lay offs as signals the canadian evidence in r gibbons and l f katz 1991 the signaling content of layoffs and the resulting costs to the displaced workers are investigated evidence of this signaling effect is found among displaced workers in the united states in this paper a similar exercise is conducted using canadian data which are better in several respects they provide information on union status search activity and more accurate measures of postdisplacement salaries and displacement length results show evidence of a signaling effect in white collar occupations but not in blue collar jobs regardless of union status also signaling effects persist for the first three years in the postdisplacement job

learning and wage dynamics we develop a dynamic model of learning about worker ability in a competitive labor market the model produces three testable implications regarding wage dynamics 1 although the role of schooling in the labor market s inference process declines as performance observations accumulate the estimated effect of schooling on the level of wages is independent of labor market experience 2 timeinvariant variables correlated with ability but unobserved by employers such as certain test scores are increasingly correlated with wages as experience increases and 3 wage residuals are a martingale we present evidence from the nlsy that is broadly consistent with the model s predictions

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

wage loss following displacement the role of union coverage using two canadian data sets the authors explore the role of union coverage in displaced workers wage losses while only 32 of the workers had unionized jobs prior to displacement the wage loss suffered by these workers represented about 80 of the wages lost by all displaced workers in both samples losing union status was associated with large losses whether or not a worker switched industries after displacement extrapolating the results to the united states the authors estimate that one third to one half of u s displaced workers wage losses may be due purely to the loss of union coverage

when does growth trickle down to the poor the indian case a theoretical analysis and several econometric tests have been undertaken to examine whether the trickle down effect took place in rural india over a long time period we found little evidence to suggest that the trickle down effect had occurred at all our analysis suggests that the emergence of capital labour substitution was primarily responsible for preventing growth from reducing poverty the decline in poverty and a higher growth rate that took place during the late 1970s and 1980s were largely a result of government anti poverty measures teamed with the more equitable distribution of credit and inputs to smaller and marginal farmers

the speed of employer learning the employer learning literature finds support for statistical discrimination on the basis of schooling how economically relevant statistical discrimination is depends on how fast employers learn about workers productive types this article is the first to estimate the speed of employer learning employers learn quickly initial expectation errors decline by 50 within 3 years this estimate places an upper bound on the contribution of signaling this bound varies with the speed of employer learning and with discount rate for a wide range of parameter values the contribution of signaling to the gains from schooling is less than 25

unemployment persistence is there evidence for stigma effects we present evidence for a highly significant interaction between state dependence in individual unemployment risk and the business cycle the disadvantage from having been unemployed in the previous period is smaller in times of relatively high unemployment and larger in times of low unemployment this is consistent with the existence of stigma effects in the sense that unemployed individuals face difficulties finding a new job because employers interpret unemployment as a negative signal and do so especially when it is easier to find jobs i e when unemployment is low

standard promotion practices versus up or out contracts this article develops a theory concerning the choice between standard promotion practices and up or out contracts our theory is based on asymmetric learning and promotion incentives we find that firms employ up or out contracts when firm specific human capital is low and standard promotion practices when it is high we also find that if commitment to a wage floor is feasible and effort provision is important up or out is employed when low and high level jobs are similar these results are consistent with many of the settings in which up or out is typically observed such as law firms and academia

reputation and hierarchy in dynamic models of employment the employment relationship with employees ability and their actions both private information thus combining adverse selection with moral hazard is modeled as a repeated game with self enforcing contracts being perfect bayesian nash equilibria under termination contracts the equilibrium contract structure consists of a hierarchy of ranks finite in number even though ability is continuous reputation acts as an effective device for worker discipline without the need for involuntary unemployment selection by bonding is not in general incentive compatible but selection by promotion of employees through the ranks is many other features correspond to observed employment structures

counteroffers and efficiency in labor markets with asymmetric information this article considers the effect of offer matching on labor market outcomes when the current employer has better information about his worker s productivity than potential employers previous research found that when current employers have better information than potential employers the latter use job assignment to infer an employed worker s qualifications as a result assignment of workers to jobs is inefficient i find that when current employers can match outside offers the equilibrium outcome may be efficient i analyze the effect of the asymmetric information on investment in human capital made by employers and workers and find these investment levels to be first best

are those paid more really more productive the case of experience this study uses computerized personnel microdata on the white male managerial and professional employees at a major u s corporation to address the following question can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time our answer to this question based on both cross sectional and longitudinal information is that performance plays a substantially smaller role in explaining cross sectional experience earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience earnings profile this response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates relative productivity in the year of assessment we present a great deal of evidence which strongly supports this assumption

facilitating the provision of farm credit the role of interlocking transactions between traders and zamindars in crop marketing systems in sindh abstract formal credit institutions in pakistan have largely failed to provide access to farm credit to small and medium scale landowners or zamindars this paper examines interlocked transactions between traders and landowners in the cotton and wheat markets in sindh that facilitate the provision of credit by traders it is concluded that the case examined provides an example where traders lend to landowners in a segment of the credit market that approximates competitive behavior without surplus extraction by traders key conditions resulting in this favorable outcome are the existence of both competition for market share and information sharing on borrowers between traders whether this outcome is also beneficial for other rural groups who may borrow from landowners in particular sharecropping tenants is independent of market relations between landowners and traders and is not determined here

bonuses and promotion tournaments theory and evidence standard models of promotion tournaments do not distinguish between wages and bonuses and thus cannot explain variation in the use of bonuses we combine classic and market based tournament theories to develop a model in which wages and bonuses serve distinctly different roles we use this model to derive testable predictions which we test employing both a single firm data set and a data set encompassing a large segment of the finnish economy our empirical analysis supports the testable predictions and shows that our theoretical approach better matches the data than alternative theories of bonus determination based on arguments already in the literature

learning from coarse information biased contests and career profiles an organization s promotion decision between two workers is modelled as a problem of boundedly rational learning about ability the decision maker can bias noisy rank order contests sequentially thereby changing the information they convey the optimal final period bias favours the leader reinforcing his likely ability advantage when optimally biased rank order information is a sufficient statistic for cardinal information the leader is favoured in every period in other environments bias in early periods may i favour the early loser ii be optimal even when the workers are equally rated and iii reduce the favoured worker s promotion chances this paper presents a model of boundedly rational learning by an organization the aims are to represent in a simple form the costs of gathering processing or transmitting information and to analyse their implications for the procedures selected to handle information as well as for the decisions actually made like other recent work on the internal organization of firms this work explores to what extent organizational structure and behaviour as well as organizational performance can be explained by adaptation to the costs associated with information in the learning model we formulate the decision maker not only selects a rule specifying what action to take as a function of his observations but also chooses sequentially the information partitions generating those observations this general problem is interpreted in the context of an organization which needs to make an important promotion decision and which attempts to maximize the value of the information generated during the observation periods that precede the decision one of the motivations for this analysis was the finding by organizational sociologists that earnings and promotions in the later stages of a worker s career are strongly correlated with earnings and promotions in the early stages kanter 1977 rosenbaum 1984 later success is positively associated with early success even when one controls for the effect of observable characteristics likely to affect performance such as education one obvious source of this correlation is differences in ability that persist over time and that are not captured by the observable covariates in this paper we focus on differences in ability which are initially unobservable by organizations and their workers as well as by researchers we present a simple model of an organization trying to learn about differences in ability and show

personnel policies at the union bank of australia evidence from the 1888 1900 entry cohorts this article uses personnel payroll and other records from the union bank of australia to examine internal labor markets it is shown that employment was characterized by limited ports of entry impersonal rules for pay and promotion well defined career ladders shielding from the external labor market and a long term employment relationship in addition tenure within the bank was rewarded considerably more than experience elsewhere and compensation increased considerably after 25 30 years tenure these facts are partially consistent with the human capital matching and contract theory models but cannot be fully explained by any one model

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

the labor market effects of employer recruitment choice abstract i analyze employer recruitment decisions using a dynamic discrete choice structural model that i estimate on a sample of clerical workers from the mcsui a large cross section of establishments in four metropolitan areas of the us in the model employers choose either informal recruitment methods which generate a small but select applicant pool from which the employer can hire quickly or formal methods which create a large but less select applicant pool which the employer must screen intensively delaying hiring times i study the effects of three counterfactual simulations on recruitment strategies starting wages and vacancy durations a wage subsidy a policy designed to improve information about prospective matches and an increase in the heterogeneity of prospective matches i show that the effects of exogenous policy or environmental changes can be decomposed into pure wage effects that affect the wage offers employers post holding constant their recruitment strategies and recruitment wage effects that involve changes in recruitment methods the results show that changes in recruitment strategies represent an important channel through which changes in the economic environment affect the starting wages and vacancy duration for new hires

more detail on the pattern of returns to educational signals this paper develops a multiperiod model in which workers are matched with jobs according to imperfect educational signals and their subsequent productivities depend on both their inherent ability and on the quality of the job match the model outlines a sequential process in which underpaid employees reveal their true productivities and overpaid employees are detected by the firm until every match is perfect the model produces increasing returns to above median educational signals early in a worker s career a new feature that earlier models did not capture estimates using data from the current population survey are consistent with the theoretical result and are suggestive of a concave time pattern for the returns to educational signals

up or out contracts a signaling perspective a firm will typically gather information concerning its own workers that is not available to other potential employers while other firms will attempt to reduce this information asymmetry by observing the actions of the initial employer i argue that this process can be important in environments characterized by up or out contracts in that the retention decision can serve as a signal of productivity the article investigates this argument in an environment where up or out contracts are employed because they provide workers with an incentive to accumulate general human capital and where learning takes place in a diffuse fashion

monitoring for worker quality much nonmanagerial work is routine with all workers having similar output most of the time however failure to address occasional challenges can be very costly and consequently easily detected while challenges handled well pass unnoticed we analyze job assignment and worker monitoring for such guardian jobs if monitoring costs are positive but small monitoring is nonmonotonic in the firm s belief about the probability that a worker is good the model explains several empirical regularities regarding nonmanagerial internal labor markets low use of performance pay seniority pay rare demotions wage ceilings within grade and wage jumps at promotion

is there a world real interest rate abstract this study uses panel data techniques to estimate a common component to the ex post real interest rates of nine countries with liberal capital markets over the past 16 years we show that the residuals from such a regression have almost no serial correlation and that each country s real interest rate is highly correlated with the estimated world real interest rate the primary exception to these findings is the behavior of the us real interest rate which exhibits large and persistent deviations from the estimated world real interest rate although it is still highly correlated with the world real interest rate

interim performance feedback in multistage tournaments the optimality of partial disclosure workers competing in a tournament for a prize e g a promotion often perform sequentially in multiple stages when the firm is privately informed about the workers performance it can sharpen incentives by strategically disclosing the intermediate results but the policies that enhance final stage effort may dampen incentives at the intermediate stage in our model the optimal disclosure policy has a simple form disclose only if all workers perform poorly this result offers a novel justification for partial disclosure in performance feedback also it contrasts with the existing literature that focuses on the extreme policies of full disclosure and no disclosure

the signaling role of promotions further theory and empirical evidence an extensive theoretical literature investigates the role of promotions as a signal of worker ability we extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal labor market history of a medium sized firm in the financial services industry our results support signaling being important for understanding the differences between promotion practices concerning bachelor s and master s degree holders while the evidence concerning the importance of signaling for high school graduates and phds is mixed

incentive compensation in a corporate hierarchy abstract a theoretical and empirical analysis of within job and promotion based incentives for middle managers is presented using personnel data from a firm within job incentives are stronger than implied by previous studies evidence is provided that promotions sort employees by ability and also generate incentives promotions are associated with large increases in lifetime earnings as long as performance is sustained in the future there is little evidence that the firm trades off within job and promotion based incentives as predicted instead it appears to use a simple incentive scheme resulting in declining incentives for those passed over for promotion

a theory of wage and promotion dynamics inside firms we show that a framework that integrates job assignment human capital acquisition and learning captures several empirical findings concerning wage and promotion dynamics inside firms including the following first real wage decreases are not rare but demotions are second wage increases are serially correlated third promotions are associated with large wage increases fourth wage increases at promotion are small relative to the difference between average wages across levels of the job ladder fifth workers who receive large wage increases early in their stay at one level of the job ladder are promoted quickly to the next

testing for asymmetric employer learning recent evidence suggests that employers acquire more precise information about a worker s productivity the more time he or she spends in the labor market the following question arises is learning symmetric that is do all employers have the same information about workers productivity or is learning asymmetric that is does the current employer have superior information about workers productivity this article develops a learning model with endogenous mobility that nests both learning hypotheses it then proposes new tests for asymmetric employer learning overall learning appears to be mostly symmetric except possibly when the employees involved are college graduates

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

managerial task assignment and promotions a two period model of managerial task assignment is developed where the current employer has the advantage of observing the actual performanc e of the manager while outside employers can observe only the assign ments optimal contracts are rigid but the market value of managers is below actual productivity and they are promoted less than is effic ient the author introduces the idea of managers explo iting their information to separate themselves out in the market plac e as a consequence the model has the appealing property of small ab ility based wage differentials within a task as well as large ones b etween tasks copyright 1988 by the econometric society

why institutional credit agencies are reluctant to lend to the rural poor a theoretical analysis of the indian rural credit market abstract this paper examines why institutional credit facilities remain unable to extend credit to the rural poor analysis indicates that poor peasants at best can offer an entitlement set as a mortgage comprised only of future shares of their harvest which itself is subject to risk consequently lenders can not advance loans without risking extensive loss of loanable funds as the landlords income is subject to the same risk as that of peasants they advance loans to ensure that their own income is not affected by the peasants financial situation an extension of institutional credit to peasants results only in subsidization of landlords

worker allocation hierarchies and the wage distribution economists have traditionally viewed the allocation of workers among jobs through the concept of comparative advantage this paper investigates hierarchical production models which display an absence of comparative advantage in order to demonstrate that for hierarchical production there is a second allocating factor which plays an important role two results are found first the allocation of workers among jobs tends to match high ability workers with positions which value ability highly second despite the fact that the models display an absence of comparative advantage i e the standard theoretical explanation for why wage distributions might be skewed the models wage distributions are skewed to the right relative to the underlying ability distributions

imperfections in labor markets and the scope of the firm abstract results are derived showing how the interaction of adverse selection and worker uncertainty about job preferences creates incentives for firms to offer a wider array of jobs or integrate the equilibrium wage structure is characterized non integrated firms make retention wage offers increasing in ability while integrated firms do not a generalization in which costs to integration are relevant is then suggested results indicate that it is the interaction between adverse selection and uncertain preferences that leads to a second period allocation of workers across jobs that is not first best but is second best they also show why the presence of adverse selection and uncertain preferences create a tendency toward a scope of integration broader than the first best outcome

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

labour market signalling and unemployment duration an empirical analysis using employer employee data we test the signalling hypothesis using detailed flow based employer employee data from denmark our main findings are the signalling value is proportional to the proportion of employees dismissed from the workplace and the signal is uniform across occupation groups

why do firms train theory and evidence this paper offers a theory of training whereby workers do not pay for the general training they receive the superior information of the current employer regarding its employees abilities relative to other firms creates ex post monopsony power and encourages this employer to provide and pay for training even if these skills are general the model can lead to multiple equlibria in one equilibrium quits are endogenously high and as a result employers have limited monopsony power and provide little training while in another equilibrium quits are low and training is high using microdata on german apprentices we show that the predictions of our model receive some support from the data

classic promotion tournaments versus market based tournaments as initially formulated in the seminal analysis of lazear and rosen 1981 an important perspective for understanding the role of promotions in firms is the tournament perspective that is a promotion and in particular the wage increase associated with a promotion is a prize that serves as an incentive for workers to exert effort and take other actions beneficial to the firm such as the accumulation of human capital in this paper i consider whether the best way to model promotion tournaments is by having firms commit to prizes ex ante as in lazear and rosen s initial formulation or whether promotion prizes should be modeled as arising from the signaling role of promotions and the competition between firms for promoted workers

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

disneyland monopoly interlinkage and usurious interest rates abstract interlinkage between labour and credit markets is interpreted as a consequence of a monopolistic moneylender s attempt to extract consumer s surplus from the borrower by levying a two part tariff this analogy enables us to draw on the literature on non linear pricing to high light issues in agrarian structure the consequence of policy interventions like taxes and minimum wage legislation is studied it is shown that the moneylender will charge usurious interest rates if wages are rigid downwards or there is a tax on agricultural income or borrowers have heterogeneous preferences some geometry for analysing interlinkage is developed and used for deriving some of the results

human capital investment under asymmetric information the pigovian conjecture revisited this article investigates how human capital investment labor turnover and wages are jointly determined when the current employer knows more about a worker s productivity than potential employers results derived are quite different from or unexplored by the standard human capital theory we show that the information asymmetry can cause an externality distortion in human capital investment because higher productivity due to the investment may not be recognized by the market the investment level increases in the degree of firm specificity of human capital the underinvestment problem is more severe when human capital is general than when it is firm specific

an opposing responses test of classic versus market based promotion tournaments we use a systems based econometric method to show that classic and market based tournament models are empirically distinguishable since the role of risk differs across these models implementing the method using a large finnish worker firm matched panel we find support for classic tournaments given that promotions depend on relative performance the firm s wage structure is convex promotion probabilities are decreasing in the number of competitors performance is increasing in the wage spread and workers and firms adjust their choice variables in opposite directions when the variance of the stochastic component of worker performance changes

credit and sharecropping in agrarian societies this paper considers a model of linkage between land labor and credit transactions in the context of sharecropping the paper s objectives are a to derive and characterize the equilibrium in a model of a land scarce labour abundant economy under sharecropping given an infinitely elastic supply of identical sharecroppers at a reservation utility and b to demonstrate that in an imperfect market a landlord may offer credit to his tenant sometimes even at a subsidized rate of interest without necessarily insisting that the sharecropper borrow only from him precluding an involuntary linkage between credit and land transations it has been demonstrated that regardless of the presence or absence of linkage or any other control by the landlord as long as he can vary the size of the plot given to a tenant and there are enough potential tenants in equilibrium contracts a tenants utility under sharecropping will be the same as that which he could have obtained as a full time wage laborer this result implies that policies other than land reform will not affect the welfare of tenants

evidence on adverse selection and establishment size in the labor market a commonly suggested explanation for the finding that laid off workers have greater mean post displacement earnings losses than workers who lose theirjobs through plant closings is that the former are of lower quality than the latter but there is also an alternative explanation for this result laid off workers suffer larger earnings losses because as a group they have more to lose in the first place having been displaced from larger higher wage establishments an analysis of data from the national longitudinal survey of youth confirms this hypothesis accounting for establishment size removes virtually all of the difference in wage losses for the two groups of displaced workers an adverse selection framework has been employed by many authors to explain various phenomena in the labor market spence 1973 harris and holmstrom 1982 greenwald 1986 recently several authors gibbons and katz 1991 doiron 1995 grund 1997 have investigated whether the postjob loss experiences of two different types of displaced workers those who are laid off from their jobs and those who are displaced by a plant closing reflect adverse selection specifically do laid off workers exhibit larger post job loss wage

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

experience and entrepreneurship a career transition perspective the authors cast entrepreneurship as one of three career choices remaining with one s employer changing employers or engaging in entrepreneurship and theorize how the likelihood of entrepreneursh

promotion signaling discrimination and positive discrimination policies this article studies discrimination in a model in which promotions are used as signals of worker ability the model can account for statistical and taste based discrimination in the short run a positive discrimination policy is beneficial for workers in the middle of the ability distribution because these workers are promoted if and only if the policy is in place instead workers of either high or low ability suffer from the policy in the long run the policy benefits all targeted workers the model can explain empirical findings about the effects of a gender quota on the boards of norwegian companies

job discrimination market forces and the invisibility hypothesis the invisibility hypothesis holds that the job skills of disadvantaged workers are not easily discovered by potential new employers but that promotion enhances visibility and alleviates this problem then at a competitive labor market equilibrium firms profit by hiding talented disadvantaged workers in low level jobs consequently those workers are paid less on average and promoted less often than others with the same education and ability as a result of the inefficient and discriminatory wage and promotion policies disadvantaged workers experience lower returns to investments in human capital than other workers

internal promotion and external recruitment a theoretical and empirical analysis we present a theoretical and empirical analysis of internal promotion versus external recruitment using a job assignment model involving competing firms with heterogeneous productivities and two level job hierarchies with one managerial position the model predicts that controlling for the number of managers increasing the number of lower level workers is associated with 1 greater internal promotion as opposed to external recruitment 2 higher profit and 3 more general training empirical analysis of a large cross section of british employers is consistent with these predictions

regional effects of taxes in canada an applied general equilibrium approach this paper reports on an applied general equilibrium regional model for canada which is used to investigate the regional effects of taxes earlier literature on regional tax effects is reviewed and the main features of the model are briefly described existing literature on regional tax effects is largely non quantitative and does not discuss several important regional features of taxes such as taxes which are predominantly on products or industries located in particular regions results suggest that regional effects of taxes can be significant and in the canadian case at least do not tend to counterbalance one another in general richer regions tend to lose and poorer regions gain from federal taxes but other regional characteristics such as manufacturing non manufacturing or resource non resource can be important this abstract was borrowed from another version of this item

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

does unmeasured ability explain inter industry wage differentials this paper provides empirical assessments of the two leading explanations of measured inter industry wage differentials 1 true wage differentials exist across industries and 2 the measured differentials simply reflect unmeasured differences in workers productive abilities first we summarize the existing evidence on the unmeasured ability explanation second we construct a simple model which shows that if matching is important then endogenous job change decisions can create important self selection biases even in first differenced estimates of industry wage differentials third we analyze a sample that approximates the experiment of exogenous job loss we find that i the wage change experienced by a typical industry switcher closely resembles the difference in the relevant industry differentials estimated in a cross section and ii pre displacement industry affiliation plays an important role in post displacement wage determination

promotion turnover earnings and firm sponsored training i develop a model in which different technological conditions lead to distinct equilibria with different patterns in labor mobility promotion earning distribution and provision of firm sponsored training key is the asymmetric learning of workers characteristics because of the information that is conveyed to the market by promotion firms have incentives to adopt strategic promotion policies which result in different patterns in the use of internal labor market the theory explains well the differences between the japanese and the united states labor markets

on the characterisation of the world real interest rate this paper characterises the world real interest rate as a common trend in real interest rates in germany japan and the united states even if there is scepticism in the existence of the world real interest in theoretical terms real interest parity is based on the presumed validity of uncovered interest parity and purchasing power parity but the empirical evidence of these parity conditions is not strong and thus the presence of the world real interest rate the significance of this paper is therefore to visualise the current level of international economic integration by characterising the approximate world real interest rate as a single common trend taking full advantage of the fact that real interest rates in three large open economies have been moving together sharing a common component even if their levels are distinctively different this single common trend has desirable properties as the world real interest rate first it is a parsimonious and monotonically increasing function of the real interest rates in three large open economies that can be world price or interest rate maker in contrast with small open economies second it is moving together with national real interest rates one for one hence the deviations from the world rate are temporary because common trend represents the common driving force of national rates over the long run period third it can explain as high a proportion as possible of the variances of national rates

nonstationarity of regressors and tests on real interest rate behavior this article reexamines tests on the behavior of real interest rates in light of recent results that indicate that regressors are nonstationary and not strictly exogenous strong rejections of constancy of real interest rates that have been found previously in the literature are confirmed here although there is some evidence here that real rates are negatively correlated with expected inflation this result is not as strong as has been indicated by previous research in addition results that found a significant negative correlation between real rates and nominal rates before 1979 are not supported here although there is evidence for a positive correlation of real and nominal interest rates after 1979

the internal economics of a university evidence from personnel data using a rich personnel data set of a large european university we find strong evidence for the existence of an internal labor market first there is a strong port of entry at the lowest academic rank and in fact even prior to entering professorship resulting in very long internal careers second wages do not follow external wage developments we subsequently consider various incentive theories regarding the dynamics of promotions as organized through annual tournaments as expected a rigid set of research and teaching criteria determine the speed of promotions at the same time administrative rigidities play an important role

why real interest rates were so low in the 1970 s the economic turmoil of the 1970 s resulted in record postwar increases in inflation unemployment and nominal interest rates yet it was declines that were hardest to explain the average real value of a share of common stock plummeted productivity growth evaporated real interest rates measured as the spread between nominal interest rates and the inflation rate turned negative see table 1 over the past decade an explosion has occurred in the amount of attention paid to the relationship between nominal and thus real interest rates and expected inflation rates a good deal of this effort has been directed toward empirical analysis of the fisher neutrality hypothesis that nominal rates respond one for one with expected inflation rates most empirical tests of the fisher hypothesis have been bivariate interest rates were regressed on a constant and on actual or expected inflation measures estimates of the impact of inflation on interest rates in these and even in extended models are often significantly below one are often statistically imprecise and tend to be unstable over time the middle column of table i reflects this the coefficient of inflation on nominal interest rates there drops from 0 78 to 0 59 in the latter 1970 s another branch of work on nominal interest rates has concentrated on the institutional impediments to the fisher hypothesis robert mundell and james tobin demonstrate that nominal rates change by a smaller amount than the expected inflation rate does when a real balance effect exists and money pays no interest michael darby and martin feldstein on the other hand argue that nominal rates should exhibit a greater thanunity response to expected inflation due to the nature of u s income tax laws 2 here i estimate the relation between interest rates expected inflation and real forces such estimates are required for evaluating the effects of inflation on saving investment the distribution of income and the redistribution of wealth to generate estimates of the net impact of these various factors on interest rates and to avoid the identification and simultaneity problems masked but not often remedied by instrumental variables techniques i employ only exogenous regressors to buttress the argument i examine the individual links in the chain which are summarized in the reduced form the novel aspect of the model presented in section i is its addition of aggregate supply shocks to the determination of interest rates i trace the reduction in the supply of complementary factor inputs in the 1970 s to a decline in the demand for capital and therefore in real interest rates the inclusion of this supply force along with expected inflation allows one to distinguish between two offsetting effects on interest rates the depressing effect on real rates through lower investment demand and the elevating effect on nominal rates of higher expected inflation the results in section ii not only strongly support the economic and statistical importance of supply shocks on real interest rates but also resolve some longstanding interest rate puzzles allowing for the impact of factor supply produces a significant estimated response to expected inflation for a sample that ends prior to late 1960 s the magnitude assistant professor school of business administration university of california berkeley i would like to thank george akerlof robert j gordon robert a meyer joe peek janet yellen the members of the economic analysis and policy seminar at berkeley participants at the nber conference on inflation and financial markets and anonymous referees for helpful comments data resources supplied data and computational services financial support was provided by the berkeley program in finance and nsf grant ses8109093 linda pacheco supplied able research assistance errors of omission or commission are my responsibility see william gibson david pyle john carlson and thomas cargill and robert meyer 2maurice levi and john makin derive the reducedform effect of expected inflation on nominal interest rates as a function of the structural parameters

promotion signaling gender and turnover new theory and evidence we extend promotion signaling theory to incorporate gender and across firm mobility within and across job levels evidence from worker firm linked finnish panel data supports our theory for some groups controlling for worker performance inferred from performance related pay within firm promotion probabilities are increasing and wage increases from promotion are decreasing in educational attainment for some educational groups with results stronger for first than for subsequent promotions women have lower promotion probabilities than men and a greater sensitivity of promotion probability to educational attainment across firm promotions are rare but bring wage increases exceeding those for internal promotions and across firm lateral moves

stigma effects of layoffs abstract based on a signaling model of gibbons and katz 1991 journal of labor economics 9 351 380 this paper compares the development of the wages of dismissed employees to those who lost their job because of plant closings in contrast to the us and canada there is no evidence for a stigma effect of layoffs in germany some explanations of the divergent results are pointed out

asymmetric employer information promotions and the wage policy of firms abstract this paper provides evidence that inefficient promotion strategies and large wage increases upon promotion may both arise as a consequence of asymmetric employer information building on the seminal work by waldman 1984a and milgrom and oster 1987 we first present a model that illustrates how both phenomena may jointly arise due to the information revealing character of promotions using experimental labor markets we find evidence consistent with asymmetric employer information being a causal factor for both inefficient promotions and large wage increases upon promotion furthermore we analyze the effect of asymmetric employer information on profits and turnover

performance pay and wage inequality an increasing fraction of jobs in the u s labor market explicitly pay workers for their performance using bonus pay commissions or piece rate contracts using data from the panel study of income dynamics we show that compensation in performance pay jobs is more closely tied to both observed and unobserved productive characteristics of workers than compensation in non performance pay jobs we also find that the return to these productive characteristics increased faster over time in performance pay than in non performance pay jobs we show that this finding is consistent with the view that underlying changes in returns to skill due for instance to technological change induce more firms to offer performance pay contracts and result in more wage inequality among workers who are paid for performance thus performance pay provides a channel through which underlying changes in returns to skill get translated into higher wage inequality we conclude that this channel accounts for 21 of the growth in the variance of male wages between the late 1970s and the early 1990s and for most of the increase in wage inequality above the eightieth percentile over the same period

choice welfare and development a festschrift in honour of amartya k sen professor amartya sen has been a distinguished and influential scholar in development economics for over twenty years and this edited volume seeks to reflect his interests and the inspiration he has provided for others the editors have succeeded in creating a coherent and stimulating set of papers from well known contributors the volume deals with the enduring themes of amartya sen s work ranging through theoretical issues of development economics to the philosophical foundation of welfare systems and ethics in society contributors kenneth arrow a b atkinson pranab bardhan j l coles rajat deb jean dreze louis gevers peter hammond ravi kanbur eric maskin robert nozick siddiq osmani martin ravallion kevin roberts robert solow s wibaut

employer learning productivity and the earnings distribution evidence from performance measures two ubiquitous empirical regularities in pay distributions are that the variance of wages increases with experience and innovations in wage residuals have a large unpredictable component the leading explanations for these patterns are that over time either firms learn about worker productivity but productivity remains fixed or workers productivities themselves evolve heterogeneously in this paper we seek to disentangle these two models and place magnitudes on their relative importance we derive a dynamic model of learning and productivity that nests both models and allows them to coexist we estimate our model on a 20 year panel of pay and performance measures from a single large firm the baker gibbsholmstrom data incorporating performance measures yields two key innovations first the panel structure implies that we have repeat measures of correlates of productivity as opposed to the empirical evidence on employer learning which uses one fixed measure second we can separate productivity from pay whereas the previous literature on productivity evolution could not we find that both models are important in explaining the data however the predominant effect is that worker productivity evolves idiosyncratically over time implying firms must continuously learn about a moving target therefore while the majority of pay dispersion is driven by variation in individual productivity wages differ significantly from individual productivity at all experience levels due to imperfect information we believe this represents a significant reinterpretation of the empirical literature on employer learning

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

potential impacts of the proposed west african monetary zone on cowpea trade member countries of the economic community of west african states ecowas are expected to form a west african monetary zone wamz by december 2009 whereby members would use a common currency in an attempt to promote regional integration evidence suggests that reduction in transaction cost as a result of a decrease or elimination of nontariff barriers ntbs and real interest rates in response to elimination of exchange rate differentials positively influence trade the objective of this study is to quantify the effects of a a 7 real interest rate on capital and b zero ntbs within ecowas countries on cowpea vigna unguiculata l walp trade to provide a measure of the potential impacts of the wamz on grain trade the study applies a spatial and temporal price equilibrium model formulated in a mixed complementary programming mcp framework and solved using gams path the focus is on the nigerian cowpea grainshed ncg comprising benin burkina faso cote d ivoire ghana mali niger nigeria and togo in ecowas and cameroon chad and gabon in the central african economic and monetary community caemc the results show that if wamz results in reduced real interest rates within ecowas the larger of the two monetary unions consumers in the relatively larger coastal economies and producers in the smaller sahelian economies would benefit while all others lose however net social welfare would increase by 0 19 over the base case of 6 3 billion us bus removing ntbs among countries in the larger trading bloc may alter the pattern of cowpea flows with total trade volume increasing by 3 but inter bloc trade decreasing by about 8 the net total regional social welfare would increase by 0 14 or 15 million us mus benefiting only consumers in importing countries and producers in exporting countries the results emphasize the importance of specialization based on regional comparative advantage but also draw attention to the need to devise ways to ensure acceptable welfare distribution among producers and consumers in line with policy objectives of the individual countries within the proposed wamz finally this article contributes to the literature on the application of spatial and temporal models incorporating both ad valorem tariffs and differential interest rates in developing economies

the payoff to consistency in performance this study investigates whether firms are willing to pay higher wages to workers who demonstrate consistent performance than to those whose performance is more volatile a formal model reflects a production technology view assuming the law of diminishing marginal product this model suggests that a more consistent worker produces higher expected output and therefore receives a higher wage the test of the model uses data from the national basketball association the empirical data support the model players whose performances were more consistent than the performances of other players received higher wages on average jel d41 j31 m52 z20

corporate tournaments human capital acquisition and the firm size wage relation this paper provides a possible explanation for the empirically observed size wage effect and inter industry wage differences it develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments where workers with the highest level of general human capital win promotions given that the prizes in such tournaments are determined by outside market conditions the investment and the equilibrium wages depend on firm and industry characteristics the model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

strategic promotion and compensation within a hierarchical firm structure this paper details how the composition of a worker s skills and the non observability of a worker s ability affect wage and promotion paths promotionbased compensation schemes derive naturally from the worker s asymmetrically observed ability promotion takes place over time and is inefficient since employers strategically exploit their knowledge of an able worker s ability conversely employers may be unable to efficiently demote and retain bad managers without paying bonuses employers are led to promote educated employees before their equally or more able but uneducated counterparts explanations for fast track promotions plans and other empirical regularities are provided

debt in rural south india fragmentation social regulation and discrimination this micro level study combines multivariate and qualitative analyses to highlight the fragmented nature of debt in southern indian rural households it finds that debt is socially regulated in the sense that social interactions shape the cost use and access to debt caste social class and location affect how individuals borrow varying amounts from distinct money providers for varied purposes and at differing costs debt thus is not purely an economic but first and foremost a social transaction which inscribes debtors and creditors into local systems of hierarchies furthermore we find that debt is an illustration and catalyst of broader socio economic and political trends namely a lack of social protection persistent under employment and rising consumerism in terms of policy implications the study highlights the ambiguities and illusions inherent to financial inclusion policies aiming to eradicate informal debt

interactions between institutional and informal credit agencies in rural india in an attempt to expand rural credit and displace the village moneylender india created a system of rural cooperatives in the 1950s and expanded branch banking into rural areas in the 1970s this article examines how these measures affected the rural market it begins with the question of how large the expansion of institutional credit has been and the extent to which it has dislodged the village and nonresident moneylenders a detailed comparison of three major surveys of the indian rural credit market suggests that in various guises the moneylender is still a major source of loans the article also examines the weak evidence on intermediation between the formal and informal sectors a formal model of the interaction between the informal moneylender and institutional lender is constructed under a variety of assumptions about the exclusivity of loan contracts and the competitive structure of the informal sector the conclusions are drawn together in the form of five proposals for public policy

labor market signaling and self confidence wage compression and the gender pay gap i extend spence s signaling model by assuming that some workers are overconfident they underestimate their marginal cost of acquiring education and some are underconfident firms cannot observe workers productive abilities and beliefs but know the fractions of high ability overconfident and underconfident workers i find that biased beliefs lower the wage spread and compress the wages of unbiased workers i show that gender differences in self confidence can contribute to the gender pay gap if education raises productivity men are overconfident and women underconfident then women will on average earn less than men finally i show that biased beliefs can improve welfare

are workers permanently scarred by job displacements this paper investigates whether workers suffer lasting scars following job displacements using david t ellwood s 1982 terminology scars represent persistent effects whereas blemishes are transitory adjustments which dissipate over time more precisely dislocated individuals are defined as scarred if they continue to earn less or to be unemployed more than their nondisplaced counterparts even after the conclusion of a several year adjustment period