Modern Labor Economics: Theory and Public Policy

Title......Page 11
Copyright......Page 12
Brief Contents......Page 15
Contents......Page 17
Preface......Page 51
1 Introduction......Page 62
The Labor Market......Page 64
Labor Economics: Some Basic Concepts......Page 66
Positive Economics......Page 67
The Models and Predictions of Positive Economics......Page 69
EXAMPLE 1.1 Positive Economics: what does It Mean to \"Understand\" Behavior?......Page 72
Normative Economics......Page 76
EXAMPLE 1.2 Are We Too Lazy to Make the Right Decisions for Ourselves?......Page 81
Normative Economics and Government Policy......Page 86
Efficiency versus Equity......Page 88
Plan of the Text......Page 91
Review Questions......Page 94
Problems......Page 98
Selected Readings......Page 102
APPENDIX 1A Statistical Testing of Labor Market Hypotheses......Page 103
2 Overview of the Labor Market......Page 123
The Labor Market: Definitions, Facts, and Trends......Page 126
The Labor Force and Unemployment......Page 128
Industries and Occupations: Adapting to Change......Page 134
The Earnings of Labor......Page 136
EXAMPLE 2.1 Real Wages across Countries and Time: Big Macs per Hour Worked......Page 142
How the Labor Market Works......Page 148
The Demand for Labor......Page 150
The Supply of Labor......Page 159
The Determination of the Wage......Page 164
EXAMPLE 2.2 The Black Death and the Wages of Labor......Page 171
EXAMPLE 2.3 Prosecuting Workers Who Leave their Employers......Page 176
Who Is Underpaid and Who Is Overpaid?......Page 177
EXAMPLE 2.4 Forced Labor in Colonial Mozambique......Page 181
Unemployment and Responses to Technological Change across Countries......Page 186
EMPIRICAL STUDY: PAY LEVELS AND THE SUPPLY OF MILITARY OFFICERS: OBTAINING SAMPLE VARIATION FROM CROSS-SECTION DATA......Page 188
Review Questions......Page 193
Problems......Page 197
Selected Readings......Page 204
3 The Demand for Labor......Page 206
Profit Maximization......Page 208
Marginal Income from an Additional Unit of Input......Page 210
EXAMPLE 3.1 The Marginal Revenue Product of College Football Stars......Page 213
Marginal Expense of an Added Input......Page 215
The Short-Run Demand for Labor When Both Product and Labor Markets Are Competitive......Page 217
A Critical Assumption: Declining MPL......Page 218
From Profit Maximization to Labor Demand......Page 220
Labor Demand in the Long Run......Page 232
EXAMPLE 3.2 Coal Mining Wages and Capital Substitution......Page 236
More Than Two Inputs......Page 238
Maximizing Monopoly Profits......Page 242
Do Monopolies Pay Higher Wages?......Page 244
Who Bears the Burden of a Payroll Tax?......Page 246
Employment Subsidies as a Device to Help the Poor......Page 251
EMPIRICAL STUDY: DO WOMEN PAY FOR EMPLOYER-FUNDED MATERNITY BENEFITS? USING CROSS-SECTION DATA OVER TIME TO ANALYZE \"DIFFERENCES IN DIFFERENCES\"......Page 253
Review Questions......Page 261
Problems......Page 265
Selected Readings......Page 270
APPENDIX 3A Graphical Derivation of a Firm\'s Labor Demand Curve......Page 272
4 Labor Demand Elasticities......Page 294
The Own-Wage Elasticity of Demand......Page 296
The Hicks-Marshall Laws of Derived Demand......Page 300
Estimates of Own-Wage Labor Demand Elasticities......Page 307
Applying the Laws of Derived Demand: Inferential Analysis......Page 310
EXAMPLE 4.1 Why Are Union Wages So Different in Two Parts of the Trucking Industry?......Page 313
The Cross-Wage Elasticity of Demand......Page 317
Can the Laws of Derived Demand Be Applied to Cross-Elasticities?......Page 319
Estimates Relating to Cross-Elasticities......Page 324
History and Description......Page 327
Employment Effects: Theoretical Analysis......Page 328
Employment Effects: Empirical Estimates......Page 338
EXAMPLE 4.2 The Employment Effects of the First Federal Minimum Wage......Page 339
Does the Minimum Wage Fight Poverty?......Page 342
\"Living Wage\" Laws......Page 344
Applying Concepts of Labor Demand Elasticity to the Issue of Technological Change......Page 347
EXAMPLE 4.3: Digitization and Online Labor Markets......Page 352
EMPIRICAL STUDY: ESTIMATING THE LABOR DEMAND CURVE: TIME-SERIES DATA AND COPING WITH \"SIMULTANEITY\"......Page 360
Review Questions......Page 368
Problems......Page 372
Selected Readings......Page 377
5 Frictions in the Labor Market......Page 388
The Law of One Price......Page 391
Monopsonistic Labor Markets: A Definition......Page 396
Profit Maximization under Monopsonistic Conditions......Page 398
How Do Monopsonistic Firms Respond to Shifts in the Supply Curve?......Page 406
Monopsonistic Conditions and the Employment Response to Minimum Wage Legislation......Page 412
Job Search Costs and Other Labor Market Outcomes......Page 415
Monopsonistic Conditions and the Relevance of the Competitive Model......Page 420
Categories of Quasi-Fixed Costs......Page 423
EXAMPLE 5.1 Does Employment Protection Legislation Protect Workers?......Page 424
The Employment/Hours Trade-Off......Page 432
EXAMPLE 5.2 \"Renting\" Workers as a Way of Coping with Hiring Costs......Page 435
The Training Decision by Employers......Page 441
The Types of Training......Page 442
Training and Post-Training Wage Increases......Page 445
Employer Training Investments and Recessionary Layoffs......Page 449
The Use of Credentials......Page 452
Internal Labor Markets......Page 454
EMPIRICAL STUDY: WHAT EXPLAINS WAGE DIFFERENCES FOR WORKERS WHO APPEAR SIMILAR? USING PANEL DATA TO DEAL WITH UNOBSERVED HETEROGENEITY......Page 456
How Can the Employer Recoup Its Hiring Investments?......Page 459
Review Questions......Page 462
Problems......Page 466
Selected Readings......Page 472
6 Supply of Labor to the Economy: The Decision to Work......Page 482
Labor Force Participation Rates......Page 484
Hours of Work......Page 490
A Theory of the Decision to Work......Page 493
Some Basic Concepts......Page 494
EXAMPLE 6.1 The Labor Supply of New York City Taxi Drivers......Page 501
Analysis of the Labor/Leisure Choice......Page 503
EXAMPLE 6.2 Do Large Inheritances Induce Labor Force Withdrawal?......Page 520
EXAMPLE 6.3 Dally Labor Supply at the Ballpark......Page 532
Empirical Findings on the Income and Substitution Effects......Page 536
EXAMPLE 6.4 Labor Supply Effects of Income Tax Cuts......Page 538
Budget Constraints with \"Spikes\"......Page 542
EXAMPLE 6.5 Staying Around One\'s Kentucky Home: Workers\' Compensation Benefits and the Return to Work......Page 547
Programs with Net Wage Rates of Zero......Page 548
Subsidy Programs with Positive Net Wage Rates......Page 557
EXAMPLE 6.6 Wartime Food Requisitions and Agricultural Work Incentives......Page 562
EMPIRICAL STUDY: ESTIMATING THE INCOME EFFECT AMONG LOTTERY WINNERS: THE SEARCH FOR \"EXOGENEITY\"......Page 565
Review Questions......Page 570
Problems......Page 576
Selected Readings......Page 579
7 Labor Supply: Household Production, the Family, and the Life Cycle......Page 590
A Labor Supply Model that Incorporates Household Production......Page 591
The Basic Model for an Individual: Similarities with the Labor-Leisure Model......Page 593
The Basic Model for an Individual: Some New Implications......Page 597
EXAMPLE 7.1: Obesity and the Household Production Model......Page 598
Joint Labor Supply Decisions within the Household......Page 606
Specialization of Function......Page 608
Do Both Partners Work for Pay?......Page 610
The Joint Decision and Interdependent Productivity at Home......Page 612
Labor Supply in Recessions: The \"Discouraged\" versus the \"Added\" Worker......Page 613
EXAMPLE 7.2: Child Labor in Poor Countries......Page 616
The Substitution Effect and When to Work over a Lifetime......Page 622
EXAMPLE 7.3: How Does Labor Supply Respond to Housing Subsidies?......Page 627
The Choice of Retirement Age......Page 629
EXAMPLE 7.4: Inducing Earlier Retirement in the 1930s......Page 639
Child-Care Subsidies......Page 642
Child Support Assurance......Page 647
EMPIRICAL STUDY: THE EFFECTS OF WAGE INCREASES ON LABOR SUPPLY (AND SLEEP): TIME-USE DIARY DATA AND SAMPLE SELECTION BIAS......Page 653
Review Questions......Page 658
Problems......Page 665
Selected Readings......Page 671
8 Compensating Wage Differentials and Labor Markets......Page 681
Job Matching: The Role of Worker Preferences and Information......Page 682
Individual Choice and Its Outcomes......Page 683
Assumptions and Predictions......Page 688
Empirical Tests for Compensating Wage Differentials......Page 693
EXAMPLE 8.1: Working on the Railroad: Making a Bad Job Good......Page 695
Hedonic Wage Theory and the Risk of Injury......Page 698
Employee Considerations......Page 699
Employer Considerations......Page 703
The Matching of Employers and Employees......Page 707
EXAMPLE 8.2: Parenthood, Occupational Choice, and Risk......Page 711
EXAMPLE 8.3: Indentured Servitude and Compensating Differentials......Page 715
Normative Analysis: Occupational Safety and Health Regulation......Page 717
Employee Preferences......Page 727
Employer Preferences......Page 731
The Joint Determination of Wages and Benefits......Page 735
Policy Example: Employer-Provided Healthcare Benefits......Page 739
EMPIRICAL STUDY: HOW RISKY ARE ESTIMATES OF COMPENSATING WAGE DIFFERENTIALS FOR RISK? THE \"ERRORS IN VARIABLES\" PROBLEM......Page 741
Review Questions......Page 746
Problems......Page 750
Selected Readings......Page 755
APPENDIX 8A Compensating Wage Differentials and Layoffs......Page 758
9 Investments in Human Capital: Education and Training......Page 777
EXAMPLE 9.1 War and Human Capital......Page 779
Human-Capital Investments: The Basic Model......Page 782
The Concept of Present Value......Page 783
Modeling the Human-Capital Investment Decision......Page 786
Weighing the Costs and Benefits of College......Page 791
Predictions of the Theory 31......Page 794
EXAMPLE 9.2: Can Language Affect Investment Behavior?......Page 797
EXAMPLE 9.3: Did the G.I. Bill Increase Educational Attainment for Returning World War II Vets?......Page 801
Market Responses to Changes in College Attendance......Page 808
Education, Earnings, and Post-Schooling Investments in Human Capital......Page 810
Average Earnings and Educational Level......Page 811
On-the-Job Training and the Concavity of Age/Earnings Profiles......Page 813
The Fanning Out of Age/Earnings Profiles......Page 817
Women and the Acquisition of Human Capital......Page 818
EXAMPLE 9.4: Valuing a Human Asset: The Case of the Divorcing Doctor......Page 827
Is Education a Good Investment for Individuals?......Page 829
Is Education a Good Social Investment?......Page 833
EXAMPLE 9.5: The Socially Optimal Level of Educational Investment......Page 845
Is Public Sector Training a Good Social Investment?......Page 852
EMPIRICAL STUDY: ESTIMATING THE RETURNS TO EDUCATION USING A SAMPLE OF TWINS: COPING WITH THE PROBLEM OF UNOBSERVED DIFFERENCES IN ABILITY......Page 853
Review Questions......Page 858
Problems......Page 862
Selected Readings......Page 865
APPENDIX 9A A \"Cobweb\" Model of Labor Market Adjustment......Page 868
10 Worker Mobility: Migration, Immigration, and Turnover......Page 898
The Determinants of Worker Mobility......Page 901
The Direction of Migratory Flows......Page 903
EXAMPLE 10.1: The Great Migration: Southern Blacks Move North......Page 905
Personal Characteristics of Movers......Page 908
The Role of Distance......Page 909
The Earnings Distribution in Sending Countries and International Migration......Page 910
EXAMPLE 10.2: Migration and One\'s Time Horizon......Page 911
The Returns to International and Domestic Migration......Page 915
U.S. Immigration History......Page 921
Naive Views of Immigration......Page 929
An Analysis of the Gainers and Losers......Page 934
Do the Overall Gains from Immigration Exceed the Losses?......Page 942
EXAMPLE 10.3: Illegal Immigrants, Personal Discount Rates, and Crime......Page 946
EXAMPLE 10.4: Immigrants and Labor Mobility within the United States......Page 950
Employee Turnover......Page 954
Wage Effects......Page 955
Effects of Employer Size......Page 956
Gender Differences......Page 958
Employer Location......Page 959
Is More Mobility Better?......Page 960
EMPIRICAL STUDY: DO POLITICAL REFUGEES INVEST MORE IN HUMAN CAPITAL THAN ECONOMIC IMMIGRANTS? THE USE OF SYNTHETIC COHORTS......Page 961
Review Questions......Page 966
Problems......Page 970
Selected Readings......Page 974
11 Pay and Productivity: Wage Determination Within the Firm......Page 988
EXAMPLE 11.1: The Wide Range of Possible Productivities: The Case of the Factory that Could Not Cut Output......Page 989
The Employment Contract......Page 992
Coping with Information Asymmetries......Page 994
Motivating Workers......Page 1000
EXAMPLE 11.2: Calorie Consumption and the Type of Pay......Page 1003
Motivating the Individual in a Group......Page 1005
EXAMPLE 11.3: The Effects of Low Relative Pay on Worker Satisfaction......Page 1006
Compensation Plans: Overview and Guide to the Rest of the Chapter......Page 1009
Employee Preferences......Page 1010
Employer Considerations......Page 1014
EXAMPLE 11.4: Poor Group Incentives Doom the Shakers......Page 1018
Why Higher Pay Might Increase Worker Productivity......Page 1026
Efficiency Wages......Page 1028
EXAMPLE 11.5: Did Henry Ford Pay Efficiency Wages?......Page 1029
Underpayment Followed by Overpayment......Page 1034
Promotion Tournaments......Page 1042
EXAMPLE 11.6: The \"Rat Race\" in Law Firms......Page 1044
Career Concerns and Productivity......Page 1048
Why Do Earnings Increase with Job Tenure?......Page 1052
Why Do Large Firms Pay More?......Page 1056
EMPIRICAL STUDY: ARE WORKERS WILLING TO PAY FOR FAIRNESS? USING LABORATORY EXPERIMENTS TO STUDY ECONOMIC BEHAVIOR......Page 1058
Review Questions......Page 1063
Problems......Page 1066
Selected Readings......Page 1069
12 Gender, Race, and Ethnicity in the Labor Market......Page 1090
Measured and Unmeasured Sources of Earnings Differences......Page 1094
Earnings Differences by Gender......Page 1095
EXAMPLE 12.1: Bias in the Selection of Musicians by Symphony Orchestras......Page 1101
Earnings Differences between Black and White Americans......Page 1115
EXAMPLE 12.2: Race Discrimination May \"Strike\" When Few Are Looking: The Case of Umpires in Major League Baseball......Page 1123
Earnings Differences by Ethnicity......Page 1126
Theories of Market Discrimination......Page 1131
Personal-Prejudice Models: Employer Discrimination......Page 1132
Personal-Prejudice Models: Customer Discrimination......Page 1141
Personal-Prejudice Models: Employee Discrimination......Page 1143
EXAMPLE 12.3: Fear and Lathing in the Michigan Furniture Industry......Page 1145
Statistical Discrimination......Page 1147
Noncompetitive Models of Discrimination......Page 1151
A Final Word on the Theories of Discrimination......Page 1161
Equal Pay Act of 1963......Page 1163
Title VII of the Civil Rights Act......Page 1165
EXAMPLE 12.4: Comparable Worth and the University......Page 1169
The Federal Contract Compliance Program......Page 1175
Effectiveness of Federal Antidiscrimination Programs......Page 1177
EMPIRICAL STUDY: CAN WE CATCH DISCRIMINATORS IN THE ACT? THE USE OF FIELD EXPERIMENTS IN IDENTIFYING LABOR MARKET DISCRIMINATION......Page 1179
Review Questions......Page 1186
Problems......Page 1190
Selected Readings......Page 1195
APPENDIX 12A Estimating Comparable-Worth Earnings Gaps: An Application of Regression Analysis......Page 1199
13 Unions and the Labor Market......Page 1226
Union Structure and Membership......Page 1228
International Comparisons of Unionism......Page 1229
The Legal Structure of Unions in the United States......Page 1233
Constraints on the Achievement of Union Objectives......Page 1241
EXAMPLE 13.1: A Downward-Sloping Demand Curve for Football Players?......Page 1242
The Monopoly-Union Model......Page 1246
The Efficient-Contracts Model......Page 1249
Union Membership: An Analysis of Demand and Supply......Page 1258
EXAMPLE 13.2: The Effects of Deregulation on Trucking and Airlines......Page 1266
Union Actions to Alter the Labor Demand Curve......Page 1270
Bargaining and the Threat of Strikes......Page 1273
EXAMPLE 13.3: Permanent Replacement of Strikers......Page 1278
Bargaining in the Public Sector: The Threat of Arbitration......Page 1284
The Theory of Union Wage Effects......Page 1292
Evidence of Union Wage Effects......Page 1300
Evidence of Union Total Compensation Effects......Page 1303
The Effects of Unions on Employment......Page 1305
The Effects of Unions on Productivity and Profits......Page 1306
Normative Analyses of Unions......Page 1308
EMPIRICAL STUDY: WHAT IS THE GAP BETWEEN UNION AND NONUNION PAY? THE IMPORTANCE OF REPLICATION IN PRODUCING CREDIBLE ESTIMATES......Page 1314
Review Questions......Page 1320
Problems......Page 1324
Selected Readings......Page 1329
APPENDIX 13A: Arbitration and the Bargaining Contract Zone......Page 1331
14 Unemployment......Page 1358
A Stock-Flow Model of the Labor Market......Page 1363
Duration of Unemployment......Page 1365
Paths to Unemployment......Page 1366
Rates of Flow Affect Unemployment Levels......Page 1369
Frictional Unemployment......Page 1375
The Theory of Job Search......Page 1377
EXAMPLE 14.1: How \"Picky\" Should the Unemployed Be in the Search for Work?......Page 1382
Effects of Unemployment Insurance Benefits......Page 1387
Occupational and Regional Unemployment Rate Differences......Page 1393
International Differences in Long-Term Unemployment......Page 1397
Do Efficiency Wages Cause Structural Unemployment?......Page 1399
Demand-Deficient (Cyclical) Unemployment......Page 1405
Downward Wage Rigidity......Page 1406
EXAMPLE 14.2: Nominal Wage Cuts for Construction Workers in the Great Recession......Page 1409
Financing U.S. Unemployment Compensation......Page 1415
Seasonal Unemployment......Page 1420
EXAMPLE 14.3 Unemployment Insurance and Seasonal Unemployment: A Historical Perspective......Page 1421
When Do We Have Full Employment?......Page 1424
Defining the Natural Rate of Unemployment......Page 1425
Unemployment and Demographic Characteristics......Page 1426
EMPIRICAL STUDY:DO REEMPLOYMENT BONUSES REDUCE UNEMPLOYMENT? THE RESULTS OF SOCIAL EXPERIMENTS......Page 1429
Review Questions......Page 1435
Problems......Page 1438
Selected Readings......Page 1442
15 Inequality in Earnings......Page 1463
Measuring Inequality......Page 1465
Earnings Inequality since 1980: Some Descriptive Data......Page 1472
EXAMPLE 15.1: Differences in Earnings Inequality across Developed Countries......Page 1478
The Increased Returns to Higher Education......Page 1481
EXAMPLE 15.2: Changes in the Premium to Education at the Beginning of the Twentieth Century......Page 1483
Growth of Earnings Dispersion within Human-Capital Groups......Page 1486
Changes in Supply......Page 1489
Changes in Demand: Technological Change......Page 1494
Changes in Institutional Forces......Page 1504
EMPIRICAL STUDY: DO PARENTS\' EARNINGS DETERMINE THE EARNINGS OF THEIR CHILDREN? THE USE OF INTERGENERATIONAL DATA IN STUDYING ECONOMIC MOBILITY......Page 1507
Review Questions......Page 1511
Problems......Page 1515
Selected Readings......Page 1518
APPENDIX 15A Lorenz Curves and Gini Coefficients......Page 1521
16 The Labor-Market Effects of International Trade and Production Sharing......Page 1538
Trade between Individuals and the Principle of Comparative Advantage......Page 1541
The Incentives for Trade across Different Countries......Page 1545
EXAMPLE 16.1: The Growth Effects of the Openness to Trade: Japan\'s Sudden Move to Openness in 1859......Page 1556
Product Demand Shifts......Page 1559
Shifts in the Supply of Alternative Factors of Production......Page 1562
The Net Effect on Labor Demand......Page 1568
EXAMPLE 16.2: Could a Quarter of American Jobs Be Offshored? Might Your Future Job Be among Them?......Page 1571
Will Wages Converge across Countries?......Page 1578
Policy Issues......Page 1583
Subsidizing Human-Capital Investments......Page 1584
Income Support Programs......Page 1587
Subsidized Employment......Page 1589
How Narrowly Should We Target Compensation?......Page 1590
EMPIRICAL STUDY: EVALUATING EUROPEAN ACTIVE LABOR MARKET POLICIES: THE USE OF META-ANALYSIS......Page 1593
Summary......Page 1598
Review Questions......Page 1599
Problems......Page 1602
Selected Readings......Page 1605
Answers to Odd-Numbered Review Questions and Problems......Page 1616
Name Index......Page 1762
Subject Index......Page 1811