Knowledge that Transforms

Between 1997 and 2000, the Canadian province of Quebec reduced its standard workweek from 44 to 40 hours with the aim of stimulating employment growth. Unlike the European work‐sharing policies examined elsewhere, the Quebec policy contained no suggestion or requirement that employers provide wage increases to compensate workers for lost hours. For this reason, among others, the Quebec policy provides a better test of the potential of work‐sharing as a job‐creation strategy. The evidence suggests that, despite a 20% reduction among full‐time workers in weekly hours worked beyond 40, the policy failed to raise employment at either the provincial level or within industries where hours of work were affected relatively more.

We study the economics of employment relationships in large law firms. Our point of departure is the “property‐rights” approach that emphasizes the centrality of ownership’s legal rights to control significant nonhuman assets of the enterprise. From this perspective, law firms are an interesting object of study because the key asset in these firms is knowledge, particularly knowledge of the needs and interests of clients. We argue that two distinctive organizational features of law firms—the use of “up‐or‐out” promotion contests and the practice of having winners become residual claimants in the firm—emerge naturally in this setting.

We consider why the gender division of labor is so often enforced by custom and why customary gender divisions of labor generally involve both direction and prohibition. In our formal model, agents first learn skills and then enter the marriage market. We show that wasteful behavior may emerge due to strategic incentives in specialization choice and human capital acquisition and that both problems may be mitigated through a customary gender division of labor. This division is not Pareto improving. Both the distributional effects and welfare gains of a customary gender division of labor decrease as opportunities for market exchange increase.

Since the days of Henry Ford, employers have argued that higher pay induces employees to provide additional effort. While the converse is also thought to be true, there is little empirical evidence testing this hypothesis. Not only are significant company‐wide pay cuts rarely observed in practice but measures of employee effort are typically difficult to quantify. This article examines the effort responses of U.S. commercial airline pilots following a recent series of large, permanent pay cuts. Using airline on‐time performance as proxy for unobservable pilot effort, we find only limited support for the hypothesis that pay cuts lower employee effort.

In this article we document the patterns of employment adjustment at the micro level. We find clear evidence of lumpy adjustment consistent with the presence of nonconvexities in the adjustment technology—inaction is pervasive, action spells are short‐lived, and extreme adjustment episodes are responsible for a nontrivial share of employment adjustment. We also find that the probability of employment adjustment increases with the duration of inaction. The skill structure of the workforce, the type of employment contract, and the proportion of low‐tenure workers, which we interpret as proxies for the magnitude of adjustment costs, all influence the probability of adjustment.

Little is known about the mechanisms underlying the transfer of economic status between generations. This paper addresses the question of whether inter-generational correlations in health contribute to the perpetuation of economic status. We examine inter-generational correlations in birth weight, a key indicator of the health of newborns that we link to future educational attainment and earnings using a unique data set based on California births from 1960s to the present. We use names and birth dates to link the records of mothers and children. We also identify mothers who are siblings. We show that there is a strong intergenerational correlation in the birth weight of mothers and children, but that a measure of household income at the time of the mother's birth is also predictive of low birth weight and that there is an interaction between maternal low birth weight and poverty in the production of low birth weight. Together these findings suggest that intergenerational correlations in health could play a role in the intergenerational transmission of income. Parent's income affects child health, and health at birth affects future income.

Using the Panel Study of Income Dynamics (PSID), we test Costa and Kahn’s colocation hypothesis, which predicts that power couples—couples in which both spouses have college degrees—are more likely to migrate to the largest cities than part‐power couples or power singles. We find no support for this hypothesis. Instead, regression analyses suggest that only the education of the husband and not the joint education profile of the couple affects the propensity to migrate to large metropolitan areas. The observed location trends are better explained by higher rates of power couple formation in larger metropolitan areas.

There is some evidence that children of divorced parents do not perform as well as comparable children in intact families but that this gap declines with the aggregate divorce rate. We develop a model in which the higher expectations for remarriage associated with higher divorce rates can trigger an equilibrium in which divorced fathers make more generous transfers that benefit their children and the mother in the aftermath of divorce. As a result, the welfare loss of children from the separation of their parents can be lower when divorce and remarriage rates rise.

We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low‐skill employment by 2%–4% and total restaurant employment by 1%–3%.

We provide both a theoretical and empirical analysis of the relation between administrative and survey data. By distinguishing between different sources of deviations between survey and administrative data we are able to reproduce several stylized facts. We illustrate the implications of different error sources for estimation in (simple) econometric models and find potentially very substantial biases. This article shows the sensitivity of some findings in the literature for the assumption that administrative data represent the truth. In particular, the common finding of substantial mean reversion in survey data largely goes away once we allow for a richer error structure.