The purpose of this paper is to illustrate how a two-part compensation system composed of a rigid base salary and a flexible bonus can reduce turnover. It is shown that bonus pay is an effective retention device if it is risk reducing and is correlated with outside contract offers. For the first time, to the best of our knowledge, a model of bonus payments is tested with U.S. instead of Japanese data. The empirical results are suggestive of the conditions that give bonuses an important, even dominant, role in worker retention.

The objective of this paper is to demonstrate that the nonunion wage differential consists of two effects. The first represents the differential between the wage of a nonunion worker in a collective bargaining unit and the wage paid to a comparable worker not covered by a bargaining agreement. This effect arises from the monopoly power of organized labor. The second is the wage differential between union and nonunion workers in collective bargaining units. This latter effect is attributed to economic benefits that unionism brings to its members. Empirical evidence is presented in support of both effects.

We use unique data to analyze employer tax compliance with Unemployment Insurance (UI) provisions. The data indicate that employers may have underreported $728 million of UI taxes nationally in 1987 alone. To formally examine this noncompliance, a theoretical model of payroll tax evasion is developed showing that increasing payroll tax rates, among other things, likely increases noncompliance by risk-neutral firms. This prediction is empirically verified. The finding that UI tax evasion is systematically related to various firm characteristics suggests that UI audits may be effectively targeted by statistical profiles derived from our model, thereby improving compliance.

During the past few years there has been considerable interest, among both economists and politicians, in the question of how to lower the unemployment rate consistent with nonaccelerating inflation by the use of structural policies. Although it is not possible to estimate the value of this rate (which will hereafter be referred to as U* ) with any precision, its consensus estimate in 1978 terms is about 6 percent, plus or minus one-half of 1 percent. While recognition of this constraint on aggregate macro-economic policy has been taking hold, Congress has been debating a bill to establish a 4 percent overall unemployment rate as the national goal for 1983. Implicit in this bill (the socalled Humphrey-Hawkins proposal) is the necessity of expanding labor market programs in order to achieve its principal objective. The major component of such programs in the United States has been the direct provision of job opportunities to specific groups in the labor force.' These generally take the form of public service employment (PSE), but there has also been some use of employment tax credits in the private sector. There are several possible objectives of employment policy, ranging from fiscal relief for local governments to a substitution of subsidized employment for welfare. The purpose of this paper, however, is to examine the potential of employment policy to lower U*, i.e., to shift the long-run Phillips curve to the left.2 Can the provision of a large number of PSE jobs or the extensive use of wage subsidies alter the relationship between labor market tightness and the overall unemployment rate such that a lower unemployment can be sustained by macro-economic policy without accelerating inflation? The answer to this question depends on how individual labor markets work-in particular, on the nature of unemployment among the persons toward whom the unemployment programs are targeted. There is little consensus among labor economists about the functioning of these markets and, accordingly, the question of the probable impact of employment policy on U* is subject to considerable controversy. It is therefore useful to frame the issue in a manner which permits empirical testing. Such an attempt, as well as the associated empirical results, is presented in Section I of the paper. Some qualifications to these results, empirical and conceptual, are discussed in Section II.