Knowledge that Transforms

Recently developed effort regulation models argue that labor markets are segmented because of differences in the technology of supervision across firms. primary jobs pay above market clearing wages because these jobs are difficult to monitor. Secondary jobs, in contrast, pose no monitoring difficulties and therefore pay a market clearing wage. If, as the literature suggests, increases in employer size make supervision more difficult, we should observe that wages increase with employer size in primary jobs but not in secondary jobs. We test this hypothesis using a switching regression model. We find evidence of an employer size wage effect in both primary and secondary labor markets. However, consistent with the prediction of effort control models, the size effect on wages is considerably larger in primary than secondary jobs.

V. Kerry Smith, Raymond B. Palmquist, Paul Jakus, Combining Farrell Frontier and Hedonic Travel Cost Models for Valuing Estuarine Quality, The Review of Economics and Statistics, Vol. 73, No. 4 (Nov., 1991), pp. 694-699

Despite considerable empirical research, a debate still rages about the relative importance of tenure and experience in determining wages given the existence of unobserved heterogeneity. Using a data set well suited to this problem, the author finds after correcting for unobserved heterogeneity that tenure increases wages only in the first several years of employment. The accumulated effect of general labor-market experience increases wages substantially over the career. This evidence suggests that specific human capital accumulation is relatively less important than some might believe. This result is robust to different estimation techniques that have been suggested in the literature. Copyright 1991 by MIT Press.

Disaggregated import-demand elasticity estimates based on import unit-value indexes are used in virtually all trade policy simulation models. However, unit-value indexes have been criticized especially by Irving B. Kravis and Robert E. Lipsey (1974). To examine the effect of using unit-value indexes on estimates of disaggregated import-demand elasticities, this paper compares regression results using unit-value indexes with results using U.S. Bureau of Labor Statistics import-price indexes for several detailed trade categories based on quarterly data for 1978-88. Results show that using unit-value indexes does not greatly affect estimated import-demand elasticities. Copyright 1991 by MIT Press.

This paper evaluates the performance of a monetary aggregate that is constructed from principles of economic and index number theory. Results from tests for weak separability indicate that wholesale deposits should not be aggregated with other U.K. financial assets; they currently are included, however, in broad monetary aggregates published by the Bank of England. Financial asset groupings passing the weak separability tests then were aggregated using both simple-sum and Divisia weights. In each case, the Divisia aggregates were more closely related to the growth of nominal GDP and had stable demand for money functions. Copyright 1991 by MIT Press. (This abstract was borrowed from another version of this item.)

This paper formalizes and empirically tests the hypothesis that the deficient maintenance of public infrastructure is caused by fiscal distress. We utilize a production-decision framework in which public officials combine maintenance and new capital to produce a desired level of capital services. The behavior implied in the fiscal distress hypothesis is treated as perverse deviations from the optimal production path. The empirical findings from cross-sectional expenditures data give support to the fiscal distress hypothesis.

In the authors' analysis of nonwork spells for Workers Compensation Insurance, they use the family of generalized gamma distributions for the structural model of failure time and both nonparametric and parametric controls for heterogeneity. These specifications allow for nested likelihood tests of not only the correct form for parametric heterogeneity, but for the structural distributions as well. The authors find in their data that while heterogeneity is important, both parametric and nonparametric types of control do about equally well. The "best" (in terms of statistical fit) structural distribution is the generalized gamma function; the exponential distribution fits especially poorly. Copyright 1991 by MIT Press.

Richard Hartman (1976) and Duncan M. Holthausen (1976) showed that firms' input choices may be affected by demand uncertainty. Specifically, uncertain demand conditions may lead to firms operating with a lower capital-ratio. This result has potentially important implications for the analysis of factor demand and factor productivity. The author constructs measures of demand uncertainty and examines the above relationship for a sample of 125 U.S. manufacturing industries. Results show that there exists a significant negative relationship between demand uncertainty and the capital-labor ratio. Copyright 1991 by MIT Press.

William J. Hausman, John L. Neufeld, Property Rights Versus Public Spirit: Ownership and Efficiency of U.S. Electric Utilities Prior to Rate-of-Return Regulation, The Review of Economics and Statistics, Vol. 73, No. 3 (Aug., 1991), pp. 414-423

Differences in student learning associated with different instructors in three types of principles of economics courses are estimated using a fixed- and random-effects specification for an educational production function. Results show a wide variance in these instructor effects and that this variance increases directly with the amount of latitude instructors are given in the classroom. Copyright 1991 by MIT Press.