the disaggregation of corporations selective intervention high powered incentives and molecular units a vast array of organizational innovations and changes are transforming us corporations large firms have dramatically downsized refocused and vertically disaggregated they increasingly obtain goods and services pursue complex development efforts and exploit horizontal synergies without the aid of formal hierarchy large firms are also internally disaggregating into smaller more autonomous units that are treated much like external subcontractors the authors argue that these organizational innovations share an important underlying commonalty economic activity is converging toward exchange involving either internal within firm or external between firm networks of small autonomous production or service units small units and small firms have become the basic building block the molecular units of these new forms further exchange among the small autonomous units is commonly a mix of both market like and hierarchical features the authors develop a theoretical explanation for these trends the

why are small firms different managers views do incentives differ between large and small organizations results from a representative survey of compensation managers are used to shed light on the issues i find that i small establishments rely less on pecuniary incentives and have a significantly more hostile attitude towards incentive schemes based on competition and relative rewards ii large units are more vulnerable to mechanisms of efficiency wages effects that remain even after controlling for differences in monitoring ability iii large units are more prone to indicate that negative reciprocity is important and that their employees care about relative pay i argue that these findings fit with behavioral stories of incentives and motivation in particular those stressing group interaction effects inequity aversion and gift exchange

compensation policy and worker performance identifying incentive effects from field experiments the role of field experiments in evaluating the effect of compensation policies on worker productivity is considered particular attention is paid to the ability of a field experiment to identify the effect of a permanent change in firm policy while field experiments solve endogeneity problems through randomization they do so within a specific and at times artificial environment that may not be replicated by a permanent policy change as such rather than providing a basis for the unrestricted identification of incentive effects experiments are better thought of as providing exogenous variation with which to identify structural parameters these parameters can in turn be used to predict the effects of policy changes jel j3 l2 c9

partial monitoring adverse selection and the internal efficiency of the firm abstract the paper investigates an adverse selection model with monitoring of managerial effort in contrast to the literature we assume that the manager can be punished only if his effort is below a certain level that is monitored by the principal surprisingly the optimal labor contract may induce an equilibrium effort which is lower than in the standard model without monitoring this result holds for any discrete distribution of managerial types in the continuous type case the optimal contracts for high quality low quality managers are purely output dependent effort dependent

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

industrial specialization and the returns to labor comparative advantage and the division of labor make geographic concentration of production within a nation profitable and cause many cities to be specialized in one or a few main industries specialized cities however suffer greater unemployment risk the theory of compensating wage differentials predicts that individuals living in more specialized cities will be compensated in the form of higher wage rates we study the effects of specialization on wages and unemployment in the united states we find evidence of compensating wage differentials that firms choose to locate in more specialized higher wage cities is indirect evidence of the gains to specialization

the price of unobservables and the employer size wage premium abstract this paper estimates the employer size wage effect on returns to unobservable skills and measured human capital variables using a novel methodology that allows us to estimate a high number of interactions between unobserved effects and firm size our results show that in large firms returns to ability tend to be smaller than in small firms

the law of one price and a theory of the firm a ricardian perspective on interindustry wages i use a hierarchical perspective to explain the pattern of interindustry wages and capital intensities industries that have more productive technologies pay more than less productive ones and are more capital intensive as well results on size of the hierarchy effort levels and span of control are presented as well the key insight is that supervisors both monitor and coordinate their subordinates and time spent on one of these activities reduces the time available for the other several stylized facts are explained thereby

occupational segregation and wage differentials between natives and immigrants evidence from hong kong abstract this paper attempts to provide the first set of evidence on the intra and inter occupational earnings differentials between immigrants and the native by studying hong kong 1996 census data we found that the intra occupational earnings differential is slightly more important than the inter occupational earnings differential comparing with the literature on gender wage differentials immigrants seem to face more barriers to entry into good occupations than females in a relative sense moreover most of the intra occupational differential is unexplained occupational segregation gets smaller as the duration of residence rises and does not exist for immigrants who came to hong kong at young ages

efficiency wages and subjective performance pay i introduction how to design incentive schemes to motivate workers is an important topic in economics the shirking models of efficiency wages such as shapiro and stiglitz 1984 establish that firms need to pay a wage premium efficiency wages to motivate workers with unemployment serving as a punishment device however one shortcoming of these models is that performance pay plays no role one justification for their omission of performance pay is that individual performance may not be verifiable nevertheless if workers performance is observable and employment relationships are repeated firms can use implicit bonuses or relational contracts based on workers subjectively assessed performance to motivate workers since subjective performance pay cannot be legally enforced it has to be self enforcing given that both efficiency wages and subjective performance pay motivate workers what is the optimal wage contract from the firm s perspective will different labor markets occupations use different forms of wage contracts what are the impacts of different forms of wage contracts on unemployment and social welfare to answer these questions this paper provides a theory of contract selection in a market setting in a seminal paper macleod and malcomson 1998 mm hereafter provided a model of contract selection between efficiency wages and subjective performance pay the driving force in their model is the market condition in a market with more workers than jobs a firm can always immediately and costlessly fill its vacancy after reneging on the promised bonus therefore no subjective performance pay is credible and firms have to use solely efficiency wages to motivate workers on the other hand in a market with more jobs than workers efficiency wages are useless in providing incentives because a worker can find another job immediately after being fired as a result firms use solely subjective performance pay to motivate workers in mm there are no exogenous turnover costs complementary to mm this paper provides a model of contract selection driven by exogenous turnover costs in labor markets we focus on the situation in which unemployment always exists in labor markets thus ruling out market condition as a determinant of contract selection it turns out that turnover costs affect the amount of efficiency wages and performance pay in optimal contracts while in mm efficiency wages and subjective performance pay cannot be used together to motivate workers in our model firms are able to use combinations of both methods of payments by affecting optimal contracts turnover costs also have impacts on the equilibrium employment level and social welfare finally our model generates rich empirical implications about the relationships among turnover costs forms of employment contracts and levels of employment our basic model studies how turnover costs borne by firms affect contract selection from the firm s point of view subjective performance pay is cheaper since efficiency wages entail a wage premium thus the optimal wage contract uses the maximum amount of bonus to motivate workers however subjective performance pay may not be credible due to the firm s moral hazard problem in labor markets with positive unemployment a firm can immediately hire a new worker after reneging on the implicit bonus the presence of turnover costs can alleviate this moral hazard problem this is because a worker can punish a reneging firm by quitting and the firm has to incur turnover costs in hiring new workers therefore in the optimal contract the amount of bonus is increasing in turnover costs since subjective performance pay is cheaper as the turnover costs increase more subjective performance pay leads to a lower total wage payment after deriving the optimal contracts we turn to study market equilibrium which is determined by firms free entry condition

rational expectations and bond pricing modelling the term structure with and without certainty equivalence when i shall call the fundamental theorem of bond pricing asserts that the redemption yield on an n period bond is an average of the expected future spot one period interest rates over the remaining life of the bond the theorem assumes certainty equivalent behaviour for which risk neutrality is necessary but sufficient only if the underlying structure is also linear the fundamental theorem has formed the basis of analysis of the term structure of interest rates since keynes 1936 and hicks 1939 though it has sometimes been recognised that risk aversion might lead to a systematic discrepancy or liquidity premium between the n period redemption yield and the average of expected future spot rates over the same period even where the problem of risk has been addressed usually in an ad hoc manner the comparison of n period yields on competing assets has usually remained the condition by which asset market equilibrium is characterised intertemporal models require an assumption about expectations formation in this paper i consider the implication of rational expectations for models of the term structure when behaviour is certainty equivalent mishkin 1978 1980 has shown that the fundamental theorem has a striking implication the n period yield should follow a random walk in section i i argue that mishkin s result is irrelevant since the fundamental theorem is the wrong characterisation of asset market equilibrium under certainty equivalence i propose an alternative characterisation of asset market equilibrium and derive the behaviour of bond yields and prices under certainty equivalence and rational expectations the random walk property does not generally result within this framework it is also straightforward to analyse the effect on bond prices of variations in bond coupons and the relative tax rate on income and capital gains elsewhere begg 1982 i have argued that the analysis of certainty

chaotic dynamics in economic time series abstract there has recently been considerable interest in chaotic dynamics in a variety of disciplines this paper introduces and then surveys some of the associated literature and techniques applications to economic theory are discussed but the primary focus is on empirical applicability in addition to surveying the literature we also provide an example of the use of these techniques in economics we conclude by highlighting the importance of the techniques for empirical work as well as considering their context in econometric methodology

firm size wage differentials in the netherlands an unsolved problem in modern labor economics is the positive relation between the size of the firm in which a worker is employed and his wage one line of research that has been developed quite recently in this field is the application of endogenous switching regression models in this paper we utilize such a model to investigate firm size wage differentials in the netherlands the principal findings are that larger firms pay higher returns on schooling whereas smaller firms tend to reward iq combined with the finding that high iq workers are sorted into the largest firms the results are consistent with a model of job screening furthermore we find that employed sons of self employed fathers are more likely to work in small firms and that wage prospects for all types of workers are indeed most favorable in larger firms

some macro implications of risk using the capital asset pricing model as the financial sector of a conventional rational expectations macro model an increase in expected inflation reduces the long run capital stock contrary to the usual result this occurs because the induced fall in real balances increases equity s share in the market raises equity s beta and discount rate and reduces investment increases in the variance of disturbances to aggregate demand reduce the capital stock while increases in the variance of inflation raise the stock a proportionate increase in both variances reduces the captial stock copyright 1987 by ohio state university press

whom do high growth firms hire we study employment and new hires among high growth firms hgfs in the swedish knowledge intensive sectors 1999 2002 using matched employer employee data we find that hgfs are more likely to emp

do managers work harder in competitive industries abstract we analyze the relationship between product market competition and managerial effort in a linear principal agent model firms compete in a differentiated cournot oligopoly we use two competition indexes the degree of product differentiation and the number of firms an increase in competition stemming from a lower degree of product differentiation reduces the optimal level of effort while an increase in competition from more firms has an ambiguous effect an increase in the number of firms reduces increases effort when the degree of product differentiation is low high

determinants of urban migration evidence from chinese cities this study seeks the causes of variation in the amount of migration to chinese cities over the period of 1995 99 we use a city fixed effect model with lagged values of pull factors for each city

employer size wage effects evidence from matched employer employee survey data in the uk this paper employs a random sample of matched employer employee data from the uk to test seven possible explanations for the positive relationship between employer size and pay individual wage equations show a large employer size wage premium we then control for a range of establishment level variables based on seven hypotheses typically advanced to explain this premium each establishment level factor reduces the wage premium but a sizeable premium nonetheless remains in adjudicating on these hypotheses we find a strong association between the internal labour market and the employer size wage premium this finding supports the theory that the employer size wage effect may be due to the higher costs of turnover or monitoring in larger firms however we find contrasting effects for public versus private sector establishments

explaining organizational diseconomies of scale in r d agency problems and the allocation of engineering talent ideas and effort by firm size the comparative efficiency and success of small firms in r d remains largely unexplained this paper empirically examines scale diseconomies in offering employment contracts as an explanation for diseconomies of scale in r d the paper argues that small firms more efficiently resolve the severe agency problems of hidden information and hidden behavior in r d small firms more efficiently offer contracts that reward performance than large firms and consequently small firms attract and retain engineers with higher ability and skill further small firms through these more performance contingent contracts induce higher levels of effort than large firms the study tests and generally confirms these hypotheses using data collected from 912 current and former engineering employees of two large high technology companies

the neoclassical firm under moral hazard we develop a model of the neoclassical firm under moral hazard with endogenous capital and employment and perfectly competitive capital labor and product markets we assume that effort becomes harder to measure as the firm gets larger and the exogenous parameters are affiliated the model explains why incentives decline but wages rise with firm size the mixed evidence on the risk reward tradeoff and the positive correlation between wages and profits in the long run incentives are increasing in risk via endogenous capital finally the model makes novel predictions about the relationship between incentives and labor market conditions

human capital and information this paper examines the issue of the establishment size wage effect it analyzes a cross section for the year 1979 with information on 607 individuals and the 60 private sector establishments where they work it discusses four theories of the establishment size wage effect and uses empirical proxies to test them it shows that when a dummy variable on computer access in the establishment is introduced as a regressor the establishment size variable is an insignificant regressor this result and other evidence supports the contention that the establishment size coefficient captures the effect of unobserved human capital accumulation

contract form wage flexibility and employment we begin with two uncontroversial hypotheses firm productivity is expensive to measure and employment entails relationship specific investments these assumptions imply that firms would optimally choose fixed wage contracts and complement these with bonus pay when measuring employee performance is not too costly these assumptions imply that under an optimal employment contract hours of work is less responsive while total compensation is more responsive to shocks under bonus pay contracts compared to fixed wage contracts using data from the panel study of income dynamics psid where shocks are proxied using the local unemployment rate we find strong support for these two implications

the employer size wage gap evidence for britain university of edinburgh and university of sussexfinal version received 5 may 1992 this paper presents estimates for the employer plant size wage gap for britain using anordered probit model selectivity corrected wage equations are estimated for three plant sizecategories in a comparison between plants with more than 500 workers and those with lessthan 100 a wage gap estimate of over 17 per cent is detected the wage effects of unionizationin plants with more than 500 workers is reported as insignificant in contrast to evidenceprovided by idson and feaster 1990 for the united states no evidence of non randomsorting of workers across plant size is detected

employer size and on the job training decisions the effect of employer size on labor market outcomes have been the subject of extensive although relatively recent research by economists it has been widely demonstrated that large and small firms exhibit a number of differential characteristics with regard to their employment relationships 29 42 employees at large firms have higher wages and fringe benefits 16 10 15 22 32 35 higher levels of job mobility within the firm 19 greater job stability 44 a greater tendency to have mandatory overtime rules 23 higher education levels 8 a more structured work environment 20 26 46 and higher levels of investments by the firm both in the form of search costs 4 5 and direct on the job training 6 10 while numerous theories exist that account for many of these relationships such as monitoring and on the job training models no single explanation has been able to account definitively for the observed empirical patterns clearly size of employer is a significant factor in the dynamics of labor markets that still requires much investigation the focus of this paper is on one particular aspect of employer size effects the observed higher training investments in large firms we propose and test a model in the human capital tradition of viewing on the job training ojt as an investment 9 36 38 39 42 which not only explains the greater investment in on the job training by larger firms but additionally generates predictions with regard to the allocation of the firm s resources across investment in people with different demographic characteristics these latter implications of the model facilitate empirical comparisons to alternative explanations our central hypothesis is that large employers exhibit different behavior from small employers with regard to the risk component of the investments in their employees other training decision models that have addressed firm behavior under uncertainty have done so in the context of monitoring difficulties introduced by either the higher opportunity cost of managers time 43 or diseconomies of scale in monitoring 16 in larger firms although both of these approaches

wage determination of registered nurses in proprietary and nonprofit nursing homes this study explores why registered nurses employed in nonprofit nursing homes earn higher wages than those employed in proprietary facilities previous studies have explained this finding in a property rights context where higher wages were posited to result from the weaker incentives for cost minimization accompanying nonprofit status this paper tests an alternative explanation of sectoral wage differences which is predicated on the reason for the coexistence offor profit and nonprofit firms in a given industry informational constraints concerning the quality of care are posited to cause the long term health care market to fail to provide care at the upper levels of a quality of care continuum nonprofits are viewed as a response to this form of market failure acting to fulfill customers demand for higher quality and higher cost long term care with attendant demand for higher quality nurses than in for profit homes both the observed sectoral pattern in selectivity and wage decompositions based on selectivity corrected wage regressions call into question the property right explanation yet are consistent with an asymmetric information explanation

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

why do smaller firms pay less this paper uses data from the national longitudinal survey of young men and the current population survey for 1983 to examine the relationships among wages firm size and plant size we reach three key findings first plant size has little independent effect on wages once we have controlled for firm size for firms with fewer than 1 000 employees second we find evidence of sorting on observed and unobserved ability characteristics across firm sizes better educated and more stable workers are in larger firms third results from a first difference estimator indicate that about 60 percent of the wage size effect is due to unobserved heterogeneity when all firms are considered and about 100 percent when firms with 25 or more employees are considered

social capital and finding a job do contacts matter does social capital affect labor market outcomes the prevalent use of job contacts to find work suggests that who you know is an important means of getting a good job network theories of social capital argue that well connected workers benefit because of the job information and influence they receive through their social ties although a number of studies have found a positive relationship between measures of social capital and wages and or occupational prestige little is known about the causal effect of social networks on labor market outcomes four data sets are used to reassess findings on the role of social capital in the labor market a test of causality is proposed based on the argument that if social capital variables do have a causal effect on job outcomes then workers with high levels of social capital should be more likely to use contacts to find work all else being equal results suggest that much of the effect of social capital in the existing literature reflects the tendency for similar people to become friends rather than a causal effect of friends characteristics on labor market outcomes

the impact of economic freedom on the black white income gap abstract using state level data from 1980 2010 we examine whether economic freedom as measured by the economic freedom of north america index has had any impact in increasing or decreasing the ratio of median income for black households to the median income of white households to our knowledge there has been no research on racial income disparities and the role that economic freedom might have in alleviating or exacerbating the problem we find evidence that economic freedom is associated with an increase in the racial income gap

firms choice of method of pay using data from the bls industry wage survey the author tests the theory that firms choose their methods of pay by balancing the gains from more precise links between performance and pay against m

wages and performance based pay evidence from the nlsy abstract the link between performance and pay should be strongest where performance is more accurately observed brown industrial and labor relations review 1990 43 1655 1825 rand journal of economics 1992 23 366 375 more productive workers self select into jobs with performance based pay consequently workers whose pay is based on performance should earn more than those whose pay is not based on such measures this paper adds to the literature on the subject by providing new empirical evidence for brown s model using the national longitudinal surveys of youth nlsy data

empirical age earnings profiles the human capital earnings function in which earnings are expressed as a quadratic in potential experience is probably the most widely accepted empirical specification in economics in spite of its widespread acceptance the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience the standard formulation understates early career earnings growth by about 30 50 and overstates midcareer growth by 20 50 however simple alternative specifications that fit the data are available

establishment size job satisfaction and the structure of work this paper empirically investigates a the relationship between establishment size and the degree of flexibility in the work environment and b the extent to which establishment size differences in workers satisfaction with their jobs can be accounted for by differences in their work environment the main findings are that large establishments do organize production in a less flexible fashion than do smaller establishments and that observed lower levels of job satisfaction in larger establishments net of wage and fringe benefit effects can largely be explained by the inflexibility in the work environment

nonlinear business cycle modelling abstract literature which employs nonlinearities to explain economic fluctuations commonly called business cycles is surveyed relaxation of the linearity assumption significantly increases the range of possible dynamic solution paths and introduces the possibility that business cycles are endogenously determined the dominant post war modelling strategy has been the frisch 1933 and slutsky 1937 inspired one of developing essentially log linear economic models which produce damped cycles or monotonic damping to propagate the energy provided by repeated random or autocorrelated shocks the cycle is exogenously driven since it would die out in the absence of shocks deterministic nonstochastic nonlinear models can produce a wide range of endogenous fluctuations including stable limit cycles growth cycles and chaotic output which have the appearance of random fluctuations further the same model can produce qualitatively different outputs according to starting and parameter values if the possibility of shocks to parameters is admitted then behaviour can change abruptly following shocks evidence on the existence of nonlinearities and chaos in macroeconomic time series is assessed and alternative approaches to modelling dynamic economic development related to the work of keynes marx schumpeter and shackle are discussed their ideas have not proved readily amenable to mathematical modelling but attempts to encapsulate some of them are reviewed

rational expectations risk and chaos in financial markets begg 1984 has recently presented a rational expectations model of equilibrium bond pricing one important feature of this model is that lenders making portfolio choices between short and long assets are risk averse so that the well known principle of certainty equivalence no longer applies to the optimal demand for bonds when the policy for the supply of bonds and a simple policy rule for interest rates are specified an equilibrium model of equilibrium bond pricing is obtained where expectations are self fulfilling in both the mean and variance the key feature of this interesting model of the bonds market is that it is nonlinear as long as the degree of risk the degree of risk aversion or the supply of bonds are not too large the forward evolution of the model will be unstable and a unique rational expectations solution exists as the backward evolution of equilibrium bond prices will converge this is very much in the spirit of the conventional saddlepoint approach to solving rational expectations models blanchard and kahn 1980 where equilibrium asset prices are considered as forward looking jump variables however if the degree of risk the degree of risk aversion the coupon or the supply of bonds become large enough the forward evolution of the model becomes locally stable begg s 1984 interpretation is that this leads to a loss of confidence and financial panic because there is now an infinite number of convergent rational expectations trajectories the main objective of this paper is to show that this interpretation is incomplete and to formalise begg s notion of financial panic because the forward evolution of asset prices is stable the backward evolution is unstable when there is a large degree of risk or riskaversion it therefore seems as if equilibrium bond prices have become predetermined and are no longer jump variables so that it seems as if risk aversion investors have given up their forward looking behaviour in the face of too many shocks this is only a locally valid argument and contradicts intuition because efficient asset prices are generally regarded as jump variables that incorporate news about current and future events it is possible however still to have forward looking asset prices because increasing the degree of uncertainty or the degree of risk aversion eventually leads to unique speculative bubbles and possibly financial chaos for the backward evolution of equilibrium bond prices there exists therefore in addition to the infinity of convergent and pre determined rational expectations paths a unique non

selection of workers and firm heterogeneity a model based on differences between workers regarding their preferences for wage and leisure drives the heterogeneity of firms result the more industrious workers are driven to small firms due to free riding in large firms an industry consisting of small and large firms turns out to produce more output than an industry consisting of only large firms some comparative statics results are derived with respect to the size of large firms the productivity difference between firms and monitoring capabilities

a theory of compensation and personnel policy in hierarchical organizations with application to the united states military a large literature attempts to explain compensation and personnel policies in large organizations three features of the u s military system flat rank spreads in pay a relatively generous pension and heavy reliance on up or out promotions are at variance with common practices in large civilian organizations this article develops a model of individual decision making in a large hierarchical organization and uses the model to explain these apparent puzzles the lack of lateral entry and heterogeneity in entrants abilities and preferences for military service play key roles in the observed policies

income determination and income discrimination in shenzhen shenzhen is not only one of the fastest growing urban agglomerations in mainland china shenzhen also stands for a unique most rapid and successful transformation into an urban market economy how important are personal characteristics social norms and policy related discriminatory factors for income determination in such an extraordinary city this paper estimates the income effect of non productivity related discriminatory factors like personal characteristics social norms and policies compared with productivity related returns on human capital the design of the shenzhen household survey 2005 enables the inclusion of a large set of discriminating factors in a mincer becker type of income model together with a unique look at the migrant population in this urban centre the results show that the human capital approach holds strong evidence is also found of a significant influence of social norms and policies which is particularly relevant in a developing and transitional economy even in such an

the returns to education microeconomics in this paper we focus on education as a private decision to invest in human capital and the estimation of the rate of return to that private investment while the literature is replete with studies that estimate the rate of return using regression methods where the estimated return is obtained as the coefficient on a years of education variable in a log wage equation that contains controls for work experience and other individual characteristics the issue is surrounded with difficulties we outline the theoretical arguments underpinning the empirical developments and show that the evidence on private returns to the individual is compelling despite some of these issues surrounding the estimation of the return to schooling our evidence based on estimates from a variety of datasets and specifications is that there is an unambiguously positive effect on the earnings of an individual from participation in education moreover the size of the effect seems large relative to the returns on other investments

wage levels and method of pay the traditional literature on method of pay distinguishes workers who are paid time rates from those who are paid piece rates the theory predicts that the piece rate workers will earn more and empirically they do a simple generalization is to divide time rate workers into two groups those whose wage depends on their supervisor s ratings and those whose wage does not theory predicts that the workers whose pay is linked to supervisor ratings will earn more than the other time rate workers wage data for workers in over 3 000 manufacturing establishments show they do not and several simple explanations fail to resolve this empirical puzzle

employer size and labor turnover the role of pensions the well documented lower labor turnover in large firms than in smaller firms has been cited as evidence that large firms pay workers above their opportunity wage this study investigates whether t

should workers care about firm size the authors analyze how firms of different sizes reward measured skills and unmeasured ability the empirical methodology based on nonlinear instrumental variable estimation permits direct estimation of the returns to unmeasured ability by firm size an analysis of panel data from the canadian survey of labour and income dynamics for two periods 1993 1998 and 1996 2001 reveals statistically significant differences between firms of different sizes in particular returns to unmeasured ability are higher in medium sized firms than in either small firms or large firms the authors find that the firm size wage gap and the differential in returns to unmeasured ability between small and medium sized firms is mainly explained by ability sorting the fact that larger firms reward ability less than medium sized firms is consistent with an explanation based on monitoring costs when firms become too large monitoring costs may prevent them from rewarding ability directly through wages

the trade off between supervision cost and performance based pay does gender matter the study adds to the literature by providing new empirical evidence consistent with efficiency wage theory and by providing estimates of the average cost of supervising a worker by industry this research uses the 1996 wave of the nlsy and incorporates estimates of supervision cost computed from industry classifications we further detect presence of no gender differences neither in risk averseness nor in productivity gains associated with cost of supervision and performance based pay while the findings imply that employers should consider the incentive effects of supervision and performance based pay when constructing pay schemes there is no need for employers to devote resources to constructing gender specific payment mechanisms our evidence suggests that profit maximizing firms should treat males and females equally and develop gender neutral pay schemes

is bigger still better the decline of the wage premium at large firms author affiliation william e even evenwe muohio edudavid a macpherson david macpherson trinity edu acknowledgment we thank daniel becker christopher bollinger and barry hirsch for helpful comments 1 introductionlarge firms pay higher wages than small firms this fact was first documented nearly 100 years ago and has been confirmed by myriad studies since then considerable effort has been directed toward testing different theoretical explanations for the size premium these include the fact that larger firms employ a more skilled work force and provide them with more and better capital pay efficiency wages to deal with greater monitoring costs pay compensating differences for less pleasant working conditions or greater risk that results from the type of human capital that is acquired or share rents with workers because of union threats or monopoly profits while there has been extensive research attempting to determine the importance of these different explanations of the size premium a recent trend has gone unnoticed namely the firm size premium has fallen substantially over the past 20 years for example we show that workers in firms with over 500 workers earned 55 more than workers in firms with fewer than 25 workers in the early 1990s our most recent data indicate that the size premium dropped by 15 percentage points over the past 20 years we also show that the size premium fell much more rapidly among less educated workers for example among workers with less than a high school degree the size premium fell by 30 percentage points this study documents the trends in the size premium and explores some possible explanations for the trends section 2 provides an overview of the theoretical explanations and empirical evidence on the size premium in section 3 we discuss our data and review the evidence on trends in the size premium empirical analysis of the trends is provided in section 4 our main conclusions are as follows first the size premium dropped over the past 20 years for two primary reasons i the type of worker employed by large and small firms has become more similar over time and ii large and small firms have become more similar in terms of the ways in which they reward workers holding observed characteristics constant in addition while the size premium has diminished over time it remains quantitatively significant particularly among highly educated workers 2 backgroundoi and idson 1999 provide a wide ranging summary of the extant research on the size premium their review points out that the size premium was first documented nearly 100 years ago among female workers at textile firms their summary of empirical studies shows that the largest firms e g firms with 500 or more employees pay wages that are 30 50 higher than those of the smallest firms e g firms with fewer than 25 employees numerous theories for the size premium have been proposed and no single theory is capable of providing an empirical explanation for the entire size premium the more prominent theories for the size premium are based upon size related differences in monitoring costs capital technology working conditions monopoly power or union effects the monitoring costs explanation for the size premium first proposed by oi 1983 argues that greater monitoring costs at large firms cause them to hire more able workers to conserve on monitoring costs because larger firms hire more able workers wages increase with firm size in addition because of greater monitoring costs large firms may be more likely to pay efficiency wages or deferred pay to reduce monitoring problems and utilize higher capital labor ratios to conserve on the number of workers empirical evidence indicates that the greater use of advanced technology by large firms explains part of the size premium dunne and schmitz 1995 reilly 1995 tan and batra 1997 troske 1999 yu et al

tenure unions and the relationship between employer size and wages the unionization rate in a worker s industry and the worker s tenure are interacted with employer size in wage regressions using current population survey data the results provide insight into the relatively small size wage relationship in the union sector nonunion tenure profiles steepen sharply with establishment size while union profiles flatten also the effect of industry unionization increases with firm size in the nonunion sector a pattern indicative of threat effects a separate analysis of nonunion wages indicates that size wage relationships are stronger in occupations associated with high monitoring costs

wage contracts when output grows stochastically the roles of mobility costs and capital market imperfections the paper considers an industry in which individual output follows a stochastic growth process with a cumulative effect it analyzes the roles of labor mobility and capital market conditions in the determination of wage contracts positive costs of mobility are shown to be necessary for the provision of wage and employment insurance when workers have no access to the capital market when insurance is provided wages grow less than average productivity if the capital market is perfect wage insurance will be provided even in the absence of costs of mobility in this case wages grow faster than average productivity

excess capacity in a fixed cost economy abstract this paper proposes a new mechanism that can explain persistent economic slack the theory shows that when producers face negligible marginal costs and desired spending is below the economy s capacity the economy features slack in equilibrium even when prices are flexible and there are no other frictions a heterogeneous household version of the model demonstrates how an economy can enter a capacity trap in response to a temporary negative demand shock when demand by some consumers falls temporarily other consumers permanent income and hence their desired consumption also falls since output is determined by demand the permanent fall in desired consumption causes a permanent state of excess capacity

multiple output agency incentives in data production experimental evidence abstract this paper interprets the production of sample surveys as a multiple output agency problem in which interviewers act as agents for the principal investigator of the survey the central aspect of data production that gives rise to the agency problem is that sampling error cannot be separated out from interviewer performance we argue that contract effects on data production are important because the quality quantity incentives facing interviewers affect the survey in terms of its bias and its sample size direct evidence pertaining to these quality quantity tradeoffs in the production of attitudinal surveys is examined through consideration of an experiment in which piece rate and fixed wage contracts were randomly assigned across interviewers using these randomly assigned contracts we find that observable quality dimensions do not respond to quantity incentives but unobservable quality dimensions do respond weakly in a negative way

internal labour markets causes and consequences the paper analyzes the causes and consequences of internal labor market rules that yield long tenure promotion from within seniority pensions and due process in dismissals about half the workforce are estimated to be in such markets competitive reasons for internal labor markets as a response to specific training and arms length relationships between workers and firms are surveyed these reasons are found to be consistent with the pattern of internal labor markets among non union firms however some internal labor markets e g among small unionized firms are probably a response to union pressure and government regulations in these circumstances low labor mobility could pose problems for policy copyright 1991 by oxford university press

pay for performance and compensation inequality evidence from the ecec this article examines the relationship between performance based pay and widening wage inequality using data from the employer costs for employee compensation ecec the results suggest that jobs

project characteristics incentives and team production we develop a model to show how agency conflicts free rider effects and monitoring costs interact to affect optimal team size and workers incentive contracts team size increases with project risk decreases with profitability and decreases with monitoring costs as a proportion of output our predictions are consistent with empirical evidence that firm specific risk has increased over time average corporate earnings have declined and firms organizational structures have also flattened the predicted effects of monitoring costs on team size are supported by evidence that improvements in information technology likely to lower monitoring costs lead to larger teams further firms with relatively more intangible assets where monitoring costs are likely to be higher are smaller optimal incentive intensities decrease with risk and increase with profitability the endogenous determination of team size accentuates the positive effects of a decline in risk and an increase in profitability on incentives

firm size earnings and displacement risk rudolf winter ebmer analogous to the well documented firm size wage differential there also exists a differential in layoff risk according to firm size using austrian data i discuss several reasons for this puzzle including on the job training and workers heterogeneity if less stable and also less able workers select themselves into small unstable and low paying firms predicted layoff risk of workers can be used as a proxy for heterogeneity of workers and therefore be included in wage regressions doing this one half of the size earnings premium can be explained jel j31 j63 i introduction large employers pay more numerous empirical studies have documented this relationship 1 but they have not been able to explain it in a very careful study brown and medoff 1989 1056 look at ten possible reasons for this puzzle only to conclude our bottom line is that the size wage differential appears to be both sizable and omnipresent our analysis leaves us uncomfortably unable to explain it or at least the part of it that is not explained by observable indicators of labor quality neither compensating differentials for working conditions nor product market power or the threat of unionization were able to explain the size premium brown and medoff 1989 also found size effects for piece rate workers for unionized workers 2 and in longitudinal samples 3 where they controlled by first differencing for unobserved heterogeneity of the individuals given this wide interest in the effects of employer size on earnings very little research has been done concerning size differentials in turnover are the jobs in big firms not only higher paid but also more stable this would reinforce the puzzle of firm size once more anderson and meyer 1994 look at separation rates without distinguishing between quit and layoff and find highly decreasing turnover rates with firm size for permanent separations but no size effect on temporary separations 4 brown and medoff 1989 as well as others find quit rates to decline with firm size which speaks against compensating wage differentials arguments idson 1996 explicitly looks at the issue of long term employment relationships in large establishments which may be possibly due to the greater capacity of large employers to provide job mobility within the enterprise and the lower probability of business failure facing larger firms rebitzer 1986 argues that the observed higher job tenure in large plants is in a ccordance with labor market segmentation theory the aim of this article is to provide further evidence for a size layoff relationship using austrian data i try to consider several explanations for this regularity especially on the job training and the hypothesis of selective recruitment of workers into large and small firms following one hypothesis small employers attract less stable and capable employees a pattern that would cause only a spurious size layoff relationship on the other hand if workers with a relatively low stock of human capital sort themselves into relatively inefficient firms with unstable employment prospects then the size wage effect itself may be upwardly biased which was noted by mayo and murray 1991 the plan of the article is as follows section ii presents institutional details on wage bargaining and employment protection legislation in austria the data for the empirical study are discussed in section iii results for size wage and size layoff relationships are presented in section iv section v looks at the interaction between firm size layoff risk and wage determination section vi concludes ii wage bargaining institutions and job security legislation in austria wage bargaining in austria is very centralized even though only about 60 of workers are organized in unions bargaining outcomes are extended to all workers unionized or not a works council has to be established under the austrian labor law in all establishments employing at least five adult workers but usually the actual existence of a works council is positively determined by both firm size and firm age

growing apart the changing firm size wage premium and its inequality consequences wage inequality in the united states has risen dramatically over the past few decades prompting scholars to develop a number of theoretical accounts for the upward trend this study argues that large firms have been a prominent labor market institution that mitigates inequality by compensating their low and middle wage employees with a greater premium than their higher wage counterparts large u s firms reduced overall wage dispersion yet broader changes to employment relations associated with the demise of internal labor markets and the emergence of alternative employment arrangements have undermined large firms role as an equalizing institution using data from the current population survey and the survey of income and program participation we find that in 1989 although all private sector workers benefited from a firm size wage premium the premium was significantly higher for individuals at the lower end and middle of the wage distribution compared to those at the higher end between 1989 and

worker heterogeneity job screening and firm size a model of job screening is developed in which firms make wage offers to workers based on an imperfect evaluation of their abilities if large firms have higher costs of acquiring information about workers they screen workers with less accuracy and choose a wage compensation scheme different from the one small firms choose this generates the often observed positive correlation between firm size and wages the model also predicts that wage structure and perhaps wage dispersion will differ by firm size and that individuals who acquire more schooling will also choose to work in a larger firm these hypotheses are tested and supported using data from the national longitudinal survey

some empirical evidence on the time series properties of four uk asset prices in this paper the authors examine the time series behavior of four u k asset prices and estimate two types of models for the differenced series much previous research has found the presence of time varying heteroskedasticity in the error process for asset prices a linear model with gqarch errors is compared to a joint bilinear model with gqarch errors the latter choice motivated by the ability of bilinear models to capture turbulent behavior the adequacy of these models is determined by examining simulations and also employing test statistics the forecasting performance of the two models is also compared copyright 1996 by the london school of economics and political science

gender firm size industry and estimates of the value of life two national probability samples are used to investigate four empirical questions associated with estimating the value of life using coefficients from wage regressions the four questions pertain to whether wage regression coefficients on fatality rate variables are sensitive to 1 including or excluding women from the sample 2 definitions of the fatality rate which include estimates of either male only or female only deaths 3 removing the influence of firm size from the fatality rate or the wage rate 4 respondents inaccuracies in reporting their three digit industry problems associated with 3 and 4 are found to be minimal problems associated with 1 and 2 also appear to be small if the goal is to estimate the value of life for men