sheepskin effects in the returns to education some previous discussions have dismissed screening theories of education partly on the ground that diploma years of education do not confer especially large earnings gains similarly most empirical research on earnings functions has assumed an absence of sheepskin effects we report evidence however of substantial and statistically significant sheepskin effects although this suggests that the previous dismissals of the screening hypothesis were premature our evidence of sheepskin effects is amenable to nonscreening interpretations also according to screening theories of education individuals with more schooling tend to earn more not because or at least not solely because schooling makes them more productive but rather because it credentiates them as more productive a frequently cited article by layard and psacharopoulos 1974 however dismissed the importance of the screening hypothesis on the grounds that several of its refutable predictions were not supported by available evidence one of these was the sheepskin prediction that wages will rise faster with extra years of education when the extra year also conveys a certificate after surveying a number of studies layard and psacharopoulous henceforth lp concluded that rates of return to dropouts are as high as to those who complete a course which refutes the sheepskin version of the screening hypothesis since publication of the lp paper an undergraduate labor economics textbook has cited lp s analysis of sheepskin effects as telling criticism of the screening hypothesis a prominent proponent of the screening hypothesis riley 1979 has accepted lp s summary of the empirical evidence but responded that some versions of the screening hypothesis do not imply sheepskin effects in the meantime the ongoing flood of empirical research on earnings functions typically has continued to treat the natural logarithm of the wage rate as a linear or occasionally quadratic function of years of education with no allowance for discontinuities in diploma years 2 the estimated rates of return used by lp were based on data that did not disaggregate dropouts earnings by how many years of school they had completed lp acknowledged we would have preferred to show the earnings gain associated with each year of the course including the year when it was successfully completed this note presents a reanalysis of sheepskin effects based on the type of data lp wished they had the results contain very strong evidence of sheepskin effects after all the next section describes our analysis and the following section summarizes and discusses our

the development of nominal wage rigidity in the late 19th century wage price and output indexes suitable for comparing cyclical movements across decades show a decrease in nominal wage flexibility the change in wage inflation associated with output fluctuations after the 1880s following an increase in strike frequency linked to the spread of large scale manufacturing cross sectional data show that firms in industries experiencing more strikes in the 1880s were less likely to cut nominal wages in the depression of 1893 this and other evidence suggests that the nineteenth century decrease in wage flexibility was caused by an increase in workers bargaining power in the absence of binding wage contracts copyright 1993 by american economic association

the returns to schooling a selectivity bias approach with a continuous choice variable the essence of selection bias is that we do not observe nonoptimal choices this applies whether the choice variable is discrete or continuous this paper extends the selection bias methodology to the case where the choice variable is continuous and the choice set is ordered the leading practical application of this analysis is the schooling choice problem schooling is treated as a continuous choice variable and selectivity corrected rates of return are estimated the findings suggest selectivity is of considerable importance and support the comparative advantage hypothesis of willis and rosen 18

job matching and on the job training conventional analysis predicts that workers pay part of their on the job training costs by accepting a lower starting wage and subsequently realize a return to this investment in the form of greater wage growth missing from the conventional treatment of on the job training is a discussion of the process by which heterogeneous workers are matched to jobs requiring varying amounts of training this matching process constitutes a key feature of the on the job training model presented in this article and tested with a unique data set containing extensive information concerning on the job training employer search wages and wage and productivity growth

factors affecting the output and quit propensities of production workers we formulate a simultaneous equation model to explain the wages output education and quit propensities of a sample of production workers our principal finding is that individuals that choose more education than we would expect from their observed characteristics have lower than expected quit propensities this relationship would bias standard estimates of rates of return to education we also find that the output of non whites was no lower than that of whites although their wages on previous jobs were lower and that workers with high levels of output were more likely to quit than were workers whose output was average

stigler becker versus myers briggs why preference based explanations are scientifically meaningful and empirically important abstract economists typically object to preference based explanations of human behavior differences in preferences explain everything and therefore nothing but this argument is only correct assuming that no empirical evidence exists to discipline preference based explanations in fact over the past decade personality psychologists have produced a robust collection of stylized facts about human preferences while preferences are empirically quite stable they are far from identical and have proven predictive power for economically interesting variables the empirical challenge for future research is to jointly estimate the impact of preferences and constraints to obtain unbiased measures of their relative importance

job displacement relative wage changes and duration of unemployment using special cps data on displaced workers this article investigates the wage consequences of job displacement in a framework that emphasizes the effects of past job duration s and unemployment duration s on postdisplacement wages our model also attempts to take account of the simultaneity between unemployment duration and the postdisplacement wage it is found that duration strongly reduces subsequent earnings and that considerable overstatement of the loss in firm specific training investments is implied by conventional routes to measuring wage losses

educational mismatch and promotions to managerial positions a test of the career mobility theory abstractcareer mobility theory suggests that given a certain occupation schooling improves upward mobility in terms of promotion and wage growth we are the first to test the implications of this theory for over and undereducation by means of direct information about promotions to managerial positions using german administrative data entailing an employer reported and hence objective measure of educational requirements we show that overeducated workers are indeed more likely to be promoted and that this career mobility advantage is more pronounced in the early stages of their working lives by contrast undereducated workers are less likely to be promoted to managerial positions moreover in terms of wage growth while overeducated workers benefit more undereducated workers benefit less from promotions than their well matched educational peers altogether these findings strongly support the career mobility theory furthermore by differentiating between internal and external promotions we prov

human capital versus sorting the effects of compulsory attendance laws under the educational sorting hypothesis a state compulsory school attendance law will increase the educational attainment of high ability workers who are not directly affected hy the law under the human capital hypothesis such laws affect only those individuals whose hehavior is directly constrained we find that compulsory attendance laws do increase enrollment rates in age groups they do not affect directly thus our results contradict the human capital hypothesis and are consistent with the sorting hypothesis i introduction the last decade has seen considerable debate between supporters of the human capital and sorting models of education the former assert that the effect of education on wages reflects increased productivity the latter maintain that it reflects at least in part correlation between education and unobserved ability workers use education to signal their ability while employers use education to screen workers despite the importance of the debate no fully convincing tests of the hypotheses have been developed in fact many members of the profession maintain at least privately that these hypotheses cannot be tested against each other and that the debate must therefore be relegated to the realm of ideology in this paper we show that the models can be tested against each other by examining the effects of state compulsory school attendance laws we show that under the human capital hypotheis such laws will affect the educational attainment only of those who in the absence of the law would have left school prior to the minimum school leaving age on the other hand under the sorting hypothesis the effects of the law will percolate through the system increasing educational attainment even among workers not directly constrained by the law our results are consistent with the predictions of the sorting model

an equilibrium analysis of wage productivity gaps we develop a model in which each firm chooses a hiring standard as well as a wage schedule and an application fee we then characterize the set of nash equilibria and establish necessary and sufficient conditions for the existence of equilibrium if the distribution of productivities within each ability type is gaussian workers who pass the test will be paid more than the value of their marginal product while workers who fail the test will receive a wage net of the application fee below the value of their marginal product

educational screening by certificates an empirical test this paper argues that the relevant test of wage screening effects should be based on educational certificates rather than years of schooling this is because information conveyed to firms about individual productivity through years of schooling is not sufficiently refined for making individual wage offer decisions although it may be useful for making hiring decisions

does the human capital educational sorting debate matter for development policy if education increases human capital subsidizing education can generate economic growth and combat poverty estimates of its return suggest that education is a good social investment in sorting models the return reflects in part the information about productivity revealed by the worker s education thus the social and private returns diverge it might appear that if we believe the sorting model we should be less swayed by evidence that estimated returns to education exceed the social discount rate and therefore less likely to support education based development policies this conclusion is shown to be incorrect this abstract was borrowed from another version of this item

prices productivity and wage bargaining in open economies according to the standard union bargaining model unemployment benefits should have big effects on wages but product market prices and productivity should play no role in the wage bargain we formulate an alternative strategic bargaining model where labour and product market conditions together determine wages a wage equation is derived and estimated on aggregate data for four nordic countries wages are found to depend not only on unemployment and the replacement ratio but also on productivity international prices and exchange rates there is evidence of considerable nominal wage rigidity exchange rate changes have large and persistent effects on competitiveness

the economic consequences of labor mobility unlike most previous research on the relative changes in earnings of job stayers and job changers this study examines the variance in earnings changes rather than simply average changes men and women rather than only men and the five year period following job change rather than only the first year or two the author finds great variability in earnings changes both within and across race and gender groups notably men gained more from quits and except in the case of low wage workers lost less from layoffs than women also men suffered a much smaller penalty than women for repeated job changes for all groups the percentage difference between earnings before and after leaving a job generally persisted for several years

nominal wage contracts and the persistent effects of monetary policy we consider an efficiency wage model where wages affect turnover and firms choose optimal labor contracts under uncertainty about demand and productivity we show that there may be an equilibrium with nominal wage contracts where monetary shocks affect output furthermore monetary shocks have persistent effects on output because the previous state of the labor market affects the reemployment probability of quitting workers persistence increases if workers have bargaining power with endogenous policy a credibility problem arises naturally in the model equilibrium inflation increases with persistence but decreases with the natural rate of unemployment for given persistence

insider power unemployment dynamics and multiple inflation equilibria this paper incorporates employment dynamics due to insider power into the barro gordon theory of inflation unlike in the static barro gordon case and even though our infinitehorizon model is linear quadratic there can be two markov perfect equilibria so that the same unemployment may correspond to either low or high inflation both equilibrium inflation rates measured per unit of the gap between the insiders and government s employment targets are higher than the corresponding rate in the static case the low inflation equilibrium has intuitive comparative statics properties in that inflation is increasing in insider power and the discount factor but the high inflation equilibrium behaves in the opposite way the highinflation equilibrium can be eliminated by a future precommitment to a fixed inflation regime e g erm but only if this precommitment can be made with certainty contrary to the static model inflation may be lower when the union puts a positive weight on a wage target than when it cares only about employment even when this wage target is consistent with a lower employment level than the employment target

wages profits and rent sharing the paper suggests a new test for rent sharing in the u s labor market using an unbalanced panel from the manufacturing sector it shows that a rise in a sector s profitability leads after some years to an increase in the long run level of wages in that sector the paper controls for workers characteristics for industry fixed effects and for unionism lester s range of wages is estimated for rent sharing reasons alone at approximately 24 per cent of the mean wage

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

a spillover based theory of credentialism i propose a model in which credentials such as diplomas are instrumentally valuable to workers the model avoids an important criticism of standard job market signalling models by tying a worker s wage to their output a worker s productivity is influenced by the skills of their co workers where such skills arise from an ability augmenting investment that is made prior to matching with co workers credentials allow workers to demonstrate their investment to the labour market thereby allowing them to match with high skill co workers in equilibrium despite the positive externality associated with a worker s investment i show how overinvestment is pervasive in equilibrium

job duration seniority and earnings an important stylized fact about labor markets is that workers with longer seniority with their current employer have higher earnings than other workers with the same total labor market experience this study shows that workers in longer jobs earn more throughout than workers in a series of shorter jobs and that the measured positive cross sectional return seniority is largely a statistical artifact due to the correlation of seniority with an omitted variable representing the quality of the worker the job or the worker employer match the implication is tha t earnings do not in fact rise very much with seniority copyright 1987 by american economic association

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

estimates of the economic returns to schooling from a new sample of twins this paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling the data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent a higher estimate of the economic returns to schooling than has been previously found copyright 1994 by american economic association

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

cooperation harassment and involuntary unemployment an insider outsider approach the authors present a theory of involuntary unemployment which explains why the unemployed workers outsiders are unable or unwilling to find jobs even though they are prepared to work for less than the prevailing wages of incumbent workers in siders the outsiders do not underbid the insiders since were the y to do so the insiders would withdraw cooperation from them making their work unpleasant with harassment and thereby reducing the prod uctivity and increasing the reservation wages of the underbidders th e resulting labor turnover costs create economic rent which the insid ers tap in wage setting and as a result involuntary unemployment ma y arise copyright 1988 by american economic association

does school quality matter returns to education and the characteristics of public schools in the united states this paper estimates the effects of school quality measured by the pupil teacher ratio average term length and relative teacher pay on the rate of return to education for men born between 1920 and 1949 using earnings data from the 1980 census we find that men who were educated in states with higher quality schools have a higher return to additional years of schooling rates of return are also higher for individuals from states with better educated teachers and with a higher fraction of female teachers holding constant school quality measures however we find no evidence that parental income or education affects average state level rates of return

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

dynamic labor market competition and wage seniority abstract we design an overlapping generations model of the labor market experienced workers bear costs of switching employers whereas the segment for junior workers is horizontally differentiated the literature typically explains wage seniority premia with reference to productivity gains generated by the accumulation of worker experience or mechanisms associated with incomplete information in contrast this paper characterizes how the wage seniority premium depends on the relative intensities of competition in the markets for junior and senior workers in particular we show that a wage seniority premium may prevail even under circumstances where senior workers are less productive than junior workers

pay differences among the highly paid the male female earnings gap in lawyers salaries this article uses very detailed information on graduates of the university of michigan law school to examine male female pay differences in that population men and women in this population have virtually identical human capital on graduation from law school allowing us to examine carefully the different impact of children and work history on men s and women s careers and earnings taking time from work in order to care for children reduces wages significantly but a rich set of controls including childcare work history school performance and job setting measures still leave one fourth to one third of the earnings gap unexplained

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

workers trust funds and the logic of wage profiles this paper defines a concept a worker s trust fund which is useful in analyzing optimal age earnings profiles the trust fund represents what a worker loses if dismissed from a job for shirking in considering whether to work or shirk a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort this concept is used to show that the implicit bonding in upward sloping age earnings profiles is not a perfect substitute for an explicit up front performance bond or employment fee it is also shown that the second best optimal earnings profile in the absence of an up front employment fee pays total compensation in excess of market clearing in a variety of stylized cases

the costs of price stability downward nominal wage rigidity in europe in most european countries the prevailing terms of employment including the nominal wage can be changed only by mutual consent this legal feature gives workers a strategic advantage in wage negotiations when employers push for a nominal wage cut the upshot is a long run trade off between inflation and unemployment for low levels of inflation in spite of all agents being rational and with no expectational errors specifically downward nominal wage rigidity and excess unemployment at zero inflation are related to three factors the coverage of collective agreements the legal framework at contract renewal and the strictness of the employment protection legislation for non union workers

insider bargaining power starting wages and involuntary unemployment recent analyses of wage bargaining has emphasized the distinction between insiders and outsiders yet one typically assumes that insiders and recently hired outsiders are paid the same wage we con

the effect of job tenure on wage offers a wage offer can be either acceptable or unacceptable to a worker but in cross sectional and panel data only acceptable wage offers are observed an ols wage equation will not reveal how job tenure affects wage offers but rather will reveal how tenure affects acceptable wage offers by jointly modeling the firm s determination of the wage offer and the worker s decision to accept or reject the offer we are able to estimate the effect of job tenure on wage offers consistently in contrast to the usual ols results we find that job tenure has no statistically significant effect on wage offers

testing in models of asymmetric information this paper explores the role of testing in models of asymmetric information we demonstrate conditions under which testing for underlying characteristics can overcome adverse selection problems and lead to a full information competitive equilibrium this paper provides a more general statement of mirrlees result on the optimal use of infinite fines where testing cannot fully resolve the problems associated with asymmetric information we outline the source of the difficulties our results developed in the context of a labour market can be directly extended to other environments in problems with asymmetric information testing to discover an agent s chosen action or underlying characteristics may significantly reduce the cost of moral hazard and adverse selection

why do wages increase with tenure on the job training and life cycle wage growth observed within firms empirical results in this paper indicate that firm specific wage growth occurs almost exclusively during periods of on the job training this finding suggests that within firm wage growth is mainly determined by contemporaneous productivity growth the results provide no evidence that contractual considerations are an important source of firm specific wage growth copyright 1989 by american economic association

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

government mandated discriminatory policies theory and evidence we study an economy with private and public sectors in which workers invest in imperfectly observable skills that are important to the private sector but not to the public sector government regulation allows native majority workers to be employed in the public sector with positive probability while excluding the minority from it we show that even when the public sector offers the highest wage rate it is still possible that the discriminated group is on average economically more successful the widening chinese malay wage gap in malaysia since the adoption of its new economic policy in 1970 supports our model

mobility and wages abstract we show that even for the simplest job search model the effect of mobility on wages depends on the distribution of wage offers and the cost of job changes the effect for symmetric wage distributions is derived

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

insiders outsiders and nominal wage contracts while the consequences of nominal wage contracts have been rather thoroughly analyzed there is no generally accepted theory of why such contracts prevail in this paper i argue that the distinction between insiders and outsiders is important for understanding nominal wage contracts since most employment fluctuations take the form of fluctuations in hiring insiders are normally not affected by them since prices are primarily determined by costs demand shocks have small effects on real wages thus insiders have little incentive to change to more complicated contracts with rigid nominal wages nominal demand shocks have large effects on the employment opportunities of outsiders but outsiders have little influence on labor contracts

dynamics and asymmetric adjustment in insider outsider models this paper analyzes the time consistent and efficient solution for wages and employment in intertemporal insider outsider models of bargaining with endogenous membership when the reservation wage is made endogenous in a general equilibrium context insider outsider models can generate a fundamental asymmetry in the adjustment of employment to the steady state while upturns are gradual severe downturns are characterized by a sharp drop in employment obtained by laying off workers further reductions in employment are achieved solely through quits copyright 1992 by royal economic society

the role of human capital in earnings differences between black and white men d uring the past 50 years the earnings of black men have increased substantially both in absolute terms and relative to those of white men as shown in figure 1 in 1940 the black white weekly earnings ratio among men ages 25 34 was 49 percent by 1980 it had increased to 79 percent during the 1980s however the overall black white earnings gap did not narrow and at younger ages the gap actually widened although the 1980s is not the first decade since 1940 in which black men made little or no gains in relative earnings the 1950s was another the lack of progress in the 1980s is nevertheless puzzling and a source of concern this article examines the factors underlying the differential in earnings between black men and white men with a focus on the role of human capital since 1940 successive generations of black men entering the labor force have been increasingly more educated relative to white men both in terms of years of school completed and in the quality of schooling obtained as the education and income levels of black parents increased racial differences in the transmission of human capital in the home were also likely to have narrowed this convergence in educational differences combined with the migration of blacks out of the south contributed to the narrowing in the racial gap in earnings over the 1940 80 period particularly in the first half of the period but human capital factors education and migration were not the only source of convergence in black white differences in earnings the patterns of change in the earnings gap support the contention that declining labor market discrimination against blacks has also contributed to the rise in the black white earnings ratio moreover the acquisition of human capital itself has been strongly affected by societal and governmental discrimination since blacks were long provided with greatly inferior schooling resources

on employer specific information and internal labor markets the human capital literature of which becker s 2 paper is the seminal work stresses the productivity enhancing effects of schooling and on the job training later work by spence 21 and others emphasizes the fact that it is difficult for employers to ascertain the productivity of potential employees and suggests that activities such as schooling may provide employers with signals as to workers productivities in the signalling literature it is assumed that information generated concerning an individual s abilities is general in that it is known to all potential employers yet the information that an employer gathers concerning his workers abilities is not likely to be completely transferable to other employers as a consequence as rosen 18 249 points out there are limitations on the ability of the price system to achieve efficient assignments if the price system is incomplete there is a role for entrepreneurial activity of assembling an optimal work force this paper analyzes the employment relations that arise when employers information concerning new workers abilities is incomplete until after a period of employment the acquisition of such employer specific information is shown to lead to what has been referred to in the literature as internal labor markets internal labor markets as identified by dunlop 5 32 are the complex of rules which determine the movement of workers among job classifications within administrative units these movements may be transfers promotions demotions or layoffs to the exterior labor markets doeringer and piore 3 emphasize skill specificity and on the job training as the key factors in the emergence of the internal labor market along similar lines williamson wachter and harris 22 point out that job idiosyncracy can result in employment relations with attributes like those of internal labor markets by way of contrast this paper emphasizes the role of employer specific information in generating internal labor markets the theory provides an explanation as to why employers dismiss current employees at the same time that new employees are hired evidence that dismissal rates are not insignificant is presented in section iv the theory also provides a new rationale for long term em

how responsive is investment in schooling to changes in redistributive policies and in returns this paper uses an unusual pay reform to test the responsiveness of investment in schooling to changes in redistribution schemes that increase the rate of return to education we exploit an episode where different israeli kibbutzim shifted from equal sharing to productivity based wages in different years and find that students in kibbutzim that reformed earlier invested more in high school education and in the long run also in post secondary schooling we further show that the effect is mainly driven by students in kibbutzim that reformed to a larger degree our findings support the prediction that education is highly responsive to changes in the redistribution policy