Knowledge that Transforms

It is common knowledge among empirical labor economists that household-status variables can enter significantly in wage equations. In particular, a substantial marital wage premium for men has been noted. Recently a series of articles in the management literature has argued that an even larger premium accrues to those married men whose wives do not work for pay (single-earner husbands). Our current study arises in response to perceived deficiencies in the conceptual framework and statistical methods used in these studies.

Forthcoming in the American Economic Review The LeChatelier principle, in the form introduced into economics by Samuelson, asserts that at a point of long-run equilibrium, the derivative of long-run compensated demand with respect to own price is larger in magnitude than the derivative of short-run compensated demand. We introduce an extended LeChatelier principle that applies also to large price changes and to uncompensated demand as well as to a wide range of concave and nonconcave maximization problems outside the scope of demand theory. This extension also clarifies the intuitive basis of the principle. JEL classification numbers: C60, D10, D20.