Knowledge that Transforms

THE THICK VOLUME under review, by Richard Layard, Stephen Nickell, and Richard Jackman, is an extensive econometric and theoretical study, using time-series and cross section data, of the central tendency of the unemployment rate and its fluctuations in 19 OECD countries since the mid-50s. It thus joins the company of several recent macroeconometric studies of employment determination using international time-series data. Of these it is easily the most far-ranging study to date though in its microscopic examination of social legislation it has somehow neglected a range of macro factors right under its nose. Readers will find an abundance of arresting claims and provocative positions to keep the critical juices flowing. For me the volume is significant not (or hardly at all) as an assemblage of particular modelings and findings but primarily as an early econometric expression of the paradigm shift we are now witnessing in macroeconomics. Once nearly made extinct by a neoclassical winter, a school of economists are today furiously at work on unemployment considered as an equilibrium phenomenon' springing from en-

The author would like to acknowledge support for prior work on this topic from the U.S. Department of Health and Human Services, and helpful comments from three anonymous referees, Rebecca Blank, Howard Chernick, John Fitzgerald, Irwin Garfinkel, Peter Gottschalk, Edward Gramlich, David Greenberg, Judith Gueron, James Heckman, V. Joseph Hotz, Robert Hutchens, Michael Keane, Frank Levy, Larry Mead, Michael Murray, Robert Plotnick, Anuradha Rangarajan, Philip Robins, Howard Rolston, Jeffrey Smith, and Daniel Weinberg. All opinions and errors are those of the author alone.

The article studies the U.S. earning trends since 1950 and gives explanations for the inequality in earnings. Both slow growth and increased inequality appear in the comparison of adult male earnings distributions for 1979 and 1987. Trends in women's earnings paint a somewhat brighter picture. Women, like men, have experienced slow hourly wage growth and growing wage inequality. But in terms of annual earnings, both factors have been offset by changes in hours worked. The result is a significant increase in the proportion of women who earn $20,000 a year or more. A combination of shifts in supply and shifts in demand is necessary to explain the observed trends between these groups. A critical aspect of supply shifts was the entry into the labor market of the well-educated baby boom generation. Demand shifts can be characterized as a long-term trend toward increasing relative demand for highly skilled workers. The growth in within group earnings inequality has many potential explanations, but it is not well understood and contains opportunities for future research.