We introduce a model of the retail firm in which consumers and active firms benefit collectively from coordination of sales at fewer firms. Using this model, we show that ostensibly uninformative advertising plays a key role in bringing about coordination economies, by directing consumer search toward firms that offer the best deals. Optimal consumer search takes the form of a simple rule of thumb that uses observed advertising information to guide search. Both industry concentration and social surplus are higher in the presence of advertising, relative to a no-advertising benchmark. (JEL D83, L15) Many observed advertisements seem to be at odds with rational behavior. In a variety of ads, mostly on TV and radio, multiproduct sellers provide little hard information, choosing instead to impart only vague slogans that are suggestive of good deals. Examples are plentiful: a hardware store
Why has China grown so fast when conditions thought to be necessary for growth were absent? Nowhere is this dissonance greater than in China's industrial sector, which has recorded big gains in output, employment, and exports in the absence of privatization, effective bankruptcy legislation, and other policy innovations widely seen as prerequisites for successful reform. This essay reviews the accomplishments of Chinese industry since the start of reform in 1978, focusing on the internal dynamics of the development process; considers the future of partial reform; and discusses the implications of China's industrial reform experience.
The authors consider an individual who lacks the information-processing capacity required for a direct comparison of all feasible allocations. Instead of finding at once a best allocation, the individual myopically adjusts his current allocation toward higher utility. The individual makes adjustment errors inversely proportional to his ability to choose. The authors compare the stationary state of this process with the standard model. They see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from the authors' more general one as the special case corresponding to perfect ability. Copyright 1994 by American Economic Association.
This paper presents estimates of how an increase in welfare benefits for the welfare-eligible affects the provision of parental support in the form of both financial transfers and shared residence based on an overlapping-generations framework incorporating game-theoretic interactions among parents their adult children and the government. The empirical results obtained from two longitudinal data sets indicate that the parents view a dollar of income earned by their daughters as equivalent to a dollar increase in welfare benefits. However there exists only a small trade-off between the generosity of government aid and the incidence of parental aid. Data are for the United States and are from the National Longitudinal Survey of Young Women for 1968-1984 and the National Longitudinal Survey of Youth for 1979-1984. (EXCERPT)
The U.S. labor market has recently experienced two dramatic trends: a falling male-female pay gap and a rising level of labor-market inequality. After decades of near-constancy at about 60 percent, the ratio of women's to men's pay has risen steadily since the late 1970's. At the same time, there were substantial increases in overall wage inequality for both men and women (Lawrence F. Katz and Kevin M. Murphy, 1992; Blau and Kahn, 1993). Wage inequality rose both within and between education and experience groups, and this has been interpreted as reflecting primarily higher returns to both measured and unmeasured labor-market skills (Katz and Murphy, 1992; Chinhui Juhn et al., 1993). This paper addresses the connection between these two important developments. When analyzing gender differentials in pay, economists commonly focus on malefemale differences in skills and on differences in the treatment of equally qualified men and women (i.e., discrimination). Both of these may be considered gender-specific factors influencing the pay gap. Research on these gender-specific factors suggests that women tend to be less skilled than men, on average, and to be located in lower-paying industries and occupations. This in turn suggests that overall wage structure can also have an important effect on the gender pay gap. (Wage structure describes the array of prices set for various labor-market skills, measured and unmeasured, and the rents received for employment in particular sectors of the economy.) For example, since women on average have less experience than men, an increase in the return to experience (as in fact occurred over the 1970s and 1980s) would cause the gender pay gap to rise, even if women's relative level of experience and their gender-specific treatment by employers remained the same. Similarly, an increase in the returns to employment in male occupations and industries would widen the gender differential, all else equal. In earlier work, we found overall wage inequality to be very important in explaining international differences in the gender pay gap (Blau and Kahn, 1992, 1994). In particular, we addressed a paradox. On the one hand, U.S. women compare favorably to those in other countries in terms of their relative qualifications and occupational status. Further, the United States has had a longer and often stronger commitment to equal pay and equal employment policies than most other industrialized countries. Yet the gender pay gap in the United States is larger than in most of these countries. An important part of the explanation for this pattern is the high level of wage inequality (i.e., high returns to skill) in the United States, which puts an exceptionally large penalty on being below average in the wage distribution. Our results suggest that the U.S. gap would be similar to that in countries like Sweden or Australia (the countries with the smallest gaps) if the United States had their level of wage inequality. The implication of our earlier research on international differences in the gender gap is that in recent years American women have been swimming upstream in a labor market that was growing increasingly unfavorable to low-wage workers. In the face of this rising inequality, women's relative skills and treatment have to improve merely for the pay gap to remain constant; still larger gains are necessary for it to be reduced. * Blau: Institute of Labor and Industrial Relations, University of Illinois, Champaign, IL 61820, and NBER; Kahn: Institute of Labor and Industrial Relations, University of Illinois. We thank Claudia Goldin and participants at the NBER Labor Studies meeting and the University of Illinois and Cornell Labor Economics Workshops for helpful comments, and Jennifer Berdahl for excellent research assistance. Portions of this work were completed while the authors were visiting fellows at the Australian National University, Canberra.
From 1972 to 1990, the United States experienced the largest increase in wage inequality of any developed country. The spread in log wages between the 90th and 10th percentiles of the male wage distribution increased by about 60 points, and inequality increased within virtually every demographic or skill category of the labor force (see Chinhui Juhn et al., 1993). Various explanations have been offered, including changes in the relative demand for skill-intensive goods, international trade, immigration of less-skilled workers, and increased labor-force participation of women. Yet attempts to quantify the relative importance of these factors have not met with much success. This leaves skill-biased change as the residual claimant that rationalizes the data. This paper uses regional differences in the evolution of wage inequality to provide new evidence on the determinants of relative wages. Using a model of factor demand in geographic markets, I isolate contributions of (i) changing skill ratios in the labor force; (ii) increased participation of women; (iii) technical change; and (iv) changes in the industrial composition of labor demand. The data indicate that changing skill ratios and women's labor supply have affected the wages of low-skilled men. In the West, the data indicate that increased immigration of less-skilled Hispanic and Asian workers has adversely affected the wages of natives, causing a greater increase in inequality there than in any other region of the country. I. Modeling Wage Inequality in Regional Markets