Knowledge that Transforms

Among fraternal pairs from the Wisconsin Longitudinal Study_(1980), the authors model the effects of measured and unmeasured family back ground factors, mental ability, and schooling on occupational status and earnings. The models are estimated from incomplete data with corrections for measurement error, and they permit direct comparisons of within- and between-family regressions. The authors find no evidence that the effects of family background lead to a bias in the effect of mental ability on schooling or in the effects of schooling on occupational status or earnings. Copyright 1986 by University of Chicago Press.

Contract and search theories are integrated to provide a consistent explanation of contract formation, the intertemporal structure of labor markets, the absence of ex post market clearing, and thus of unemployment in a contractual setting. Self-fulfilling equilibria are described in which low-productivity firms lay off some workers, while high-productivity firms' recruitment (search) intensity and the resulting degree of interfirm mobility are endogenous. The effects of severance pay on layoffs and mobility are identified. Finally, the market economy is shown to generate too few layoffs whenever high-productivity firms recruit new hires: without recruitment, laidoff workers are immobile, and equilibrium is constrained efficient.

When unemployment insurance (UI) taxes are incompletely experience rated, a self-financing UI system has to impose additional taxes that are exogenous to the behavior of individual firms. In the United States, these nonrated tax components vary predictably over the business cycle. A model of firm behavior under such a tax is presented. Evidence suggests signs for the parameters of the model that predict that incomplete experience rating, while (as shown elsewhere) increasing the rate of temporary layoffs, leads to the use of multiple tax schedules in a way that exerts downward pressure on cyclical swings in aggregate unemployment.

This study is concerned with the impact of changes in economic conditions on the family. "Three issues are considered in this paper. First, the reasons why the family is not fading away as an economic entity are discussed. The argument of this paper is that, despite the declines in various economic functions of the family and the increases in divorces and in other failures, the survival capacity of the family is both strong and robust." Second, the author contends that the economic approach should be extended to deal with the effects of the life-span revolution, shifts in prices and incomes, and the ability of the family to cope with these changes. Third, the hypothesis is put forward that intergenerational transfers are less important than increases over time in real per capita incomes and changes in income composition, its permanent and temporary components, and the sources of income. The geographical focus is worldwide.

This paper examines the amount of precautionary savings and wealth inequality arising from life-span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements, namely, when longevity risk can be pooled only with members of one's own family. The central findings of the paper are: (1) perfecting insurance arrangements can lower savings in intergenerationally altruistic and life-cycle economies and (2) in altruistic economies perfecting annuity insurance can influence in-equality; indeed, in the long run in the model, switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality. Copyright 1986 by University of Chicago Press.

This paper estimates the effect of union work rules in the building trades on employment and costs by comparing factor demand elasticities for union and nonunion contractors and subcontractors over micro data from two different types of construction. The results show that the elasticities of substitution between labor and nonlabor inputs and own-price elasticities for nonlabor inputs are about the same for union and nonunion contractors. In contrast, the elasticities of substitution among different skill categories of labor and the own-price elasticities for each category are much lower under unionism.

In recent years a large literature has developed that investigates the role of insurance in labor market contracting. Papers in this literature typically assume that workers are completely restricted from borrowing. We argue, and to some extent demonstrate, that in many environments capital market imperfections do not lead to a noborrowing result but rather to a capital market assumption that is intermediate between the no-borrowing assumption and the perfect capital market assumption. We then consider some of the ramifications that this intermediate capital market assumption has on the type of insurance the firms provide through the labor market contract.

Existing models of incentive compatibility in life-cycle employment contracts arrive at different predictions partly because of the different kinds of "contract-breaking" behavior allowed in them. This paper sets out and classifies the full range of such behaviors, argues that no model has yet incorporated all of them, and examines the consequences of doing so in the context of Lazear's well-known model. In the extended model, wages cannot rise faster than marginal products throughout the entire contract, and the set of feasible contracts can often be empty, even when both parties can commit to terminate the contract whenever it is broken by the other party.