Knowledge that Transforms

This article uses a unique data set to measure the economic and demographic consequences of mental illness. We find that mental illness significantly reduces an individual's earnings and that in some cases this effect lasts as long as 15 years. Mental illness is also shown to affect an individual's ability to marry or stay married, lowers the number of children that he has, and encourages his wife to work.

Female manufacturing workers around 1900 were far more likely to be paid by the piece and were rarely employed at the same occupation in the same firm as males. These and related aspects of work organization can be understood through a model in which workers shirk, monitoring is costly, and males and females have different turnover rates. Employers adopt either piece rates or deferred payment. Occupational segregation by sex and differences in earnings result even if workers are equally productive. Establishment-level data on supervising male and female workers in time- and piece-rate positions are examined.

"In this paper we question the pioneering work of Todaro, which states that rural-to-urban labor migration in less developed countries (LDCs) is an individual response to a higher urban expected income. We demonstrate that rural-to-urban labor migration is perfectly rational even if urban expected income is lower than rural income. We achieve this under a set of fairly stringent conditions: an individual decision-making entity, a one-period planning horizon, and global risk aversion. We obtain the result that a small chance of reaping a high reward is sufficient to trigger rural-to-urban labor migration."

"Birth-order effects are posited by many to affect earnings and schooling. We show how such effects can be interpreted to shift either the earnings possibility frontier for siblings or parental preferences. We find empirical evidence for birth-order effects on (age-adjusted) schooling and on earnings for young U.S. adults, though the latter is not robust for all specifications. The examination of intrahousehold allocations suggests that these birth-order differences occur despite parental preferences or prices by birth order favoring later borns, apparently because of stronger endowment effects that favor first borns."

This paper develops a model of dual labor markets based on employers' need to motivate workers. In order to elicit effort from their workers, employers may find it optimal to pay more than the going wage. This changes fundamentally the character of labor markets. The model is applied to a wide range of labor market phenomena. It provides a coherent framework for understanding the claims of industrial policy advocates. It also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces. Finally, the model provides the basis for a theory of involuntary unemployment.

Although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation, our understanding of bequest motives remains incomplete. We develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries' actions. The model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers. We present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries.

"This paper develops a model of the transmission of earnings, assets, and consumption from parents to descendants. The model assumes utility-maximizing parents who are concerned about the welfare of their children. The degree of intergenerational mobility is determined by the interaction of this utility-maximizing behavior with investment and consumption opportunities in different generations and with different kinds of luck. We examine a number of empirical studies for different countries. Regression to the mean in earnings in rich countries appears to be rapid. Almost all the earnings advantages or disadvantages of ancestors are wiped out in three generations." A comment by Robert J. Willis is included (pp. 40-7).