efficiency wages interfirm comparison and unemployment the paper presents an efficiency wage model where worker effort depends on own wages relative both to wages of other workers in the firm and to similar workers in other firms first we show how the solow conditions are modified if internal comparison effects are at work second we discuss the effect of internal wage comparison on wage inequality within firms third we study unemployment and relative wage determination within a general equilibrium model and analyze the effect of technological change and various tax policies on equilibrium unemployment and relative wages finally the short run effects of aggregate demand shocks are analyzed a popular argument for the existence of involuntary unemployment is that a worker s effort rises with wages giving employers incentives to set wages above market clearing levels it is often assumed that the worker s effort is a function of the wage level with no reference to the size of the wage in comparison with that received by other workers yet such comparisons are likely to influence an individual in his effort choice if this is the case then it seems equally likely that workers compare themselves with others both internal and external to their place of work this paper contributes to the efficiency wage literature by providing an understanding of wage setting and unemployment determination within a model where workers efforts depend on their wage relative to both the wages of other workers at the same firm and to the wages of similar workers at other firms

upper income renaissance in the city its sources and implications for the city s future abstract recent writings on urban housing markets have cited evidence of renewed upper income demand for central residential locations this paper extends the standard model of residential choice to account for this behavior shows that implications of the analysis are consistent with recent residential patterns in new york city and challenges predictions that upper income demand for city living portends a nationwide reversal of upper income exodus to the suburbs

minimum wage restrictions and employee effort in incomplete labor markets an experimental investigation abstract a minimum wage raises average wages along with modest increases in employees average effort levels generating a pareto improvement in social welfare the minimum wage reduces effort in the neighborhood of the minimum but has no systematic effect on effort levels at higher wages as a consequence average effort increases modestly with a minimum wage as it raises average wages similar results are reported within groups both when introducing and eliminating a minimum wage although the within group effects of introducing a minimum wage are stronger than dropping it

drawing blood from stones legal debt and social inequality in the contemporary united states the expansion of the u s penal system has important consequences for poverty and inequality yet little is known about the imposition of monetary sanctions this study analyzes national and state level court data to assess their imposition and interview data to identify their social and legal consequences findings indicate that monetary sanctions are imposed on a substantial majority of the millions of people convicted of crimes in the united states annually and that legal debt is substantial relative to expected earnings this indebtedness reproduces disadvantage by reducing family income by limiting access to opportunities and resources and by increasing the likelihood of ongoing criminal justice involvement

the minimum wage as a redistributive tool most analyses of the minimum wage focus on its unintended employment consequences the goal of a minimum wage is not of course to reduce employment but to redistribute earnings to low paid workers under what conditions can a minimum accomplish this are those conditions met in economies which otherwise rely extensively on markets to set wages such as the united states which in i994 rejected mandating health benefits that would have effectively raised the minimum or the united kingdom where in i995 the labour party promised a national minimum upon election who pays for the redistribution who benefits the redistributive effects of a minimum wage depend on the labour market and redistributive system in which it operates on the level of the minimum and on its enforcement at best an effective minimum wage will shift the earnings distribution in favour of the low paid and buttress the bottom tiers of the distribution from erosion at worst minimum wages reduce the share of earnings going to the low paid by displacing many from employment neither outcome is certain so that enacting a minimum is a risky but potentially profitable investment in redistribution it is the balancing of risk against gain that makes a minimum so controversial until the i980s i99os competitive labour markets in the united states and united kingdom produced rising real earnings for the low paid and falling earnings inequality so the risk of enacting a national minimum united kingdom or of raising substantially the national minimum united states seemed unnecessary why interfere with the competitive market when it produces socially desirable trends in earnings albeit a bit slower than one might accomplish with a legislated minimum two decades of falling real wages for lower decile workers in the united states and of rising earnings inequality in the united kingdom1 have however put the minimum back in play the job market is not doing much for lower paid workers in the united kingdom virtually all social groups accept the need for some redistribution though they differ on the best way to accomplish such in the united states pressures for tax cuts can be interpreted as a way for employees to gain real wage increases unavailable through the market the consensus favouring redistribution through the earned income tax credit disappeared in the midi 990s rush to reduce federal budget deficits this paper takes as its operating premise the goal of redistributing earnings

mandatory sick pay provision a labor market experiment the question whether a minimum rate of sick pay should be mandated is much debated we study the effects of this kind of intervention in an experimental labor market that is rich enough to allow for moral hazard adverse selection and crowding out of good intentions to occur we find that higher sick pay is reciprocated by workers through higher effort but only if sick pay is not mandated we also study adverse selection effects when workers have different probabilities of getting sick and can reject the hypothesis that this leads to market breakdown overall we find that mandating sick pay actually leads to a higher voluntary provision of sick pay by firms

labour markets social justice and economic efficiency in conventional economic theory a trade off supposedly exists between social justice and economic efficiency in reality market and other economic institutions are dominated by power relations so that the sponsorship of social justice is a productive factor neo liberal economic policies by lifting the constraints on the exercise of unequal power increased injustice and triggered a downward economic and social spiral reversing this requires a revolution in economic theory and policy focused on full employment the working of labour markets the organisation of work and household organisation social provision and self sufficiency in conventional economic theory the initial resource endowments of individuals are taken as given and although these may be unequal they are essentially external to the market labour markets are assumed to be more or less competitive and within them real wages reflect the quality of workers resource endowments mainly human capital and their personal efficiency and energy that these result in a wide dispersion of labour market rewards some of which may be insufficient to sustain a reasonable standard of life is a demonstration it is argued of how widely dispersed are individual resource endowments and capabilities hirsch and addison 1986 from this perspective any idea of social justice designed to reduce income inequalities risks damaging incentives and lowering overall economic well being this is the basis of okun s 1975 thesis that there exists an inverse trade off between social equality and economic efficiency that greater social income equality can only be purchased at the cost of lowering economic efficiency the alternative perspective explored in this special issue recognises the central import ance of relative power in determining outcomes this focuses attention on the external and internal forces structuring markets and how these differentially affect the incomes and opportunities of individuals from this perspective social justice requires the removal of the obstacles that inhibit individuals and groups from developing their potential and from deploying their resources to full advantage thus contrary to the orthodox view increasing

relative wages wage growth and quit behavior using italian social security records for male workers from a sample of firms in turin from 1981 to 1983 we show that conditional on the worker s own wage the average wage in the establishment for similar workers is negatively related to quits we also find that this variable predicts future wage growth this is consistent with an economic model in which workers compare the longrun value of employment opportunities when making quit decisions

are workers paid their marginal products status is like coase s social costs a reciprocal phenomenon given that one person s gain in status can occur only at the expense of a loss in status for others and that workers are free to choose their coworkers it follows that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products the purpose of this paper is to examine a variety of empirical evidence that relates to this proposition about the firm s internal wage structure the paper is organized as follows section i briefly summarizes the theoretical considerations that govern competitive wage determination when status matters to people and firms are viewed as voluntary associations of workers section ii then confronts the predictions of section i by examining pay and productivity schedules for a group of sales occupations for which these schedules are relatively easily observed section ii also examines the relationship between wages and productivity for a sample of university professors an occupation in which individual productivity differences are for a variety of obvious reasons relatively more difficult to measure all of the evidence examined is consistent with the hypothesis that within firms wage rates vary substantially less than do individual productivity values section iii discusses additional observations and evidence that bear on this same hypothesis it suggests that the implicit market for status may strongly influence the ways in which firms are organized to carry out the tasks they perform section iv concludes by considering the claim that egalitarian internal wage structures arise because of equity considerations it argues that the concept of equity appears very closely linked to the concept of status and suggests a strategy for assigning monetaty value to the equity considerations that so often dominate public policy decisions

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

pay reference points and police performance several theories suggest that pay raises below a reference point will reduce job performance final offer arbitration for police unions provides a unique opportunity to examine these theories as the police officers either receive their requested wage or receive a lower one in the months after new jersey police officers lose in arbitration arrest rates and average sentence length decline and crime reports rise relative to when they win these declines in performance are larger when the awarded wage is further from the police union s demand the findings support the idea that considerations of fairness disappointment and more generally reference points affect workplace behavior

peer effects in medical school abstract using data on the universe of students who graduated from us medical schools between 1996 and 1998 we examine whether the abilities and specialty preferences of a medical school class affect a student s academic achievement in medical school and his choice of specialty we mitigate the selection problem by including school specific fixed effects and show that this method yields an upper bound on peer effects for our data we estimate positive peer effects that disappear when school specific fixed effects are added to control for the endogeneity of a peer group we find no evidence that peer effects are stronger for blacks that peer groups are formed along racial lines or that students with relatively low ability benefit more from their peers than students with relatively high ability however we do find some evidence that peer groups form along gender lines

effort and comparison income experimental and survey evidence the authors test the hypothesis that individual effort on the job depends both on one s own income and on the individual s position in the relevant income distribution combining experimental evidence from a gift exchange game with multi country issp survey data they analyze the extent to which relative income affects an individual s effort finding that an individual s rank in the income distribution more strongly determines effort than does others average income which suggests that comparisons are more ordinal than cardinal their experiment also reveals that comparisons over time affect effort individuals who received higher income offers or enjoyed higher income rank in the past exerted lower levels of effort for a given current income and rank

black white wage inequality employment rates and incarceration the observed gap in average wages between black men and white men inadequately reflects the relative economic standing of blacks who suffer from a high rate of joblessness the authors estimate the black white gap in hourly wages from 1980 to 1999 adjusting for the sample selection effect of labor inactivity among working age men in 1999 accounting for labor inactivity including prison and jail incarceration leads to an increase of 7 20 in the black white wage gap adjusting for sample selectivity among men ages 22 30 in 1999 increases the wage gap by as much as 58 increasing selection bias which can be attributed to incarceration and conventional joblessness explains about two thirds of the rise in black relative wages among young men between 1985 and 1998 apparent improvement in the economic position of young black men is thus largely an artifact of rising joblessness fueled by the growth in incarceration during the 1990s

gentrification and crime abstract low income and high income agents compete for space in an inner city which has more crime but better access the spatial equilibrium is characterized by income mixing a result of the assumption that agents differ in the marginal disutility of travel time gentrification defined as the displacement of low income households results from a decrease in crime or an increase in the frequency of travel to the center changes in the income mix are self reinforcing because the crime rate is increasing in the number of low income agents and the prices of local goods are decreasing in the population of the relevant group the starbucks effect a case study of portland oregon provides an example of gentrification in the 1990s

promises in contract design in this paper we propose a new channel of contract design to boost efficiency if deviating from one s own words induces a self imposed moral burden the optimal contracting procedure with regard to cheap talk shall assign the responsibility for installing the nonbinding promise in the contract to whoever has the residual right to break such promise in the spirit of grossman and hart 1986 and hart and moore 1990 to study whether a worker s own promise of effort level governs his real choice of effort in a gift exchange game we implement four treatments in our experiments by varying two factors 1 who the firm or the worker takes the position of the proposer to propose the contract and 2 whether the proposed contract includes a nonbinding specification of the worker s effort level our key finding is that when it is the worker who proposes the contract and the contract includes the worker s promised effort level both the worker s actual effort choice and the aggregate profits are significantly higher than in each of the

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

minimum wage effects throughout the wage distribution this paper provides evidence on a wide set of margins along which labor markets can adjust in response to increases in the minimum wage including wages hours employment and ultimately labor income not surprisingly the evidence indicates that low wage workers are most strongly affected while higher wage workers are little affected workers who initially earn near the minimum wage experience wage gains nevertheless their hours and employment decline and the combined effect of these changes on earned income suggests adverse consequences on net for low wage workers

in search of workers real effort reciprocity a field and a laboratory experiment we present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages work effort neither reacts to an increase of the own wage nor to a positive or negative peer comparison this result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort in an additional real effort laboratory experiment we show that explicit cost and surplus information that enables an exact calculation of an employer s surplus from the work contract is a crucial prerequisite for a positive wage effort relation this demonstrates that an employee s reciprocity requires a clear assessment of the surplus at stake jel c91 c92 j41

the impact of the minimum wage if workers can adjust effort abstract in traditional models a binding minimum wage creates a excess supply of low skilled workers for minimum wage jobs employment falls and some jobs are reallocated from high to low rent workers this disequilibrium cannot persist competition to secure the property rights to now scarce jobs undoes most of the effects of the minimum wage workers who attach the highest value to the jobs are willing to work harder to keep them marginal workers are squeezed out of the market as high rent workers ratchet up effort level this process erodes the rent conferred by the minimum wage but also increases the value of marginal product which reduces the size of the employment effect the minimum wage confers more money income on low skilled workers and creates some distortion in the optimum combination of wage rate and effort level under plausible conditions the minimum wage has little effect on rent employment output and profits

are wages habit forming evidence from micro data although utility functions play a central role in economics the axiom that utility depends only on the absolute levels of its arguments is rarely tested this paper uses panel data on 2000 british employees who remain with the same employer and who are not promoted from one wave to the next it is shown that one important measure of well being overall job satisfaction is strongly positively correlated with the change in the worker s pay between waves but is unrelated to the current level of pay empirical tests suggest that a reference dependent satisfaction function where individual well being depends on current pay relative to past pay is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles some evidence is presented of greater job satisfaction effects of pay rises for lower paid less well educated and younger workers these results provide some micro evidence consistent with the theory widespread in social science of habituation individuals may become used to any given level of consumption or income as such they tie in with the finding that a country s well being as measured by the average happiness of its citizens is only weakly correlated with its per capita gnp

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

gift exchange in a multi worker firm one of the main findings of a large body of gift exchange experiments is that in an incomplete contracts environment workers on average do not shirk and usually provide more than the minimum enforceable effort level in general 40 to 60 percent of the workers reward higher wages with higher effort these results are observed for simple one employer one worker relationships in this paper we investigate whether they generalize to the more realistic situation in which the employer employs several workers we compare a bilateral gift exchange game with a treatment in which each employer has four workers we find that effort levels in the latter treatment are only marginally lower gift exchange thus appears to be robust to increases in the size of the workforce and intention based reciprocity rather than social preferences seems to be the main driving force behind gift exchange

rational turnout the neglected role of groups rational choice theories have difficulty accounting for individual participation in collective action voting is among the acts hardest to explain consumption benefits have been proposed to account for nonzero turnout the model presented here establishes a political investment basis for these benefits i argue that voters often act not in isolation but as part of groups with shared interests while individuals still vote because of consumption benefits arising from the act of voting some of these consumption benefits are provided by group leaders out of collective benefits received by the group in return for its votes the collective benefit comes from a candidate adopting policy positions closer to those of the group in passing i show that the widespread availability of public opinion polling increases the candidate s incentive to shift position finally some data from recent off year elections are shown to be consistent with the model

understanding gentrification an empirical analysis of the determinants of urban housing renovation abstract the back to the city phenomenon presented an unpredicted countercurrent in the prevalent tide of suburbanization and this process of upper income resettlement in the inner city has been thoroughly analyzed in the urban economic literature housing renovation a process that always accompanies gentrification and constitutes a significant portion of residential housing investment has been studied much less contrary to the expectation that location matters the existing empirical studies have concluded that most neighborhood amenities and structural attributes are insignificant as determinants of renovation using a detailed parcel level data set that documents all residential renovation activity in chicago between 1995 and 2000 this paper establishes that the characteristics of a building and its neighborhood do indeed influence the likelihood that it will be renovated

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

why not cut pay abstract i interviewed over 300 business people labor leaders business consultants and counselors of unemployed people all in the northeast of the united states during the recession of the early 1990 s in order to learn why wages and salaries declined in only a few firms employers were reluctant to cut pay because they believed doing so would hurt employee morale leading to lower productivity and current or future difficulties with hiring and retention it was thought that these effects would in the end cost more than the savings from lower pay there were few indications that unemployed people had excessive wage expectations on the contrary many unemployed were too flexible and found themselves rejected by firms as overqualified in most companies pay cuts were not a useful alternative to layoffs because pay cuts would not make it worthwhile to retain many employees and because layoffs harmed morale less than would pay cuts the findings support none of the theories of wage rigidity except those of solow and akerlof that emphasize morale

identifying interdependent behaviour in an empirical model of labour supply in this paper we test a particular form of interdependent behavior namely the hypothesis that individuals choices of hours of work are influenced by the average hours of work in a social reference group there are problems to empirically disentangle the effects of interdependent behavior and preference variation across groups we show that panel data or data from several points in time are needed in the empirical analysis we combine cross section data from 1973 1980 and 1990 our results support the hypothesis of interdependent behavior the implication is that conventional tax policy predictions in which preference interdependencies are neglected will tend to underestimate the effect of a tax reform on hours of work our point estimates suggest that conventional calculations would capture only about a third of the actual change in hours of work

minimum wages for ronald mcdonald monopsonies a theory of monopsonistic competition recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment we develop a model of monopsonistic competition with free entry to analyse the effects of minimum wages and our predictions fit the empirical results closely under monopsonistic competition we find that a rise in the minimum wage raises employment per firm causes firm exit and may increase or reduce industry employment minimum wages increase welfare if they raise industry employment but welfare effects are ambiguous if employment falls

social interactions and habit formation in a model of female labour supply this paper investigates the influence of habit formation and preference interdependence on labour supply behaviour of married females a novelty of the paper is that we incorporate direct survey information on reference groups of individuals in a neoclassical labour supply model for that purpose we first estimate a latent variables model relating the direct information to the true but unobserved reference groups one of the most interesting features of the model is that the presence of young children becomes an insignificant factor in the hours equation while it remains a significant factor in the participation decision in addition the labour supply curve is much flatter in a model with habit formation and preference interdependence than in a model without it both habit formation and preference interdependence contribute significantly to the explanation of female labour supply 1998 elsevier science s a all rights reserved

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

pay secrecy and effort provision i introduction pay secrecy norms are widespread in many organizations a survey of 2 700 u s employees conducted in autumn 2010 found that almost 1 out of 2 employees face limitations to the extent to which they can access information about other employees compensation 1 similarly a recent survey of u s employers found that over one third of private sector organizations have in place formal rules prohibiting employees to discuss their pay with co workers reported in gely and bierman 2003 a common argument used to justify the adoption of pay secrecy is that it helps minimize the negative effects arising when employees compare their pay with the pay of their co workers colella et al 2007 2 pay comparisons are in fact thought to be a key factor in employees judgments of the fairness of their pay e g akerlof and yellen 1990 discovering the existence of pay differentials between oneself and co workers who are in comparable positions within the firm may spur perceptions of unfairness and reduce job satisfaction card et al 2012 this may ultimately lead to reduced work morale and lower effort whereas this conjecture finds considerable support among managers and compensation executives e g agell and lundborg 1995 bewley 1999 campbell iii and kamlani 1997 there is limited direct evidence that the availability of pay comparison information has detrimental effects on effort behavior 3 in this paper i use laboratory experiments to provide a controlled test of this proposition the experiments reported in this paper are based on a multilateral version of the gift exchange game fehr kirchsteiger and riedl 1993 in the standard bilateral gift exchange game a first mover the employer decides on the size of the gift wage she sends to a second mover the employee who can in turn reciprocate by choosing costly actions effort that reward the first mover a typical result of bilateral gift exchange game experiments is that employees are often willing to incur costs in order to reward employers who have treated them favorably for reviews of the experimental literature see fehr goette and zehnder 2009 and charness and kuhn 2011 in the multilateral version of the game used in this study described in detail in section ii the employer interacts with two employees at the same time and pays a wage to each of them employees receive their wage and then independently choose an effort level i observe effort choices in three different conditions in a first condition employees only learn their own wage while coworkers wages remain undisclosed i use this benchmark condition to assess how employees respond to given levels of the own wage under a wage secrecy regime in two other conditions i remove any limitation on the availability of information about other workers wages in these treatments employees are fully informed of the wage paid to co workers when they choose effort by comparing these public wages treatments with the wage secrecy treatment i can test whether the availability of pay comparison information is detrimental for effort provision the two public wages treatments differ in how wages are determined in one treatment the employer can choose the two wages she pays to the employees while in the other treatment the wage paid to one employee is mandated exogenously by the experimenter this allows to study the effect of pay comparisons in settings where the employer has full discretion on the firm s wage structure as well as in settings where an employer s wage policy is partly constrained by exogenous labor market regulations such exogenous constraints to firms wage policies are commonplace in natural workplaces e g minimum wage laws centralized pay regulations etc and previous experiments have shown that they can affect pay fairness considerations and effort behavior in important ways 4 differently from previous studies which either focused on bilateral labor relations or studied multilateral relations where workers received no information about the treatment of co workers in this experiment i study how employees effort is influenced by labor market regulations that affect the wage of their co workers

wage secrecy as a social convention there is a time to keep silent and a time to speak out ecclesiastes 3 7 ask anyone who works for a living how much money he or she makes and you are likely to encounter a range of responses from evasion to outright hostility such responses however should not be surprising according to organizational etiquette it is considered gauche to ask others their salaries in a study at e i du pont de nemours all employees were asked if the company should disclose more payroll information so that everyone would know everyone else s pay only 18 voted for an open pay system dolan and schuler 1987 315 m any organizations have strict policies and norms about the secrecy of pay it is seen as inappropriate in most companies for employees to talk about what they earn and data are rarely given out even internally on salaries some organizations even fire individuals who release salary data this is one way to make it very clear that the organization means it when it says it believes in pay secrecy lawler 1990 239 t he issue of openness or secrecy in the communication of compensation information is one of the most important issues facing senior management henderson 1985 379 i introduction despite the general belief that a free flow of information enhances efficiency social convention appears to call for secrecy regarding individuals wages this paper provides an explanation for this convention we suggest that the role of wage secrecy is to reduce effective labor mobility and thereby enhance the feasibility of risk shifting contracts wage secrecy may yield a mix of mobility and risk shifting that is superior both to a spot market for labor and to a social convention that binds workers to their employers in promising to pay a worker a pre agreed wage rate labor contracts shift uncertainty from workers to employers and provide workers with insurance in particular if workers are risk averse and firms are risk neutral such contracts may enhance the welfare of workers without imposing a cost on firms since a risk shifting contract shields workers from the vicissitudes of the market wage rates need not equal the marginal product of labor in good outcomes workers pay the firm an insurance premium by accepting a wage rate that is lower than their marginal product in bad outcomes workers collect on their insurance policy earning a wage rate that exceeds their marginal product 1 if workers can move freely from one firm to another however risk shifting labor contracts may not be feasible given such freedom of movement workers will stay with their firm if the wage rate exceeds that offered elsewhere and move if they can obtain a higher wage rate in another firm hence without restrictions on labor mobility risk shifting contracts will not be offered and wage rates will vary with the marginal product of labor in this case the market in labor is a spot market the risk shifting role of labor contracts may be salvaged by a social convention that binds workers to their firms this would require that a worker who leaves his employer earlier than the accepted norm would be viewed as breaking a social convention and develop a damaging reputation we shall refer to this type of convention as a binding convention 2 it appears that a binding convention is assumed in most of the implicit contract literature binding however comes at a cost while facilitating risk shifting it may lead to inefficient resource allocation with a binding convention the tradeoff between the loss in output and the extent of workers exposure to risk depends on the nature of risks faced by the firm when the only risk that firms face is an aggregate shock defined as a shock that affects all firms in a sector in the same way binding does not reduce production efficiency if the marginal product of labor is the same in all firms the worker s place of employment does not affect output

social comparison and performance experimental evidence on the fair wage effort hypothesis we investigate the impact of wage comparisons for worker productivity we present three studies which all use three person gift exchange experiments consistent with akerlof and yellen s 1990 fair wage effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average two studies allow us to measure wage comparison effects at the individual level we observe strongly heterogeneous wage comparison effects we also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences

the reemergence of segmented labor market theory according to dual labor market theory the labor market can be usefully described as consisting of two sectors a high wage primary sector with good working conditions stable employment and substantial returns to human capital variables such as education and experience and a low wage secondary sector with the opposite characteristics moreover primary jobs are rationed that is not all workers who are qualified for primary sector jobs and desire one can obtain one finally the sector of the labor market in which an individual is employed directly influences his or her tastes behavior patterns and cognitive abilities thus the dual labor market model or more generally segmented labor market models is simultaneously a description of the income distribution a claim about the absence of market clearing and a radical departure from the standard neoclassical assumption of fully rational actors and exogenously determined preferences while this last element is potentially the most interesting even its proponents fail to give it the attention it deserves and related work has not been incorporated into the segmented labor market model in this paper we therefore concentrate on the first two elements of the model segmented labor market theory was sufficiently popular in the late 1960 s and early 1970 s to be taken seriously by prominent mainstream labor economists however two influential and largely negative reviews glenn cain 1976 michael wachter 1974 portrayed the segmented labor market hypothesis as largely atheoretical and based at best on questionable statistical analysis it seems fair to say that even sympathetic mainstream critics felt that key insights from the segmented labor model could be incorporated into neoclassical analysis and that the remaining elements of the model did not form a sufficiently coherent theory to pose a challenge to the neoclassical model whatever the merits of this perception it is clear that advocates of the segmented labor market approach did not develop a formal theory which conformed to the standards of mainstream economists with some notable exceptions michael piore 1975 david gordon 1972 the work was atheoretical moreover the empirical methods used tended to fall outside the norm for example interviews observational studies and historical and institutional analysis advocates of the segmented labor market perspective mostly radical political economists chose instead to develop their own research program outside the mainstream the reemergence of segmented labor market theory is linked with the reversal of these two tendencies the theory has been pursued by economists using modern tools of imperfect information theory and state of the art econometrics as a result the approach has again attracted the attention of the mainstream even a few years ago it would have been a clairvoyant observer who predicted that lawrence summers would be working on a theoretical model of labor market duality with jeremy bulow 1986 that robert solow would count among his recent work a dual market model with ian mcdonald 1985 and that james heckman would publish an article in which he undertook an empirical test of a dual market model failed to reject the model and then devoted much of the rest of the article to attacking his and other tests of the dual labor market view see his article with v joseph hotz 1986 since the theoretical developments are largely associated with efficiency wage and departments of economics university of california berkeley ca 94720 and nber and boston university 270 bay state road boston ma 02215 and nber respectively this study was supported in part by nsf grant no ses 8606139 lang acknowledges support from a sloan faculty research fellowship dickens acknowledges support from the institute of industrial relations at berkeley

black white differences in wealth and asset composition using data from the 1976 and 1978 national longitudinal surveys of young men and young women this study examines racial differences in the magnitude and composition of wealth and the reasons for them on average young black families hold 18 percent of the wealth of young white families and hold their wealth in proportionately different forms even after controlling for racial differences in income and other demographic factors as much as three quarters of the wealth gap remains unexplained we speculate on the causes for this concluding that racial differences in intergenerational transfers and to a lesser extent barriers to the accumulation of business and home equity most likely play a role

tax evasion and social interactions the paper extends the standard tax evasion model by allowing for social interactions in manski s manski c f 1993 identification of endogenous social effects the reflection problem review of economic studies 60 3 531 542 nomenclature our model takes into account endogenous interactions i e social conformity effects exogenous interactions i e fairness effects and correlated effects our model is tested using experimental data participants must decide how much income to report given individual and group tax rates and audit probabilities and given a feedback on the other members reporting behavior myopic and self consistent expectations are considered in the analysis in the latter case the estimation is based on a two limit simultaneous tobit with fixed group effects a unique social equilibrium exists when the model satisfies coherency conditions in line with brock and durlauf brock w a durlauf s n 2001b interactions based models in j heckman and e leamer eds handbook of econometrics 5 elsevier science b v 3297 380 the intrinsic nonlinearity between individual and group responses helps identify the model our results provide evidence of fairness effects but reject social conformity

imprisonment and social classification in five common law democracies 1955 1985 rates of imprisonment have risen in many western democracies over the past few decades most dramatically in the united states the development of a systematic and general explanation of imprisonment trends has been impeded because of the theoretical and methodological limitations of prior quantitative studies most use data from a single country or jurisdiction and focus narrowly on the rusche kirchheimer labor surplus hypothesis with little attention to alternative explanations this study takes a cross national perspective using longitudinal data from australia canada new zealand the united kingdom and the united states to offer an institutional account of imprisonment rates the labor surplus effect is treated as a special case of a more general process by which individuals are allocated among alternative life course paths this allocation process is likely to be influenced by macrolevel institutional arrangements and contests for political power hypotheses are tested using pooled time series

experimental labor markets and policy considerations incomplete contracts and macroeconomic aspects this survey focuses on experimental labor markets investigating two aspects that are important for a better understanding of labor market relations and their consequences for labor market policies the first part of the survey is dedicated to papers that assess the prevalence of reciprocal considerations in incomplete labor contracts the second part summarizes the relatively small but growing experimental literature exploring labor market issues in macroeconomics and public finance studying the interaction between taxation and labor market outcomes

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

the streetcar and residential location in nineteenth century philadelphia the alonso muth model predicts how a worker s income affects his residential location within an urban area workers choose a residential location balancing the lower rent at locations distant from the city center against the higher commuting cost that such locations entail if the income elasticity of housing demand is greater than that of marginal commuting cost the bid rent function of a high wage worker is flatter than that of a low wage worker and thus the high wage worker lives farther from the city center this theory which was first articulated in the 1960s was consistent with empirical evidence from that period the model did not fare so well in the 1970s and 198os however on one hand were new studies of housing demand polinsky and ellwood 20 pointed out biases in earlier studies and found income elasticities less than unity when these biases were corrected these results indicate that the income elasticity of housing demand is less than that of marginal commuting cost since the latter is typically close to unity which in turn implies that the bid rent function of a high wage worker is steeper than that of a low wage worker wheaton 25 provided more direct evidence on this point he estimated bid rent functions of different income groups and found no significant difference between those of higher and lower income households these studies suggested that the alonso muth model could not explain the residential pattern observed in the 1950s and 1960s on the other hand was the change in that pattern in the 197os upper income households began to return to the cities the so called

migration incentives migration types the role of relative deprivation the authors explore the role of relative deprivation versus absolute income as an incentive for migration in developing countries in section i of this paper we outline the relative deprivation model of migration and present an illustration of the divergent policy implications of a relative deprivation model versus an absolute income model an attempt is made to identify distinct empirical implications of relative and absolute income motives for migrating in section ii a migration decision model is estimated and is used to explore absolute and relative income motives for internal and international migration in a sample of rural mexican households as well as to test the extent to which discontinuity in labour markets shapes the choice of migrant destination in section iii we present our conclusions excerpt