Knowledge that Transforms

Why do countries that impose employer sanctions to deter the illegal entry of foreign workers nevertheless grant amnesty to illegal immigrants? In this article, I provide a positive theory of amnesty provision in a model where the constrained optimal immigration reform, involving the joint use of employer sanctions and border interdictions, is time‐inconsistent. In particular, my framework demonstrates that host countries of immigration can enhance the credibility of their immigration reforms by “binding their own hands” and strategically granting a socially excessive amount of amnesty to illegal workers.

The employment effects of minimum wage noncompliance have been the focus of several theoretical contributions to the minimum wage literature, the dominating conclusion being that the noncomplying employer, while reducing employment below the free‐market level, will still employ more labor than he would if complying. Allowing, however, for partial compliance, this study applies a portfolio‐choice approach to the employer’s problem, concluding surprisingly that the minimum wage law may give rise to a full‐compliance employment effect even if it is partially evaded. This result is further shown to hold with regard to labor market laws in general.

Exploiting long term interindustry demand shifts, this article provides evidence that (1) industry‐level wages do not respond to industry demand conditions; (2) at the industry level, the employment of young workers responds more to demand shifts than does the employment of experienced workers; and (3) the postdisplacement wages of displaced workers are strongly affected by demand in their predisplacement industries. These findings are consistent with a model in which worker's investments in industry‐specific skills pose a barrier to interindustry labor mobility and wages do not respond to spot labor market conditions.

Theory predicts that minimum wages will reduce employer‐provided on‐the‐job training designed to improve workers' skills on the current job, but it is ambiguous regarding training that workers obtain to qualify for a job. We estimate the effects of minimum wages on both types of training received by young workers, exploiting cross‐state variation in minimum wage increases. Much of the evidence supports the hypothesis that higher minimum wages reduce formal training to improve skills on the current job. But there is little or no evidence of offsetting increases in training undertaken to qualify for or obtain jobs.

We investigate the relationship between financial wealth, reservation wages, and labor market transitions. Wealth is assumed to affect the level of the reservation wage and the employment probability. We test for the validity of this assumption by estimating a simultaneous‐equations model of reservation wages, labor market transitions, and wealth. The data used for the analysis relate to a sample of unemployed job searchers. We use subjective information on the reservation wage. Wealth is found to have a significantly positive impact on the reservation wage. The overall impact of wealth on the employment probability is negative though small.

This article reports direct evidence on how technological change is related to changes in wage gaps by schooling, experience, and gender. Wage gaps by schooling increased the most in industries with rising R&D intensity and accelerating growth in the capital‐labor ratio. Estimates of their relationship to high‐tech capital are inconclusive. Contrary to popular notions that technological change harms older workers, wage growth of experienced workers is much greater in R&D‐intensive industries than in industries with little R&D activity. The gender gap narrowed more in industries that most intensively used high‐tech capital in 1979.

Monetary union, such as the Economic and Monetary Union in Europe (EMU), may affect incentives for labor market reform, and thus equilibrium unemployment, through several mechanisms. If an inflation bias exists, there is usually a stronger incentive to reduce equilibrium unemployment through national reform outside rather than inside the EMU. Absent such a bias, EMU membership could lead to more reform. One reason is that reform may increase wage flexibility, which can substitute for monetary policy in the EMU. Another reason could be a precautionary motive for low equilibrium unemployment to reduce the utility cost of increased macroeconomic variability in the EMU.

Two quasi‐experiments are used to estimate the impact of parental divorce on the adult labor market and marital/fertility outcomes of adolescents. These involve individuals experiencing the death of a parent and legislative changes to the Canadian divorce law. Parental loss by death is assumed to be exogenous, the experiences of children with a bereaved background offering a benchmark to assess the endogeneity of parental loss through divorce. Adolescents whose parents divorced put off marriage and, once married, suffer a greater likelihood of marital instability, but their earnings and incomes are not on average much different from others.

This article provides new estimates of the nonprofit/for‐profit wage differential in the U.S. economy. Using observations on 4.1 million private‐sector employees from the 1990 census, I find either zero or slightly positive economy‐wide wage differences between nonprofit and for‐profit employees in a standard earnings equation format. Significant wage differentials are found at the disaggregated occupation and industry level and provide a basis for testing hypotheses explaining nonprofit/for‐profit wage differences.

Should unemployment benefits be paid indefinitely at a fixed rate or should the rate decline (or increase) over a worker’s unemployment spell? We examine these issues using an equilibrium model of search unemployment. The model features worker‐firm bargaining over wages, free entry of new jobs, and endogenous search effort among the unemployed. The main result is that an optimal insurance program implies a declining benefit sequence over the spell of unemployment. Numerical calibrations of the model suggest that there may be nontrivial welfare gains associated with switching from an optimal uniform benefit structure to an optimally differentiated system.