Modern labor economics theory and public policy

Cover......Page 1
Title Page......Page 4
Copyright Page......Page 5
Contents......Page 7
Preface......Page 19
Acknowledgments......Page 22
CHAPTER 1 INTRODUCTION......Page 24
Labor Economics: Some Basic Concepts......Page 25
Positive Economics......Page 26
The Models and Predictions of Positive Economics......Page 27
Normative Economics......Page 30
Normative Economics and Government Policy......Page 33
Efficiency versus Equity......Page 34
Plan of the Text......Page 35
Example 1.1 Positive Economics: What Does It Mean to “Understand” Behavior?......Page 28
Review Questions......Page 36
Problems......Page 37
Selected Readings......Page 38
Appendix 1A: Statistical Testing of Labor Market Hypotheses......Page 39
CHAPTER 2 OVERVIEW OF THE LABOR MARKET......Page 48
The Labor Market: Definitions, Facts, and Trends......Page 49
The Labor Force and Unemployment......Page 50
Industries and Occupations: Adapting to Change......Page 53
The Earnings of Labor......Page 54
How the Labor Market Works......Page 58
The Demand for Labor......Page 59
The Supply of Labor......Page 63
The Determination of the Wage......Page 65
Applications of the Theory......Page 70
Who Is Underpaid and Who Is Overpaid?......Page 71
International Differences in Unemployment......Page 76
Example 2.1 The Black Death and the Wages of Labor......Page 69
Example 2.2 Forced Labor in Colonial Mozambique......Page 73
Empirical Study: Pay Levels and the Supply of Military Officers: Obtaining Sample Variation from Cross-Section Data......Page 75
Review Questions......Page 78
Problems......Page 80
Selected Readings......Page 81
CHAPTER 3 THE DEMAND FOR LABOR......Page 82
Profit Maximization......Page 83
Marginal Income from an Additional Unit of Input......Page 84
The Short-Run Demand for Labor When Both Product and Labor Markets Are Competitive......Page 86
A Critical Assumption: Declining MP[sub(L)]......Page 87
From Profit Maximization to Labor Demand......Page 88
Labor Demand in the Long Run......Page 93
Example 3.2 Coal Mining Wages and Capital Substitution......Page 95
Maximizing Monopoly Profits......Page 97
Do Monopolies Pay Higher Wages?......Page 98
Who Bears the Burden of a Payroll Tax?......Page 99
Employment Subsidies as a Device to Help the Poor......Page 102
Example 3.1 The Marginal Revenue Product of College Football Stars......Page 85
Empirical Study: Do Women Pay for Employer-Funded Maternity Benefits? Using Cross-Section Data over Time to Analyze “Differences in Differences”......Page 103
Review Questions......Page 105
Problems......Page 106
Selected Readings......Page 107
Appendix 3A: Graphical Derivation of a Firm’s Labor Demand Curve......Page 108
CHAPTER 4 LABOR DEMAND ELASTICITIES......Page 117
The Own-Wage Elasticity of Demand......Page 118
The Hicks–Marshall Laws of Derived Demand......Page 120
Estimates of Own-Wage Labor Demand Elasticities......Page 123
Applying the Laws of Derived Demand: Inferential Analysis......Page 125
The Cross-Wage Elasticity of Demand......Page 127
Can the Laws of Derived Demand Be Applied to Cross-Elasticities?......Page 128
Estimates Relating to Cross-Elasticities......Page 130
History and Description......Page 131
Employment Effects: Theoretical Analysis......Page 132
Employment Effects: Empirical Estimates......Page 136
Does the Minimum Wage Fight Poverty?......Page 138
Applying Concepts of Labor Demand Elasticity to the Issue of Technological Change......Page 139
Example 4.1 Why Are Union Wages So Different in Two Parts of the Trucking Industry?......Page 126
Example 4.2 The Employment Effects of the First Federal Minimum Wage......Page 137
Empirical Study: Estimating the Labor Demand Curve: Time Series Data and Coping with “Simultaneity”......Page 145
Review Questions......Page 147
Problems......Page 148
Selected Readings......Page 149
CHAPTER 5 FRICTIONS IN THE LABOR MARKET......Page 150
The Law of One Price......Page 151
Monopsonistic Labor Markets: A Definition......Page 154
Profit Maximization under Monopsonistic Conditions......Page 155
How Do Monopsonistic Firms Respond to Shifts in the Supply Curve?......Page 159
Monopsonistic Conditions and the Employment Response to Minimum Wage Legislation......Page 162
Job Search Costs and Other Labor Market Outcomes......Page 163
Monopsonistic Conditions and the Relevance of the Competitive Model......Page 165
Categories of Quasi-Fixed Costs......Page 166
The Employment/Hours Trade-Off......Page 170
The Training Decision by Employers......Page 174
The Types of Training......Page 175
Training and Post-Training Wage Increases......Page 176
Employer Training Investments and Recessionary Layoffs......Page 178
The Use of Credentials......Page 179
Internal Labor Markets......Page 182
How Can the Employer Recoup Its Hiring Investments?......Page 183
Example 5.1 Does Employment Protection Legislation Protect Workers?......Page 167
Example 5.2 “Renting” Workers as a Way of Coping with Hiring Costs......Page 172
Example 5.3 Why Do Temporary-Help Firms Provide Free General Skills Training?......Page 180
Empirical Study: What Explains Wage Differences for Workers Who Appear Similar? Using Panel Data to Deal with Unobserved Heterogeneity......Page 181
Review Questions......Page 184
Problems......Page 185
Selected Readings......Page 187
Trends in Labor Force Participation and Hours of Work......Page 188
Labor Force Participation Rates......Page 189
Hours of Work......Page 191
Some Basic Concepts......Page 193
Example 6.2 The Labor Supply of New York City Taxi Drivers......Page 198
Example 6.4 Daily Labor Supply at the Ballpark......Page 213
Example 6.5 Labor Supply Effects of Income Tax Cuts......Page 215
Budget Constraints with “Spikes”......Page 216
Programs with Net Wage Rates of Zero......Page 219
Subsidy Programs with Positive Net Wage Rates......Page 223
Example 6.1 The Labor Supply of Pigeons......Page 196
Example 6.3 Do Large Inheritances Induce Labor Force Withdrawal?......Page 208
Example 6.6 Staying Around One’s Kentucky Home: Workers’ Compensation Benefits and the Return to Work......Page 218
Example 6.7 Wartime Food Requisitions and Agricultural Work Incentives......Page 227
Empirical Study: Estimating the Income Effect among Lottery Winners: The Search for “Exogeneity”......Page 225
Review Questions......Page 228
Problems......Page 229
Selected Readings......Page 230
A Labor Supply Model That Incorporates Household Production......Page 231
The Basic Model for an Individual: Similarities with the Labor-Leisure Model......Page 232
The Basic Model for an Individual: Some New Implications......Page 234
Joint Labor Supply Decisions within the Household......Page 237
Specialization of Function......Page 238
Do Both Partners Work for Pay?......Page 239
Labor Supply in Recessions: The “Discouraged” versus the “Added” Worker......Page 241
Life Cycle Aspects of Labor Supply......Page 244
The Substitution Effect and When to Work over a Lifetime......Page 245
Example 7.3 How Does Labor Supply Respond to Temporary Wage Increases?......Page 247
Child-Care Subsidies......Page 252
Child Support Assurance......Page 254
Example 7.1 Obesity and the Household Production Model......Page 235
Example 7.2 Child Labor in Poor Countries......Page 243
Empirical Study: The Effects of Wage Increases on Labor Supply (and Sleep): Time-Use Diary Data and Sample Selection Bias......Page 257
Review Questions......Page 259
Problems......Page 261
Selected Readings......Page 263
Job Matching: The Role of Worker Preferences and Information......Page 264
Individual Choice and Its Outcomes......Page 265
Assumptions and Predictions......Page 267
Empirical Tests for Compensating Wage Differentials......Page 270
Example 8.1 Working on the Railroad: Making a Bad Job Good......Page 271
Employee Considerations......Page 272
Employer Considerations......Page 274
The Matching of Employers and Employees......Page 276
Example 8.3 Indentured Servitude and Compensating Differentials......Page 280
Employee Preferences......Page 285
Employer Preferences......Page 287
The Joint Determination of Wages and Benefits......Page 289
Example 8.2 Parenthood, Occupational Choice, and Risk......Page 278
Empirical Study: How Risky Are Estimates of Compensating Wage Differentials for Risk? The “Errors in Variables” Problem......Page 291
Review Questions......Page 293
Problems......Page 294
Selected Readings......Page 295
Appendix 8A: Compensating Wage Differentials and Layoffs......Page 296
CHAPTER 9 INVESTMENTS IN HUMAN CAPITAL: EDUCATION AND TRAINING......Page 301
The Concept of Present Value......Page 303
Modeling the Human Capital Investment Decision......Page 305
Weighing the Costs and Benefits of College......Page 307
Predictions of the Theory......Page 308
Market Responses to Changes in College Attendance......Page 314
Average Earnings and Educational Level......Page 315
On-the-Job Training and the Concavity of Age/Earnings Profiles......Page 317
Women and the Acquisition of Human Capital......Page 320
Is Education a Good Investment for Individuals?......Page 324
Is Education a Good Social Investment?......Page 327
Is Public Sector Training a Good Social Investment?......Page 336
Example 9.1 War and Human Capital......Page 302
Example 9.2 Did the G.I. Bill Increase Educational Attainment for Returning World War II Vets?......Page 311
Example 9.3 Valuing a Human Asset: The Case of the Divorcing Doctor......Page 325
Example 9.4 The Socially Optimal Level of Educational Investment......Page 333
Empirical Study: Estimating the Returns to Education Using a Sample of Twins: Coping with the Problem of Unobserved Differences in Ability......Page 337
Review Questions......Page 339
Problems......Page 340
Selected Readings......Page 341
Appendix 9A: A “Cobweb” Model of Labor Market Adjustment......Page 342
Appendix 9B: A Hedonic Model of Earnings and Educational Level......Page 674
CHAPTER 10 WORKER MOBILITY: MIGRATION, IMMIGRATION, AND TURNOVER......Page 346
The Determinants of Worker Mobility......Page 347
The Direction of Migratory Flows......Page 348
Personal Characteristics of Movers......Page 349
The Earnings Distribution in Sending Countries and International Migration......Page 351
The Returns to International and Domestic Migration......Page 353
Policy Application: Restricting Immigration......Page 356
U.S. Immigration History......Page 357
Naive Views of Immigration......Page 360
An Analysis of the Gainers and Losers......Page 362
Do the Overall Gains from Immigration Exceed the Losses?......Page 366
Employee Turnover......Page 369
Effects of Employer Size......Page 370
Cyclical Effects......Page 371
International Comparisons......Page 372
Is More Mobility Better?......Page 374
Example 10.1 The Great Migration: Southern Blacks Move North......Page 350
Example 10.2 Migration and One’s Time Horizon......Page 352
Example 10.3 The Mariel Boatlift and Its Effects on Miami’s Wage and Unemployment Rates......Page 365
Example 10.4 Illegal Immigrants, Personal Discount Rates, and Crime......Page 368
Empirical Study: Do Political Refugees Invest More in Human Capital than Economic Immigrants? The Use of Synthetic Cohorts......Page 375
Review Questions......Page 376
Problems......Page 377
Selected Readings......Page 379
CHAPTER 11 PAY AND PRODUCTIVITY: WAGE DETERMINATION WITHIN THE FIRM......Page 380
The Employment Contract......Page 382
Coping with Information Asymmetries......Page 383
Motivating Workers......Page 386
Example 11.2 Calorie Consumption and the Type of Pay......Page 387
Employee Preferences......Page 389
Employer Considerations......Page 391
Why Higher Pay Might Increase Worker Productivity......Page 397
Efficiency Wages......Page 398
Underpayment Followed by Overpayment......Page 400
Promotion Tournaments......Page 404
Example 11.5 The “Rat Race” in Law Firms......Page 406
Why Do Earnings Increase with Job Tenure?......Page 408
Why Do Large Firms Pay More?......Page 410
Example 11.1 The Wide Range of Possible Productivities: The Case of the Factory That Could Not Cut Output......Page 381
Example 11.3 Poor Group Incentives Doom the Shakers......Page 393
Example 11.4 Did Henry Ford Pay Efficiency Wages?......Page 399
Empirical Study: Are Workers Willing to Pay for Fairness? Using Laboratory Experiments to Study Economic Behavior......Page 411
Review Questions......Page 413
Problems......Page 414
Selected Readings......Page 415
CHAPTER 12 GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET......Page 416
Measured and Unmeasured Sources of Earnings Differences......Page 417
Earnings Differences by Gender......Page 418
Earnings Differences between Black and White Americans......Page 428
Earnings Differences by Ethnicity......Page 432
Personal-Prejudice Models: Employer Discrimination......Page 434
Personal-Prejudice Models: Customer Discrimination......Page 439
Personal-Prejudice Models: Employee Discrimination......Page 440
Statistical Discrimination......Page 442
Noncompetitive Models of Discrimination......Page 443
A Final Word on the Theories of Discrimination......Page 447
Equal Pay Act of 1963......Page 448
Title VII of the Civil Rights Act......Page 449
The Federal Contract Compliance Program......Page 453
Effectiveness of Federal Antidiscrimination Programs......Page 454
Example 12.1 Bias in the Selection of Musicians by Symphony Orchestras......Page 421
Example 12.2 The Gender Earnings Gap across Countries......Page 424
Example 12.3 Fear and Lathing in the Michigan Furniture Industry......Page 441
Example 12.4 Comparable Worth and the University......Page 451
Empirical Study: Can We Catch Discriminators in the Act? The Use of Field Experiments in Identifying Labor Market Discrimination......Page 457
Review Questions......Page 459
Problems......Page 460
Selected Readings......Page 461
Appendix 12A: Estimating Comparable-Worth Earnings Gaps: An Application of Regression Analysis......Page 462
CHAPTER 13 UNIONS AND THE LABOR MARKET......Page 466
International Comparisons of Unionism......Page 467
The Legal Structure of Unions in the United States......Page 469
Constraints on the Achievement of Union Objectives......Page 472
The Monopoly-Union Model......Page 474
The Efficient-Contracts Model......Page 475
The Activities and Tools of Collective Bargaining......Page 479
Union Membership: An Analysis of Demand and Supply......Page 480
Union Actions to Alter the Labor Demand Curve......Page 485
Bargaining and the Threat of Strikes......Page 487
Bargaining in the Public Sector: The Threat of Arbitration......Page 492
The Theory of Union Wage Effects......Page 495
Evidence of Union Wage Effects......Page 499
Evidence of Union Total Compensation Effects......Page 501
The Effects of Unions on Employment......Page 502
The Effects of Unions on Productivity and Profits......Page 503
Normative Analyses of Unions......Page 504
Example 13.1 The Effects of Deregulation on Trucking and Airlines......Page 484
Example 13.2 Permanent Replacement of Strikers......Page 490
Example 13.3 Do Right-to-Work Laws Matter?......Page 505
Empirical Study: What is the Gap Between Union and Nonunion Pay? The Importance of Replication in Producing Credible Estimates......Page 507
Review Questions......Page 510
Problems......Page 511
Selected Readings......Page 512
Appendix 13A: Arbitration and the Bargaining Contract Zone......Page 513
CHAPTER 14 UNEMPLOYMENT......Page 518
A Stock-Flow Model of the Labor Market......Page 520
Sources of Unemployment......Page 521
Rates of Flow Affect Unemployment Levels......Page 522
Frictional Unemployment......Page 524
The Theory of Job Search......Page 525
Effects of Unemployment Insurance Benefits......Page 528
Structural Unemployment......Page 531
Occupational and Regional Unemployment Rate Differences......Page 532
Do Efficiency Wages Cause Structural Unemployment?......Page 534
Demand-Deficient (Cyclical) Unemployment......Page 537
Downward Wage Rigidity......Page 538
Financing U.S. Unemployment Compensation......Page 542
Seasonal Unemployment......Page 544
When Do We Have Full Employment?......Page 546
Unemployment and Demographic Characteristics......Page 547
What Is the Natural Rate?......Page 548
Example 14.1 Unemployment Insurance and Seasonal Unemployment: A Historical Perspective......Page 545
Empirical Study: Do Reemployment Bonuses Reduce Unemployment? The Results of Social Experiments......Page 549
Review Questions......Page 551
Problems......Page 552
Selected Readings......Page 553
CHAPTER 15 INEQUALITY IN EARNINGS......Page 554
Measuring Inequality......Page 555
Earnings Inequality since 1980: Some Descriptive Data......Page 558
The Increased Returns to Higher Education......Page 561
Growth of Earnings Dispersion within Human-Capital Groups......Page 563
The Underlying Causes of Growing Inequality......Page 565
Changes in Supply......Page 566
Changes in Demand: Technological Change......Page 568
Changes in Demand: Earnings Instability......Page 571
Changes in Institutional Forces......Page 572
Example 15.1 Differences in Earnings Inequality across Developed Countries......Page 562
Example 15.2 Changes in the Premium to Education at the Beginning of the Twentieth Century......Page 564
Empirical Study: Do Parents’ Earnings Determine the Earnings of Their Children? The Use of Intergenerational Data in Studying Economic Mobility......Page 573
Review Questions......Page 574
Problems......Page 575
Selected Readings......Page 576
Appendix 15A: Lorenz Curves and Gini Coefficients......Page 577
CHAPTER 16 THE LABOR-MARKET EFFECTS OF INTERNATIONAL TRADE AND PRODUCTION SHARING......Page 582
Trade between Individuals and the Principle of Comparative Advantage......Page 583
The Incentives for Trade across Different Countries......Page 585
Effects of Trade on the Demand for Labor......Page 589
Product Demand Shifts......Page 591
Shifts in the Supply of Alternative Factors of Production......Page 592
The Net Effect on Labor Demand......Page 594
Will Wages Converge across Countries?......Page 598
Subsidizing Human-Capital Investments......Page 600
Subsidized Employment......Page 602
How Narrowly Should We Target Compensation?......Page 603
Summary......Page 606
Example 16.1 The Growth Effects of the Openness to Trade: Japan’s Sudden Move to Openness in 1859......Page 590
Example 16.2 Could a Quarter of American Jobs Be Offshored? Might Your Future Job Be among Them?......Page 596
Empirical Study: Evaluating European Active Labor Market Policies: The Use of Meta-Analysis......Page 605
Problems......Page 607
Suggested Readings......Page 608
Answers to Odd-Numbered Review Questions and Problems......Page 610
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