Modern Labor Economics : Theory and Public Policy

by Ehrenberg, Ronald G.; Smith, Robert S.

• ISBN13: 9780321305039
• ISBN10: 0321305035
• Edition: 9th
• Format: Paperback
• Copyright: 2009-01-01
• Publisher: Addison Wesley

Summary

This text is the product of the authors' three decades experience in teaching labor market economics and conducting research aimed at influencing public policy. The authors develop the modern theory of labor market behavior, summarize empirical evidence supporting or contradicting each hypothesis, and illustrate the usefulness of various theories for public policy analysis. Theory is presented within context nontraditional, business, historical, and cross-cultural through numerous detailed policy examples in each chapter. This thoroughly revised Ninth Edition includes updated material throughout, plus new chapters on frictions in the labor market, and a new boxed feature focused on empirical techniques.

Table of Contents

Preface	xvii
Introduction	1	(24)
The Labor Market	2	(1)
Labor Economics: Some Basic Concepts	2	(10)
Positive Economics	3	(1)
The Models and Predictions of Positive Economics	4	(3)
Normative Economics	7	(3)
Normative Economics and Government Policy	10	(2)
Plan of the Text	12	(13)
Example 1.1 Positive Economics: What Does It Mean to ``Understand'' Behavior?	5	(11)
Appendix 1A Statistical Testing of Labor Market Hypotheses	16	(9)
Overview of the Labor Market	25	(34)
The Labor Market: Definitions, Facts, and Trends	26	(9)
The Labor Force and Unemployment	27	(3)
Industries and Occupations: Adapting to Change	30	(1)
The Earnings of Labor	30	(5)
How the Labor Market Works	35	(12)
The Demand for Labor	36	(4)
The Supply of Labor	40	(2)
The Determination of the Wage	42	(5)
Applications of the Theory	47	(12)
Who Is Underpaid and Who Is Overpaid?	47	(6)
International Differences in Unemployment	53
Example 2.1 The Black Death and the Wages of Labor	45	(5)
Example 2.2 Ending the Conscription of Young American Men: The Role of Economists	50	(2)
Empirical Study Pay Levels and the Supply of Military Officers: Obtaining Sample Variation from Cross-Section Data	52	(7)
The Demand for Labor	59	(34)
Profit Maximization	60	(3)
Marginal Income from an Additional Unit of Input	61	(2)
Marginal Expense of an Added Input	63	(1)
The Short-Run Demand for Labor When Both Product and Labor Markets Are Competitive	63	(7)
A Critical Assumption: Declining MPL	64	(1)
From Profit Maximization to Labor Demand	65	(5)
The Demand for Labor in Competitive Markets When Other Inputs Can Be Varied	70	(4)
Labor Demand in the Long Run	70	(2)
More than Two Inputs	72	(2)
Labor Demand When the Product Market Is Not Competitive	74	(2)
Maximizing Monopoly Profits	74	(1)
Do Monopolies Pay Higher Wages?	75	(1)
Policy Application: The Labor Market Effects of Employer Payroll Taxes and Wage Subsidies	76	(17)
Who Bears the Burden of a Payroll Tax?	76	(3)
Employment Subsidies as a Device to Help the Poor	79
Example 3.1 The Marginal Revenue Product of College Football Stars	62	(10)
Example 3.2 Coal Mining Wages and Capital Substitution	72	(8)
Empirical Study Do Women Pay for Employer-Funded Maternity Benefits? Using Cross-Section Data over Time to Analyze ``Differences in Differences''	80	(5)
Appendix 3A Graphical Derivation of a Firm's Labor Demand Curve	85	(8)
Labor Demand Elasticities	93	(36)
The Own-Wage Elasticity of Demand	94	(9)
The Hicks-Marshall Laws of Derived Demand	96	(3)
Estimates of Own-Wage Labor Demand Elasticities	99	(2)
Applying the Laws of Derived Demand: Inferential Analysis	101	(2)
The Cross-Wage Elasticity of Demand	103	(4)
Can the Laws of Derived Demand Be Applied to Cross-Elasticities?	104	(2)
Estimates Relating to Cross-Elasticities	106	(1)
Policy Application: Effects of Minimum Wage Laws	107	(8)
History and Description	107	(1)
Employment Effects: Theoretical Analysis	108	(4)
Employment Effects: Empirical Estimates	112	(2)
Does the Minimum Wage Fight Poverty?	114	(1)
Applying Concepts of Labor Demand Elasticity to the Issue of Technological Change	115	(14)
Example 4.1 Why Are Union Wages So Different in Two Parts of the Trucking Industry?	102	(11)
Example 4.2 The Employment Effects of the First Federal Minimum Wage	113	(3)
Empirical Study Estimating the Labor Demand Curve: Time Series Data and Coping with ``Simultaneity''	116	(6)
Appendix 4A International Trade and the Demand for Labor: Can High-Wage Countries Compete?	122	(7)
Frictions in the Labor Market	129	(36)
Frictions on the Employee Side of the Market	130	(15)
The Law of One Price	130	(3)
Monopsonistic Labor Markets: A Definition	133	(1)
Profit Maximization under Monopsonistic Conditions	134	(4)
How Do Monopsonistic Firms Respond to Shifts in the Supply Curve?	138	(2)
Monopsonistic Conditions and the Employment Response to Minimum Wage Legislation	140	(2)
Job Search Costs and Other Labor Market Outcomes	142	(2)
Monopsonistic Conditions and the Relevance of the Competitive Model	144	(1)
Frictions on the Employer Side of the Market	145	(8)
Categories of Quasi-Fixed Costs	145	(4)
The Employment/Hours Trade-Off	149	(4)
Training Investments	153	(4)
The Training Decision by Employers	153	(1)
The Types of Training	153	(1)
Training and Post-Training Wage Increases	154	(2)
Employer Training Investments and Recessionary Layoffs	156	(1)
Hiring Investments	157	(8)
The Use of Credentials	158	(1)
Internal Labor Markets	159	(2)
How Can the Employer Recoup Its Hiring Investments?	161
Example 5.1 Does Employment Protection Legislation Protect Workers?	146	(4)
Example 5.2 ``Renting'' Workers as a Way of Coping with Hiring Costs	150	(8)
Example 5.3 Why Do Temporary-Help Firms Provide Free General Skills Training?	158	(2)
Empirical Study What Explains Wage Differences for Workers Who Appear Similar? Using Panel Data to Deal with Unobserved Heterogeneity	160	(5)
Supply of Labor to the Economy: the Decision to Work	165	(42)
Trends in Labor Force Participation and Hours of Work	166	(9)
Labor Force Participation Rates	166	(2)
Hours of Work	168	(7)
A Theory of the Decision to Work	175	(17)
Some Basic Concepts	170	(5)
Analysis of the Labor/Leisure Choice	175	(14)
Empirical Findings on the Income and Substitution Effects	189	(3)
Policy Applications	192	(15)
Budget Constraints with ``Spikes''	192	(3)
Programs with Net Wage Rates of Zero	195	(5)
Subsidy Programs with Positive Net Wage Rates	200
Example 6.1 The Labor Supply of Pigeons	173	(13)
Example 6.2 Do Large Inheritances Induce Labor Force Withdrawal?	186	(2)
Example 6.3 Daily Labor Supply at the Ballpark	188	(3)
Example 6.4 Labor Supply Effects of Income Tax Cuts	191	(4)
Example 6.5 Staying Around One's Kentucky Home: Workers' Compensation Benefits and the Return to Work	195	(4)
Example 6.6 Wartime Food Requisitions and Agricultural Work Incentives	199	(3)
Empirical Study Estimating the Income Effect Among Lottery Winners: The Search for ``Exogeneity''	202	(5)
Labor Supply: Household Production, the Family, and the Life Cycle	207	(32)
The Theory of Household Production	208	(3)
Graphing the Model	208	(2)
Implications of the Model	210	(1)
The Tripartite Choice: Market Work, Household Work, and Leisure	211	(4)
Time Use by Women and Men	211	(2)
Two Substitution Effects	213	(2)
Joint Labor Supply Decisions within the Household	215	(6)
Specialization of Function	215	(1)
Do Both Partners Work for Pay?	216	(1)
The Joint Decision and Cross-Effects	217	(2)
Labor Supply in Recessions: The ``Discouraged'' versus the ``Added'' Worker	219	(2)
Life-Cycle Aspects of Labor Supply	221	(8)
The Labor Force Participation Patterns of Married Women	221	(2)
The Substitution Effect and When to Work over a Lifetime	223	(2)
The Choice of Retirement Age	225	(4)
Policy Application: Child Care and Labor Supply	229	(10)
Child-Care Subsidies	229	(2)
Child Support Assurance	231
Example 7.1 Obesity and the Household Production Model	212	(6)
Example 7.2 Husbands, Wives, Neighbors, and the End of the Six-Hour Workday at Kellogg's	218	(5)
Example 7.3 The Value of a Homemaker's Time	223	(11)
Empirical Study The Effects of Wage Increases on Labor Supply (and Sleep): Time-Use Diary Data and Sample Selection Bias	234	(5)
Compensating Wage Differentials and Labor Markets	239	(36)
Job Matching: The Role of Worker Preferences and Information	239	(7)
Individual Choice and Its Outcomes	240	(2)
Assumptions and Predictions	242	(2)
Empirical Tests for Compensating Wage Differentials	244	(2)
Hedonic Wage Theory and the Risk of Injury	246	(14)
Employee Considerations	247	(1)
Employer Considerations	248	(2)
The Matching of Employers and Employees	250	(4)
Normative Analysis: Occupational Safety and Health Regulation	254	(6)
Hedonic Wage Theory and Employee Benefits	260	(15)
Employee Preferences	260	(1)
Employer Preferences	261	(4)
The Joint Determination of Wages and Benefits	265
Example 8.1 Working on the Railroad: Making a Bad Job Good	246	(7)
Example 8.2 Parenthood, Occupational Choice, and Risk	253	(2)
Example 8.3 Compensating Wage Differentials in Nineteenth-Century Britain	255	(9)
Empirical Study How Risky Are Estimates of Compensating Wage Differentials for Risk? The ``Errors in Variables'' Problem	264	(6)
Appendix 8A Compensating Wage Differentials and Layoffs	270	(5)
Investments in Human Capital: Education and Training	275	(48)
Human Capital Investments: The Basic Model	277	(4)
The Concept of Present Value	277	(2)
Modeling the Human Capital Investment Decision	279	(2)
The Demand for a College Education	281	(7)
Weighing the Costs and Benefits of College	281	(1)
Predictions of the Theory	282	(5)
Market Responses to Changes in College Attendance	287	(1)
Education, Earnings, and Post-schooling Investments in Human Capital	288	(9)
Average Earnings and Educational Level	288	(2)
On-the-Job Training and the Concavity of Age/Earnings Profiles	290	(2)
The Fanning Out of Age/Earnings Profiles	292	(1)
Women and the Acquisition of Human Capital	293	(4)
Is Education a Good Investment?	297	(26)
Is Education a Good Investment for Individuals?	297	(3)
Is Education a Good Social Investment?	300	(8)
Is Public Sector Training a Good Social Investment?	308
Example 9.1 War and Human Capital	276	(9)
Example 9.2 Did the G.I. Bill Increase Educational Attainment for Returning World War II Vets?	285	(13)
Example 9.3 Valuing a Human Asset: The Case of the Divorcing Doctor	298	(8)
Example 9.4 The Socially Optimal Level of Educational Investment	306	(4)
Empirical Study Estimating the Returns to Education Using a Sample of Twins: Coping with the Problem of Unobserved Differences in Ability	310	(3)
Appendix 9A A ``Cobweb'' Model of Labor Market Adjustment	313	(4)
Appendix 9B A Hedonic Model of Earnings and Educational Level	317	(6)
Worker Mobility: Migration, Immigration, and Turnover	323	(30)
The Determinants of Worker Mobility	324	(1)
Geographic Mobility	325	(8)
The Direction of Migratory Flows	326	(1)
Personal Characteristics of Movers	326	(2)
The Role of Distance	328	(1)
The Earnings Distribution in Sending Countries and International Migration	329	(1)
The Returns to International and Domestic Migration	330	(3)
Policy Application: Restricting Immigration	333	(10)
U.S. Immigration History	333	(3)
Naive Views of Immigration	336	(2)
An Analysis of the Gainers and Losers	338	(2)
Do the Overall Gains from Immigration Exceed the Losses?	340	(3)
Employee Turnover	343	(10)
Wage Effects	344	(1)
Effects of Employer Size	344	(1)
Gender Differences	345	(1)
Cyclical Effects	345	(1)
Employer Location	346	(1)
International Comparisons	346	(3)
Is More Mobility Better?	349
Example 10.1 The Great Migration: Southern Blacks Move North	327	(2)
Example 10.2 Migration and One's Time Horizon	329	(12)
Example 10.3 The Mariel Boatlift and Its Effects on Miami's Wage and Unemployment Rates	341	(7)
Empirical Study Do Political Refugees Invest More in Human Capital than Economic Immigrants? The Use of Synthetic Cohorts	348	(5)
Pay and Productivity: Wage Determination Within the Firm	353	(36)
Motivating Workers: An Overview of the Fundamentals	355	(7)
The Employment Contract	355	(1)
Coping with Information Asymmetries	356	(2)
Motivating Workers	358	(2)
Motivating the Individual in a Group	360	(2)
Compensation Plans: Overview and Guide to the Rest of the Chapter	362	(1)
Productivity and the Basis of Yearly Pay	362	(7)
Employee Preferences	362	(1)
Employer Considerations	363	(6)
Productivity and the Level of Pay	369	(3)
Why Higher Pay Might Increase Worker Productivity	369	(1)
Efficiency Wages	370	(2)
Productivity and the Sequencing of Pay	372	(8)
Underpayment Followed by Overpayment	373	(3)
Promotion Tournaments	376	(2)
Career Concerns and Productivity	378	(2)
Applications of the Theory: Explaining Two Puzzles	380	(9)
Why Do Earnings Increase with Job Tenure?	380	(2)
Why Do Large Firms Pay More?	382
Example 11.1 The Wide Range of Possible Productivities: The Case of the Factory That Could Not Cut Output	354	(6)
Example 11.2 Calorie Consumption and the Type of Pay	360	(6)
Example 11.3 Poor Group Incentives Doom the Shakers	366	(5)
Example 11.4 Did Henry Ford Pay Efficiency Wages?	371	(7)
Example 11.5 Demanding Employers, Overworked Employees, and Neglected Families	378	(6)
Empirical Study Are Workers Willing to Pay for Fairness? Using Laboratory Experiments to Study Economic Behavior	384	(5)
Gender, Race, and Ethnicity in the Labor Market	389	(48)
Measured and Unmeasured Sources of Earnings Differences	391	(15)
Earnings Differences by Gender	391	(9)
Earnings Differences between Black and White Americans	400	(4)
Earnings Differences by Ethnicity	404	(2)
Theories of Market Discrimination	406	(14)
Personal Prejudice Models: Employer Discrimination	407	(4)
Personal Prejudice Models: Customer Discrimination	411	(1)
Personal Prejudice Models: Employee Discrimination	412	(2)
Statistical Discrimination	414	(1)
Noncompetitive Models of Discrimination	415	(4)
A Final Word on the Theories of Discrimination	419	(1)
Federal Programs to End Discrimination	420	(17)
Equal Pay Act of 1963	420	(1)
Title VII of the Civil Rights Act	420	(3)
The Federal Contract Compliance Program	423	(3)
Effectiveness of Federal Antidiscrimination Programs	426
Example 12.1 Bias in the Selection of Musicians by Symphony Orchestras	394	(3)
Example 12.2 The Gender Earnings Gap across Countries	397	(16)
Example 12.3 Fear and Lathing in the Michigan Furniture Industry	413	(11)
Example 12.4 Comparable Worth and the University	424	(4)
Empirical Study Can We Catch Discriminators in the Act? The Use of Field Experiments in Identifying Labor Market Discrimination	428	(5)
Appendix 12A Estimating Comparable-Worth Earnings Gaps: An Application of Regression Analysis	433	(4)
Unions and the Labor Market	437	(50)
Union Structure and Membership	438	(5)
International Comparisons of Unionism	438	(2)
The Legal Structure of Unions in the United States	440	(3)
Constraints on the Achievement of Union Objectives	443	(7)
The Monopoly-Union Model	445	(1)
The Efficient-Contracts Model	446	(4)
The Activities and Tools of Collective Bargaining	450	(16)
Union Membership: An Analysis of Demand and Supply	451	(5)
Union Actions to Alter the Labor Demand Curve	456	(2)
Bargaining and the Threat of Strikes	458	(5)
Bargaining in the Public Sector: The Threat of Arbitration	463	(3)
The Effects of Unions	466	(21)
The Theory of Union Wage Effects	466	(4)
Evidence of Union Wage Effects	470	(2)
Evidence of Union Total Compensation Effects	472	(1)
The Effects of Unions on Employment	473	(1)
The Effects of Unions on Productivity and Profits	473	(2)
Normative Analyses of Unions	475
Example 13.1 The Effects of Deregulation on Trucking and Airlines	454	(7)
Example 13.2 Permanent Replacement of Strikers	461	(14)
Example 13.3 Do Right-to-Work Laws Matter?	475	(3)
Empirical Study What Is the Gap between Union and Nonunion Pay? The Importance of Replication in Producing Credible Estimates	478	(4)
Appendix 13A Arbitration and the Bargaining Contract Zone	482	(5)
Inequality in Earnings	487	(30)
Measuring Inequality	488	(3)
Earnings Inequality Since 1980: Some Descriptive Data	491	(7)
The Occupational Distribution	492	(2)
Changes in Relative Wages	494	(1)
Relative Changes in Hours of Work	495	(1)
Growth of Earnings Dispersion within Human Capital Groups	496	(2)
Summarizing the Dimensions of Growing Inequality	498	(1)
The Underlying Causes of Growing Inequality	498	(19)
Changes in Supply	499	(2)
Changes in Institutional Forces	501	(1)
Changes in Demand	502
Example 14.1 Labor's Share of Total Income: ``Raw'' Labor vs. Human Capital	498	(9)
Example 14.2 Changes in the Premium to Education at the Beginning of the Twentieth Century	507	(1)
Empirical Study Do Parents' Earnings Determine the Earnings of Their Children? The Use of Intergenerational Data in Studying Economic Mobility	508	(4)
Appendix 14A Lorenz Curves and Gini Coefficients	512	(5)
Unemployment	517	(36)
A Stock-Flow Model of the Labor Market	519	(4)
Sources of Unemployment	520	(1)
Rates of Flow Affect Unemployment Levels	521	(2)
Frictional Unemployment	523	(7)
The Theory of Job Search	524	(3)
Effects of Unemployment Insurance Benefits	527	(3)
Structural Unemployment	530	(6)
Occupational and Regional Unemployment Rate Differences	530	(2)
International Differences in Long-Term Unemployment	532	(1)
Do Efficiency Wages Cause Structural Unemployment?	533	(3)
Demand-Deficient (Cyclical) Unemployment	536	(6)
Downward Wage Rigidity	536	(4)
Financing U.S. Unemployment Compensation	540	(2)
Seasonal Unemployment	542	(2)
When Do We Have Full Employment?	544	(9)
Defining the Natural Rate of Unemployment	545	(1)
Unemployment and Demographic Characteristics	545	(1)
Demographic Change and the Natural Rate	546	(1)
What Is the Natural Rate?	547
Example 15.1 Unemployment Insurance and Seasonal Unemployment: A Historical Perspective	543	(5)
Empirical Study Do Reemployment Bonuses Reduce Unemployment? The Results of Social Experiments	548	(5)
Answers to Odd-Numbered Review Questions and Problems	553	(36)
Name Index	589	(6)
Subject Index	595