from physical to human capital accumulation inequality and the process of development this paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development it argues that the positive impact of inequality on the growth process was reversed in this process in early stages of the industrial revolution when physical capital accumulation was the prime source of growth inequality stimulated development by channelling resources towards individuals with a higher propensity to save as human capital emerged as a growth engine equality alleviated adverse effects of credit constraints on human capital accumulation stimulating the growth process this research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the industrial revolution to modern growth the proposed theory offers a unified account for the effect of income inequality on the growth process during this transition it argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development in the early stages of the industrial revolution when physical capital accumulation was the prime source of economic growth inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher in the later stages of the transition to modern growth as human capital emerged as a prime engine of economic growth equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process the proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development the classical approach and the credit market imperfection approach 1 the classical approach was originated by smith 1776 and was further interpreted and developed by keynes 1920 lewis 1954 kaldor 1957 and bourguignon 1981 according to this approach saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1 the socio political economy approach provides an alternative mechanism equality diminishes the tendency for socio political instability or distortionary redistribution and hence it stimulates investment and economic growth see the comprehensive survey of benabou 1996b

anomalies risk aversion economists ubiquitously employ a simple and elegant explanation for risk aversion it derives from the concavity of the utility of wealth function within the expected utility framework we show that this explanation is not plausible in most applications since anything more than economically negligible risk aversion over moderate stakes requires a utility of wealth function that is so concave that it predicts absurdly severe risk aversion over very large stakes we present examples of how the expected utility framework has misled economists and why we believe a better explanation for risk aversion must incorporate loss aversion and mental accounting

cheap children and the persistence of poverty this paper develops a theory of fertility that offers an explanation for the persistence of poverty within and across countries if educated individuals have a comparative advantage in raising educated children then parental fertility choice is shown to give rise to a poverty trap in which the poor choose high fertility rates with low investment in child quality moreover the impact of child quality choice on economic performance is amplified by the diluting effect of higher fertility on physical capital accumulation the theory proposes insights regarding the effects of inequality globalisation and life expectancy on economic growth and demographic transitions this paper develops a theory of fertility and child educational choice that offers an explanation for the persistence of poverty within and across countries the joint determination of the quality education and quantity of children in a household is studied under the key assumption that individuals productivity as teachers increases with their own human capital in contrast the minimum time cost associated with raising a child regardless of the child s quality the quantity cost is not affected by parental education as a result the price of child quantity relative to the price of child quality increases with individuals wages in particular for low wage individuals for whom the opportunity cost of time is low children of minimal quality are cheap this assumption therefore generates a comparative advantage for the poor in child quantity whereas high wage educated individuals have a comparative advantage in raising quality children consistent with the well known evidence poor households thus choose relatively high fertility rates with relatively low investment in their offspring s education and therefore their offspring are poor as well in contrast high income families choose low fertility rates with high investment in education and therefore high income persists in the dynasty evidence from the us provided by hanushek 1992 suggests that a trade off between quantity and quality of children does indeed exist hanushek argues that movements in family size could explain over half the variance in some test scores and that the elasticity of achievements with respect to the number of children in the family is 0 03 implying that the annual achievement growth of each child in a family will fall about 2 when a second child is added and about 0 5 when a sixth child is added 1

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

us europe differences in technology driven growth quantifying the role of education abstract european economic growth has been weak compared to the us since the 1980s in previous work krueger and kumar 2003 nber working paper no 9410 we argued that the european focus on specialized vocational education might have been effective during the 1960s and 1970s but resulted in a growth gap relative to the us during the subsequent information age when new technologies emerged more rapidly in this paper we extend our framework to assess the quantitative importance of education policy when compared to labor market rigidity and product market regulation other policy differences more commonly suggested to be responsible for us europe differences a decomposition exercise using a calibrated version of our model assigns a major role to education policy in explaining us europe growth differences

what is the economic cost of the investment home bias overinvesting domestically is well known as an investment home bias ihb we define an economic home bias ehb whereby the ihb measures the investment weights and the ehb measures the economic cost induced by the ihb we may have a large ihb and a negligible ehb with the increase in the average correlation between foreign markets from 0 4 for the decade ending in 1988 to about 0 9 for more recent decades the u s ehb is becoming negligible despite the domestic investment of 77 5 since 2009 the correlations have decreased indicating that the hb puzzle is emerging once again

earnings inequality and skill biased technological change with endogenous choice of education this article analyzes the impact of stochastic skill biased technological change on earnings inequality in a general equilibrium olg model wage dispersion is determined by the heterogeneity of skills by allowing for productivity differences due to education ability and age the model performs well in reproducing stylized facts on the time pattern of the u s wage distribution and human capital accumulation in particular it shows that slow adjustment of the supply of educated labor can itself explain the nonmonotonic time pattern of the college premium jel d31 j24 j31

public spending on education and the incentives for student achievement we build a model where homogeneous workers can accumulate human capital by investing in education schools combine public resources and individual effort to generate productive skills if skills are imperfectly compensated then in equilibrium students may under invest in effort we examine the effect on human capital accumulation of three basic education finance policies increased tuition subsidies may not be beneficial because they increase enrolment but they may lower the incentives for student achievement hence the skill level policies directed at enhancing the productivity of education or making degrees more informative are more successful at improving educational outcomes

evolution and growth this paper presents an evolutionary growth theory that captures the interplay between the evolution of mankind and economic growth since the emergence of the human species this uni ed theory encompasses the observed evolution of population technology and income per capita in the long transition from an epoch of malthusian stagnation to sustained economic growth 2001 elsevier science b v all rights reserved jel classixcation b22 e10 o11 o14 o33 o40 j10 j13

intelligence social mobility and growth this study develops a model where the allocation of human resources intergenerational social mobility and technological growth are jointly determined high growth endogenously increases the equilibrium return to innate cognitive ability and makes the allocation of individuals depend more on innate ability and less on social background a social allocation based on innate ability and high growth will thus reinforce each other implying the possibility of multiple endogenous growth equilibria

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

educational opportunity and income inequality affordable higher education is and has been a key element of social policy in the united states with broad bipartisan support financial aid has substantially increased the number of people who complete university generally thought to be a good thing we show however that making education more affordable can increase income inequality the mechanism that drives our results is a combination of credit constraints and the signaling role of education first explored by spence 1973 when borrowing for education is difficult lack of a college education could mean that one is either of low ability or of high ability but with low financial resources when government programs make borrowing easier or tuition more affordable high ability persons become educated and leave the uneducated pool driving down the wage for unskilled workers and raising the skill premium

the home bias is here to stay over the last 15 years dramatically decreasing foreign investment costs have not reduced the home bias we show that the home bias induced by a given cost is proportional to the factor 1 where is the average correlation between markets this factor is very sensitive to the correlation especially when the correlation is high empirically correlations have been steadily increasing from 0 4 in the 90 s to about 0 9 today thus the decreasing extra costs are increasingly magnified explaining the persistence of the home bias and predicting its continuation

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

project cost comparison under the clean development mechanism to inform investment selection by industrialized countries this is the first study that comprehensively evaluates and compares the average costs of six types of 4061 registered clean development mechanism cdm projects the projects were conducted from 2005 to 2014 by industrialized countries investing in host countries that had various technology and income levels specifically this study compares the average costs of emission reduction for each type of project projects were used by industrialized countries to achieve specific emission reductions commitments the lowest average cost per ton of reduced emissions found in renewable energy projects fuel switch projects supply side energy efficiency improvements and demand side energy efficiency improvements all of which were effectively reduced emissions by less than 1 million tons in host countries with high technology levels and upper medium income levels the average cost for the other two project types methane reduction and methane avoidance showed that these projects were more effective at reducing emissions by more than 50 million tons in host countries with upper middle technology levels and upper medium income levels these lowest average costs for different project types can guide project selection by industrialized countries seeking the lowest total emission reduction costs selection of cdm project investments by industrialized countries should account not only for the technology and income levels of host countries but also for the amounts by which industrialized countries have committed to reducing their emissions

sources of earnings inequality estimates from an on the job search model of the us labor market since the early 1980s the labor market in the united states has seen a substantial increase in earnings dispersion we study the issue by developing an on the job search model of the us labor market that allows for wage and employment mobility as a result of optimal individual behavior we estimate its structural parameters on psid data at different points in time to clarify the sources of the evolution of earnings inequality and instability between 1987 and 1996 this procedure allows to compute lifetime measure of inequality on top of the usual cross sectional measure of inequality and provide counterfactual experiments that evaluate the contribution of different parameters to changes over time by taking into account some equilibrium effects we find that the increase in lifetime inequality and in cross sectional inequality have been generated by different sources and that these sources are different by skills changes in the wage offer distribution are the main determinant of the increase in inequality for skilled workers while both mobility changes and wage offer distribution changes are needed to explain changes for the unskilled

should the personal computer be considered a technological revolution evidence from u s metropolitan areas the introduction and diffusion of personal computers are widely viewed as a technological revolution using u s metropolitan area level panel data this paper asks whether links between pc adoption educational attainment and the return to skill conform to a model of technological revolutions in which the speed and extent of adoption are endogenous the model implies that cities will adjust differently to the arrival of a more skill intensive means of production with the returns to skill increasing most where skill is abundant and its return is low we show that the cross city data fit many of the predictions of the model during the period 1980 2000 the pc diffusion era

financial development and wage inequality theory and evidence we argue that financial market development contributed to the rise in the skill premium and residual wage inequality in the us since the 1980s we present an endogenous growth model with imperfect credit markets and establish how improving the efficiency of these markets affects modes of production innovation and wage dispersion between skilled and unskilled workers the experience of us states following banking deregulation provides empirical support for our hypothesis we find that wages of college educated workers increased by between 0 5 1 2 following deregulation while those of workers with a high school diploma fell by about 2 2 similarly residual or within group inequality increased the 90 50 percentile ratio of residuals from a mincerian wage regression and their standard deviation increased by 4 5 and 1 8 respectively

a century of global equity market correlations in this paper we use a unique long run dataset of regulatory constraints on capital account openness to explain stock market correlations since stock returns themselves are highly volatile any examination of what drives correlations needs to focus on long runs of data this is particularly true since some of the short term changes in co movements appear to reverse themselves delroy hunter 2005 we argue that changes in the co movement of indices have not been random rather they are mainly driven by greater freedom to move funds from one country to another in related work geert bekaert and campbell harvey 2000 show that equity correlations increase after liberalization of capital markets using a number of case studies from emerging countries we examine this pattern systematically for the last century and find it to be most pronounced in the recent past we compare the importance of capital account openness with one main alternative explanation the growing synchronization of economic fundamentals we conclude that greater openness has been the single most important cause of growing correlations during the last quarter of a century though increasingly correlated economic fundamentals also matter in the conclusion we offer some thoughts on why the effects of greater openness appear to be so much stronger today than they were during the last era of globalization before 1914 this abstract was borrowed from another version of this item

the impact of education expansion on wage inequality abstarctthe findings on education expansion and income inequality have important implications for policymakers to implement effective policies to reduce income inequality this study attempts to explain how education expansion affects income inequality by education distribution and the rate of return to education we decompose the effect of education expansion on wage gaps into price effect and structure effect we compare the income inequality from 2002 to 2013 using the chinese household income project chip 2002 and chip2013 survey data and employ ffl decomposition method our findings suggest that income inequality increased in 2013 and that income inequality among the high income groups increased even more significantly the structure effect of education expansion on income inequality is negative when average education increases one year the income gap between 80th and 20th will decrease 1 2 in other words education expansion decreases income inequality by allowing a wide range of individuals t

complementary credit networks and macroeconomic stability switzerland s wirtschaftsring abstract the swiss wirtschaftsring economic circle credit network founded in 1934 provides residual spending power that is highly counter cyclical individuals are cash short in a recession and economize by greater use of wir credits a money in the production function mipf specification implies that transactions in wir form a stabilizing balance that makes up for the lack of ordinary currency thus unlike the ordinary money wir money is negatively correlated with gdp in the short run this implication is confirmed by empirical estimates such credit networks play a stabilizing role that should be considered in monetary policy

the macroeconomics of specificity specific quasi rents arise in a variety of economic relationships and are exposed to opportunism unless fully protected by contract rent appropriation has important macroeconomic consequences resources are underutilized factor markets are segmented production suffers from technological sclerosis job creation and destruction are unbalanced recessions are excessively sharp and expansions run into bottlenecks while depending on the shock expansions may require reinforcement or stabilization recessions should typically be softened in the long run institutions may evolve to alleviate the problem by balancing appropriation technology choice will also be affected with the appropriated factor partially excluding the other from production to reduce appropriation

understanding the evolution of the us wage distribution a theoretical analysis in this paper we propose an analytically tractable overlapping generations model of human capital accumulation and study its implications for the evolution of the us wage distribution from 1970 to 2000 the key feature of the model and the only source of heterogeneity is that individuals differ in theirabilitytoaccumulatehumancapital therefore wageinequalityresultsonlyfromdifferencesin human capital accumulation we examine the response of this model to skill biased technical change sbtc theoretically we show that in response to sbtc the model generates behavior consistent with some prominent trends observed in the us data including i a rise in overall wage inequality both in the short run and long run ii an initial fall in the education premium followed by a strong recovery leading to a higher premium in the long run iii the fact that most of this fall and rise takes place among younger workers iv a rise in within group inequality v stagnation in median wage growth and a slowdown in aggregate labor productivity and vi a rise in consumption inequality that is much smaller than the rise in wage inequality these results suggest that the heterogeneity in the ability to accumulate human capital is an important feature for understanding the effects of sbtc and interpreting the transformation of the us labor markets since the 1970s jel e21 e24 j24 j31

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

public schooling college subsidies and growth abstract how does the mix of public education expenditures across primary and secondary k 12 education and post secondary college education influence economic growth to address this i build an overlapping generations endogenous growth model human capital is accumulated through compulsory k 12 education and through optional college education government uses tax revenue to provide quality in k 12 schooling and to subsidize college tuition when total expenditures are small all funds should provide k 12 quality when expenditures are above a critical value a positive share should subsidize tuition the share should increase with total expenditures and with the degree of complementarity of human capital accumulated through the two types of education also increased education spending is more likely to increase growth when a larger share subsidizes tuition

home bias in open economy financial macroeconomics standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of financial globalization investors still hold a disproportionate share of local equities in their portfolio the equity home bias french and poterba 1991 we review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two country general equilibrium models we refer to this literature as open economy financial macroeconomics we focus on three broad classes of explanations i hedging motives in frictionless financial markets real exchange rate and non tradable income risk ii asset trade costs in international financial markets such as transaction costs differences in tax treatments between national and foreign assets iii informational frictions and behavioural biases these recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross border asset holdings across different types of assets equities bonds and bank lending we also present some new micro data on institutional holdings of equity at the fund level these data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment

product cycles endogenous skill acquisition and wage inequality this paper presents an endogenous product cycle overlapping generations model where the supply of skilled labour is endogenously determined this is used to examine how production shifts through imitation by developing countries affect the do mestic wage differential and supply of skilled labour in developed countries in the model production shifts increase the demand for researchers in developed countries and cause higher relative wages for skilled labour this leads to more individuals acquiring the skills as a consequence the model helps to explain the simultaneous increase in the domes tic wage gap and in the supply of skilled labour observed in developed countries jel classification f16 j31

the capital asset pricing model theory and empiricism in a recent breakthrough article richard roll i977 has shown that the value of the huge amount of empirical research which has attempted to verify the sharpe lintner capital asset pricing model capm is open to question briefly roll claims that if all the empirical investigators were to take a meanvariance efficient portfolio as the market portfolio they would get in the sample a perfect linear relationship between average security returns and betas in what is commonly known as the second pass cross section regression this perfect linear relationship is tautological it neither proves nor disproves the capm theory it is a technical result obtainable by straightforward algebra without making any assumption regarding the investors preference it is interesting to mention that in another paper published in 1977 stephen ross makes the same argument with regards to the capm and the efficiency of the market portfolio in his words the efficiency of the market portfolio and the capm are equivalent see ross i 977 p 178 the purpose of this paper is to show that empirical evidence and the investigation of investor behaviour lends support to a rejection of the capm theory in its presentform a revised formulation of the capm developed by levy i 978 provides a more suitable theoretical model in the reformulated capm the systematic risk beta plays in most cases only a negligible role in measuring the security s risk in section i we sketch a different prooof of what we consider to be roll s basic claim this proof contributes no additional theoretical results beyond what is given by roll i977 appendix corollary 6 but it is simple very short and uses no matrix algebra in section ii we derive a number of sample efficient sets and demonstrate that all efficient portfolios include short positions such results can be interpreted in one of the following alternative ways a sample variations cause this result but the capm holds and no such results would be obtained if we employed ex ante rather than ex post parameters b the empirical results are not entirely attributed to sample variations and they indeed contradict the capm in its present form since the motives for taking a short position can be explained by strong positive correlations between rates of return of various stocks e g general motors and ford we believe that this co movement of prices prevails ex post as well as

long term global market correlations the correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration we decompose diversification benefits into two parts one component due to variation in the average correlation across markets and a another component due to the variation in the investment opportunity set from this we infer that periods of globalization have both benefits and drawbacks for international investors globalization expands the opportunity set but as a result the benefits from diversification rely increasingly on investment in emerging markets

the effects of competition on publicly owned firms evidence from the municipal electric industry in the u s abstract previous studies have examined the effects of competition on privately owned firms this study examines the impact of competition on a sample of publicly owned electric utilities operating in the u s during 1961 1980 estimates from a translog variable cost function indicate that competitive firms had higher generating costs than monopolists ceteris paribus in addition it appears that operating costs would fall significantly if a single monopolist were to replace two competitors in a given market

finance inequality nexus the long and the short of it financial development affects income inequality differently in the short and in the long term investigating oecd countries from 1870 2011 we find in the short run an improvement in financial development tends to reduce inequality while in the long run more finance contributes to more inequality the short run effect concurs with theories advocating financial development increases the availability of financial services primarily for the poor however this effect becomes nil within a few years results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact

education technologies wages and technological progress abstract we analyze the worker s incentives to acquire skills under technological progress when the costs of education are endogenous and depend on the wage distribution we show that the agent s intergenerational elasticity of substitution plays then a relevant role in determining how incentives and the long run wage distribution react to technological progress moreover whenever poverty traps of unskilled workers exist higher rates of technological progress can even decrease the incentives of low skill workers to acquire skills we also analyze the effects of educational subsidies in contrast with previous analytical findings we obtain that subsidies always decrease the long run skill premium finally we study the efficiency of the resulting competitive equilibria

changes in the structure of earnings during the polish transition abstract we document changes in the structure of earnings during the economic transition in poland we find that inequality in labor earnings increased substantially from 1988 to 1996 a common view is that the reallocation of workers from a public sector with a compressed wage distribution to a private sector with much higher wage inequality accounts for the bulk of increased earnings inequality during transition see e g the models of aghion and commander 1999 aghion philippe commander simon 1999 on the dynamics of inequality in the transition economics of transition 7 275 2898 and commander and tolstopiatenko 1998 commander simon tolstopiatenko andrei 1998 the role of unemployment and restructuring in the transition in commander simon ed enterprise restructuring and unemployment in models of transition the world bank washington pp 169 192 however our decomposition of the sources of the increase in inequality suggests that this compositional effect accounts for only 39 of the increase fully 52 of the increase is due to the increase in the variance of wages within sectors that is earnings inequality within both the private and public sectors grew substantially and by similar amounts this is consistent with prior work suggesting that even state owned enterprises in poland moved towards competitive wage setting as they restructured see e g pinto et al 1993 pinto brian belka marek krajewski stefan 1993 transforming state enterprises in poland evidence on adjustment by manufacturing firms brookings papers on economic activity 213 70 commander and dhar 1998 commander simon dhar sumana 1998 enterprises in the polish transition in simon commander ed enterprise restructuring and unemployment in models of transition the world bank washington pp 109 142 a substantial part of the increase in earnings inequality was between group due largely to increased education premiums however changes in inequality within education experience gender groups account for about 60 percent of the increase in overall earnings inequality the increases in within group inequality were very different across skill groups with much larger increases for highly educated workers these patterns hold in both the private and public sectors although increases in education premiums were somewhat greater in the private sector

foundations of portfolio theory prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

trends in quality adjusted skill premia in the united states 1960 2000 this paper presents new evidence that increases in college enrollment lead to a decline in the average quality of college graduates between 1960 and 2000 resulting in a decrease of 8 percentage points in the college premium the standard demand and supply framework katz and murphy 1992 card and lemieux 2001 can qualitatively account for the trend in the college and age premia over this period but the quantitative adjustments that need to be made to account for changes in quality are substantial furthermore the standard interpretation of the supply effect can be misleading if the quality of college workers is not controlled for to illustrate the importance of these adjustments we reanalyze the problem studied in card and lemieux 2001 who observe that the rise in the college premium in the 1980s occurred mainly for young workers and attribute this to the differential behavior of the supply of skill between the young and the old our results show that changes in quality are as important as changes in prices to explain the phenomenon they document

the race between man and machine implications of technology for growth factor shares and employment we examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks in which labor has a comparative advantage can be created in a static version where capital is fixed and technology is exogenous automation reduces employment and the labor share and may even reduce wages while the creation of new tasks has the opposite effects our full model endogenizes capital accumulation and the direction of research towards automation and the creation of new tasks if the long run rental rate of capital relative to the wage is sufficiently low the long run equilibrium involves automation of all tasks otherwise there exists a stable balanced growth path in which the two types of innovations go hand in hand stability is a consequence of the fact that automation reduces the cost of producing using labor and thus discourages further automation and encourages the creation of new tasks in an extension with heterogeneous skills we show that inequality increases during transitions driven both by faster automation and introduction of new tasks and characterize the conditions under which inequality is increasing or stable in the long run

technical efficiency and u s manufacturing productivity growth this paper establishes that new inputs increase technical efficiency levels for u s manufacturing over the period 1950 1998 intermediate inputs exhibited higher rates of efficiency growth than labor and capital efficiency adjusted productivity growth annually averaged 0 4 percentage points above measured growth the gap between efficiency adjusted and measured productivity growth arises from aggregating inputs using observed and not efficiency adjusted cost share weights in the calculation of measured growth specifically the decline in efficiency adjusted material cost shares compared to the measured shares coupled with the comparatively high material input growth rate was the main source of the productivity gap

contracting productivity growth in this paper we analyze the interactions between growth and the contracting environment in the production sector allowing incompleteness in contracting implies that viable production relationships for firms and workers and therefore the profitability of industries depend on the rates of innovation and growth the speed at which new innovations arrive in turn depends on the profitability of production for the usual reasons examined in the endogenous growth literature we show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment in particular we demonstrate that a technological shock increasing productivity of research can through this interaction lead to a productivity slowdown and a shift in labor market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter term contractor type arrangements we show the consistency of an increase in the proportion of the labor force under short term employment increased relative returns of workers in high productivity sectors and increased income inequality with a productivity slowdown of finite duration

make money surfing the web the impact of internet use on the earnings of u s workers much research on the digital divide presumes that adults who do not use the internet are economically disadvantaged yet little research has tested this premise after discussing several mechanisms that might produce differences in earnings growth between workers who do and do not use the internet we use data from the current population survey to examine the impact of internet use on changes in earnings over 13 month intervals at the end of the internet boom our analyses reveal robustly significant positive associations between web use and earnings growth indicating that some skills and behaviors associated with internet use were rewarded by the labor market consistent with human capital theory current use at work had the strongest effect on earnings in contrast to economic theory which has led economists to focus exclusively on effects of contemporaneous workplace technology use workers who used the internet only at home also did better suggesting that users may have benefited from superior

differences and changes in wage structures preface introduction and summary richard b freeman lawrence f katz 1 a comparison of changes in the structure of wages in four oecd countries lawrence f katz gary w loveman david g blanchflower 2 international differences in executive and managerial compensation john m abowd michael l bognanno 3 the gender earnings gap some international evidence francine d blau lawrence m kahn 4 international wage curves david g blanchflower andrew j oswald 5 the changing structure of male earnings in britain 1974 1988 john schmitt 6 real wages employment and wage dispersion in u s and australian labor markets robert g gregory francis vella 7 labor markets and economic growth lessons from korea s industrialization 1970 1990 dae il kim robert h topel 8 wage differentials in italy market forces institutions and inflation christopher l erickson andrea c ichino 9 the swedish wage structure the rise and fall of solidarity wage policy per anders edin bertil holmlund 10 getting together and breaking apart the decline of centralized collective bargaining richard b freeman robert s gibbons 11 earnings inequality in germany katharine g abraham susan n houseman 12 a comparative analysis of east and west german labor markets before and after unification alan b krueger jorn steffen pischke contributors author index subject index

the brain drain and the world distribution of income abstract skilled emigration or brain drain from developing to developed countries is becoming the dominant pattern of international migration today such migration is likely to affect the world distribution of income both directly through the mobility of people and indirectly as the prospect of migration affects the rate of return to education in both the sending and receiving economies this migration pattern will therefore affect human capital accumulation and fertility decisions in both the sending and receiving economies this paper analyzes these effects in a dynamic two country model of the world economy where agents in both countries make optimal fertility and human capital decisions the implications of the analysis for the world distribution of income are derived in the light of recent empirical findings of the brain drain literature the analysis shows that the current trend towards predominantly skilled emigration from poor to rich countries may in the long run increase inequality in the world distribution of income as relatively poor countries grow large in terms of population in the short run however it is possible for world inequality to fall due to rises in gdp per capita in large developing economies with sufficiently low skilled emigration rates

occupational mobility and wage inequality in this article we argue that wage inequality and occupational mobility are intimately related we are motivated by our empirical findings that human capital is occupation specific and that the fraction of workers switching occupations in the u s was as high as 16 a year in the early 1970 s and had increased to 21 by the mid 1990 s we develop a general equilibrium model with occupation specific human capital and heterogeneous experience levels within occupations we find that the model calibrated to match the level of occupational mobility in the 1970 s accounts quite well for the level of within group wage inequality in that period next we find that the model calibrated to match the increase in occupational mobility accounts for over 90 of the increase in wage inequality between the 1970 s and the 1990 s the theory is also quantitatively consistent with the level and increase in the short term variability of earnings copyright wiley blackwell

international comparisons of agricultural productivity development and usefulness the simultaneous developments in duality theory in the use of flexible functional forms in economic research and in the theoretical linkages between index numbers and production technologies have augmented the tools to address productivity measurement 1 as a result there have been many studies of agricultural productivity growth in the united states and other countries in the past two decades international comparisons however have received considerably less attention 2 while from a methodological point of view there is no reason to distinguish intertemporal from international productivity comparisons the latter comparisons involve additional data related problems first reliable information from many countries may be difficult to obtain second each country s data must be measured in the same units third comparability of input and output groups is needed these groups are often less comparable among countries than over time within one country in this paper we provide an overview and critique of methods for comparing agricultural productivity and efficiency among countries that integrate economic production theory with empirical practices and discuss the relationship of these measures to competitiveness we conclude by relating the methodological needs to ongoing efforts to construct an internationally consistent data set

ability biased technological transition wage inequality and economic growth thispaper develops a growthmodel characterizedbyability biasedtechnological transition in which the evolution of technology education attainment and wage inequality is consistent with the observed pattern in the united states and other advanced countries over the past several decades it argues that an increase in the rate of technological progress raises the return to ability and simultaneously generates an increase in wage inequality between and within groups of skilled and unskilled workers an increase in average wages of skilled workers a temporary decline in average wages of unskilled workers an increase in education and a productivity transitory slowdown

international competition downsizing and wage inequality a country with cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of its goods markets this implied increase in competition leads to shrinking mark ups and forces firms to reduce overhead costs relative to output this implies a reallocation at the aggregate level from administrative to productive activities relative factor rewards change and wage inequality increases the factor which loses in relative terms can even lose in real terms from a quantitative perspective international competition is demonstrated to be the more plausible cause of rising wage inequality c 2007 published by elsevier b v

labor market institutions and wage inequality the authors investigate how labor market institutions such as unemployment insurance unions firing regulations and minimum wages have affected the evolution of wage inequality among male workers results of estimations using data on institutions in eleven oecd countries indicate that changes in labor market institutions can account for much of the change in wage inequality between 1973 and 1998 factors found to have been negatively associated with male wage inequality are union density the strictness of employment protection law unemployment benefit duration unemployment benefit generosity and the size of the minimum wage over the 26 year period institutional changes were associated with a 23 reduction in male wage inequality in france where minimum wages increased and employment protection became stricter but with an increase of up to 11 in the united states and united kingdom where unions became less powerful and in the united states minimum wages fell

firm heterogeneity in capital labour ratios and wage inequality author s leonardi marco abstract this paper documents the increasing dispersion of capital labor ratios across firms in the us and provides some empirical evidence of a positive correlation at the two digit industry level between the dispersion of capital labor ratios across firms and residual wage inequality to explain this empirical fact the paper adopts a search model where firms differ in their optimal capital investment the exogenous decline in the relative price of equipment capital makes the distributions of capital labor ratios more dispersed in a frictional labor market this force generates wage dispersion among identical workers ols estimates of the relationship between capital dispersion and the relative price of equipment capital support the main hypothesis of the model

country size currency unions and international asset returns differences in real interest rates across developed economies are puzzlingly large and persistent i propose a simple explanation bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy i show that indeed differences in the size of economies explain a large fraction of the cross sectional variation in currency returns the data also support additional implications of the model the introduction of a currency union lowers interest rates in participating countries and stocks in the nontraded sector of larger economies pay lower expected returns

the diffusion of computers and the distribution of wages abstract when the costs are decreasing workers adopt technology at the point where the costs equal the increased productivity output per worker increases immediately while productivity benefits increase only gradually if costs continue to fall as a result workers in computer adopting labor market groups experience an immediate fall in wages due to increased supply on the other hand adopting workers experience wage increases with some delay this model explains why increased computer use does not immediately lead to higher wage inequality more specifically the results of the model are shown to be consistent with the question why within group wage inequality among skilled workers as a result of computer technology adoption in the united states increased in the 1970s while between group wage inequality and within group wage inequality among the unskilled did not start to increase until the 1980s the model also predicts that the more compressed german wage structure leads to a lagged diffusion of computer technology along with smaller changes in wage inequality our empirical analysis suggests that this is consistent with the actual developments in germany since the 1980s finally the theoretical predictions seem to be of the right magnitude to explain the empirical quantities observed in the data

college entry by blacks since 1970 the role of college costs family background and the returns to education college enrollment of black 18 19 year old high school graduates declined from 1980 through 1984 and then rebounded after 1984 this paper presents data from a time series of cross sections of 18 19 year old youths from 1973 through 1988 to test the role of family background direct college costs local economic conditions and returns to college in driving these trends the evidence suggests that on the one hand increases in direct college costs were driving enrollment rates downward throughout the eighties on the other hand dramatic increases in average parental education for black youths exerted upward pressure on college enrollment by blacks particularly in the latter half of the decade the net effect of these two factors contributed to the pattern of decline and recovery observed during the eighties

technical progress and early retirement this paper claims that technical progress induces early retirement of older workers it presents a model where human capital is technology specific so that technical progress erodes some existing human capital this affects mostly older workers who have a smaller incentive to learn the new technology since their career horizon is shorter hence they tend to work less we find support to this erosion effect in hrs data which shows that retirement and unemployment of older workers are positively related to technical progress in their sectors unlike the effect across sectors the model is ambiguous about the aggregate effect of technical progress on labor supply of older workers while in sectors with many innovations it falls due to the erosion effect in other sectors it increases due to higher wages to examine which effect dominates we run a time series test using us data and find that the rate of average technical progress reduces aggregate labor force participation by the old namely the erosion effect dominates

what is the opportunity cost of mean variance investment strategies an analytical framework is set up to evaluate the foregone opportunity cost of mean variance investment strategies a parametric structure of the joint distribution of security returns for which mean variance investment strategy is suboptimal is specified for all constant absolute risk aversion investors the optimal strategy its corresponding mean variance alternative and the foregone opportunity cost of mean variance investment strategy are analytically derived and operationalized empirically when the investor s opportunity set includes the riskless asset the premium to replace the mean variance investment strategy by its optimal one does not exceed 0 05 cents on an invested dollar regardless of the investor s risk aversion when the riskless asset is denied the opportunity costs of mean variance investment strategies increase with the degree of risk aversion

wage inequality and the new economy many economists have argued that the observed increase in wage inequality in developed economies over the past 30 years is due to skill biased technical progress in this paper we put forward a somewhat different technology based argument namely that the increased inequality was caused by technical change linked to the pervasive innovation wave associated with the new economy this technical change was not skill biased in the usual sense but rather raised the reward to adaptability this alternative approach based on the notion of general purpose technology can shed light on a number of outstanding puzzles on the evolution of wage inequality both between and within educational groups

government spending composition technical change and wage inequality in this paper we argue that government spending played a significant role in stimulating the wave of innovation that hit the u s economy in the late 1970s and in the 1980s as well as the simultaneous increase in inequality and in education attainments since the late 1970s u s policymakers began targeting commercial innovations more directly and explicitly we focus on the shift in the composition of public demand toward high tech goods which by increasing the market size of innovative firms functions as a de facto innovation policy tool we build a quality ladders non scale growth model with heterogeneous industries and endogenous supply of skills and show that an increase in the technological content of public spending stimulates r d raises the wage of skilled workers and at the same time stimulates human capital accumulation a calibrated version of the model suggests that government policy explains between 12 and 15 of the observed increase in wage inequality in the period 1976 1991 jel e62 j31 o33 o41

productivity and cost gaps in manufacturing industries in u s japan and germany abstract the objective of this paper is to measure and explain the development of differences in productivity for five manufacturing industries of the u s japan and germany changes in total factor productivities and differences in technologies and the sources of those changes will be analyzed we extend the framework developed by jorgenson and nishimizu 1978 to the dual cost approach to reflect the efficiency aspect of productivity gaps in terms of cost disadvantages we employ translog cost functions for a description of productivity and cost efficiency gaps and for an econometric analysis of sources of catching up processes