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.

Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of their firm's stock, and ownership levels have declined over the past 50 years. We hypothesize that public and private political forces impose constraints that reduce the pay-performance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis.

We develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time. Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention. Our theory also implies that "cold turkey" is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.

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.

This paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth. We consider two sources of heterogeneity among workers: nonwage income and innate ability. A greater emphasis on status may induce the "wrong" individuals, that is, those with low ability and high wealth, to acquire schooling, causing workers with high ability and low wealth to leave the growth-enhancing industries. This crowding-out effect, taken alone, discourages growth. Growth may be enhanced by a more egalitarian distribution of wealth, which reduces the demand for status.

Using data from the March Current Population Survey, we document an increase over the past 30 years in wage inequality for males. Between 1963 and 1989, real average weekly wages for the least skilled workers (as measured by the tenth percentile of the wage distribution) declined by about 5 percent, whereas wages for the most skilled workers (as measured by the ninetieth percentile of the wage distribution) rose by about 40 percent. We find that the trend toward increased wage inequality is apparent within narrowly defined education and labor market experience groups. Our interpretation is that much of the increase in wage inequality for males over the last 20 years is due to increased returns to the components of skill other than years of schooling and years of labor market experience. Our primary explanation for the general rise in returns to skill is that the demand for skill rose in the United States over this period.