogeneous and privately informed about their own productive abilities. The model is structured so that interesting cycles cannot arise in the absence of the informational asymmetry. In the presence of this asymmetry, the model produces cyclical fluctuations that are consistent with features of observed business cycles. Hours behavior of individuals is also consistent with micro evidence. In addition, the model gives rise to equilibrium unemployment of labor. The determination of equilibrium unemployment rates, hours levels, and output are integrally related in the analysis.

Two non-nested models of union wage and employment determination are estimated using data on the International Woodworkers of America (IWA) and the British Columbia wood products industry. One model predicts wage and employment outcomes on the labordemand function while the other predicts efficient outcomes on the contract curve. The models provide empirical estimates of the union's preferences, the production technology, and the comparative statics of the models. An attempt is made to choose the true model for this industry. Unfortunately, non-nested hypothesis tests and other criteria for model discrimination cannot reject one model in favor of the other.

This article presents a model in which markets for long-term contractual employment coexist with spot markets for labor. Assuming the absence of third-party enforcement, wage contracts are required to be incentive compatible. As a consequence, contract wages yield higher expected utility to the worker than spot-market wages so that, in equilibrium, contractual long-term jobs are rationed.

The nature of union endogeneity is examined in the light of recently proposed estimators for union wage differentials. The instrumental variable (IV) approach adopted by Duncan and Leigh is shown to yield little information on the precise nature of the endogenous process. In particular it cannot be used to sign the direction of selection into the union and nonunion sectors since by construction the IV estimates impose opposite signs on the selection terms.

Data on Naval Reserve recruiters are used to estimate the effects of on-the-job learning, experience, and individual characteristics on job performance. Generalizations of the Poisson distribution form the basis for estimating the effects of explanatory variables and control for individual heterogeneity and overdispersion. The findings show strong learning effects during the first 2 years on the job. Furthermore, lower pay-grade individuals have steeper learning curves than individuals in higher pay grades. Estimates of individual differences in productivity show a large variance in unobserved ability.

It is assumed that emotional ties can be relied on to enforce implicit marital contracts by "voice." Therefore, in the present model, divorce has economic consequences not only because the economies of scale from living together are destroyed but also because the scope for such "voice" enforcement is weakened. Moreover, perhaps surprisingly, I find that it is ambiguous how an increase in the probability of divorce influences predivorce allocation of time, even when preferences are assumed to be homothetic.