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Template-Type: ReDIF-Paper 1.0
Title: The Earnings Function: A Glimpse Inside the Black Box
Author-Name: James L. Medoff
Note: LS
Number: 0224
Creation-Date: 1978-01
Order-URL: http://www.nber.org/papers/w0224
File-URL: http://www.nber.org/papers/w0224.pdf
File-Format: application/pdf
Abstract: This paper studies the wage determination process for a group of managerial employees in a major U.S. airline. As would be expected, those with greater-than-average schooling, pre-company labor market experience, and company service receive greater-than-average earnings. The analysis also addresses the question of whether or not the managers within a grade level who are paid more receive higher performance ratings by their supervisors. The answer is "no" in the case of those with more pre-company labor market experience (i.e., those who are older) and with more company service. This suggests that the salaries received by managers within a grade reflect their age and tenure with the company more than their present performance.
Handle: RePEc:nbr:nberwo:0224
Template-Type: ReDIF-Paper 1.0
Title: Salvors, Finders, Good Samaritans and Other Rescuers: An Economic Study of Law and Altruism
Author-Name: William M. Landes
Author-Person: pla327
Author-Name: Richard A. Posner
Author-Person: ppo25
Note: LE
Number: 0227
Creation-Date: 1978-01
Order-URL: http://www.nber.org/papers/w0227
File-URL: http://www.nber.org/papers/w0227.pdf
File-Format: application/pdf
Publication-Status: published as Landes, William M. and Posner, Richard A. "Salvors, Finders, Good Samaritans, and Other Rescuers: An Economic Study of Law and Altruism." Journal of Legal Studies, (January 1978).
Abstract: This paper uses economic analysis to illuminate a variety of legal rules relating to rescue, a term we use broadly to describe any attempt to save a person or property from some peril. We first develop a model of a competitive market in rescues, as a benchmark for judging whether the legal rules of rescue can be viewed as attempts to simulate the operation of a competitive market in rescues. The model explicitly incorporates the possibility of rescues motivated by altruism. We then apply the model to a variety of legal settings in which rescue questions arise. We show that the well-developed body of rules governing rescue at sea (including the principles governing salvage awards and the rule of general average) are consistent with the economic model of professional (nonaltruistic) rescue and appropriate in the maritime setting. The rules of the common law governing rescues on land the physician who treats a passerby in distress) are also examined, and found to be in the main consistent with our economic model when altruism is taken into account, as are the differences between the maritime and common law rules. We then examine the choice between compensation and liability as methods of inducing rescue, and show that the common law's decision not to impose liability for failure to rescue (the "Good Samaritan" rule) may be consistent with efficiency because of the "tax" effects of such liability. We concluded that the array of legal rules and doctrines examined provide support for the hypothesis that the common law (including traditional maritime law) has been heavily influenced by a concern with achieving efficient allocation of resources.
Handle: RePEc:nbr:nberwo:0227
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Family Labor Supply Functions Derived from the Stone-Geary Utility Function
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: LS
Number: 0228
Creation-Date: 1978-01
Order-URL: http://www.nber.org/papers/w0228
File-URL: http://www.nber.org/papers/w0228.pdf
File-Format: application/pdf
Abstract: The Stone-Geary utility function defined over an index of goods, the leisure of the husband, and the leisure of the wife is used to derive the earnings functions of the husband and the wife. The parameters of the utility function are estimated from the parameters of the earnings functions in a way that accounts for a number of theoretical and statistical problems. The effect of family composition on utility is estimated by specifying and estimating adult equivalents in consumption and leisure of various categories of children. On the statistical side the following difficulties are all considered: nonlinear constraints across equations, endogenous marginal income tax rates, variations in tastes in the population, heteroscedasticity, and truncation of the left-hand variable. The data come from the 1967 Survey of Economic Opportunity. The results are generally good and support the view that the effects of family composition on utility can be estimated from behavioral relationships. Alternative results that ignore the complicated statistical problems are presented; they imply that the statistical problems are empirically important and should not be ignored.
Handle: RePEc:nbr:nberwo:0228
Template-Type: ReDIF-Paper 1.0
Title: On the Accuracy and Properties of Recent Macroeconomic Forecasts
Author-Name: Victor Zarnowitz
Note: EFG
Number: 0229
Creation-Date: 1978-01
Order-URL: http://www.nber.org/papers/w0229
File-URL: http://www.nber.org/papers/w0229.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 68, no. 2 (1978): 313-319.
Abstract: The aim of this study is to contribute to the measurement and analysis of errors in economists' predictions of changes in aggregate income, output, and the price level. Small sample studies of forecasts can be instructive, but their limitations must be recognized. Compilation of consistent forecast records extending over longer periods of tine is necessary to establish a reasonably reliable base for assessments of forecasting behavior and. performance. Thus the historical record of post-World War II forecasts assembled in the 1960's by the NBER is here extended and updated.
Handle: RePEc:nbr:nberwo:0229
Template-Type: ReDIF-Paper 1.0
Title: Who Puts the Inflation Premium Into Nominal Interests Rates?
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0231
Creation-Date: 1978-01
Order-URL: http://www.nber.org/papers/w0231
File-URL: http://www.nber.org/papers/w0231.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Who Puts the Inflation Premium into Nominal Interest Rates?" The Journal of Finance, Vol. XXXIII, No. 3, (June 1978), pp. 833-8 45.
Abstract: For expectations of price inflation to affect interest rates, they must affect the behavior of borrowers and lenders or both. This paper analyzes the emergence of the inflation premium in long-term interest rates as the explicit result of borrowers' and lenders' behavior in the bond market in response to price expectations. The object of this analysis is not only to estimate the magnitude of the inflation premium due to this portfolio behavior but also to evaluate the respective contributions to it of borrowers' and lenders' responses. The empirical results presented in this paper indicate that both borrowers' and lenders' portfolio behavior play an important role in the relationship between interest rates and inflation expectations. Estimation results for U.S. data provide evidence that, all other things equal, nonfinancial business corporations increase their supply (net issuance)of bonds in response to an increase in expected inflation; these results mirror the bond investors' responses found by the author in a previous paper. Partial equilibrium experiments based on the combined model of bond supply and bond demand indicate that, all other things equal, the port-folio responses to expected price inflation by borrowers and lenders together increase the bond yield by 2/3%, and modestly decrease the net quantity of bonds issued and purchased, in response to a 1% increase in expected inflation. This result follows as the consequence of a slightly greater response by lenders than by borrowers.
Handle: RePEc:nbr:nberwo:0231
Template-Type: ReDIF-Paper 1.0
Title: Job Mobility and Earnings Over the Life Cycle
Author-Name: George J. Borjas
Author-Person: pbo44
Number: 0233
Creation-Date: 1978-02
Order-URL: http://www.nber.org/papers/w0233
File-URL: http://www.nber.org/papers/w0233.pdf
File-Format: application/pdf
Publication-Status: published as George J. Borjas, 1981. "Job mobility and earnings over the life cycle," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(3), pages 365-376, April.
Abstract: The paper analyzes the effects of job mobility on earnings both at young and at older ages. The model takes into account the discontinuity of earnings across jobs, the decline of human capital investment within the job and over the life cycle, and the effects of mobility on the slope of the earnings profile. Careful attention to the functional form of the earnings equation indicates why the coefficient of the current segment is usually larger than the coefficient of the previous segments. Findings from the NLS data include: (1.) Mobile individuals at all ages invest significantly less in on-the-job training. (2.) Although job mobility is associated with significant wage gains (across jobs), there is a substantial wage differential between the mobile and the non-mobile at older ages. (3.) The explanatory power of the earnings equation is significantly increased by accounting for the effects of job mobility; job mobility is an important determinant of the wage structure.
Handle: RePEc:nbr:nberwo:0233
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Excess Taxation of Capital Gains on Corporate Stock
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0234
Creation-Date: 1978-02
Order-URL: http://www.nber.org/papers/w0234
File-URL: http://www.nber.org/papers/w0234.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Slemrod, Joel. "Inflation and the Excess Taxation of Capital Gains on Corporate Stock." National Tax Journal, Vol. XXXI, No.2, ( June 1978), pp. 107-118.
Publication-Status: published as Inflation and the Excess Taxation of Capital Gains on Corporate Stock, Martin Feldstein, Joel Slemrod. in Inflation, Tax Rules, and Capital Formation, Feldstein. 1983
Abstract: The present study shows that in 1973 individuals paid nearly $500 million of extra tax on corporate stock capital gains because of the distorting effect of inflation. A detailed analysis shows that the distortion was greatest for middle income sellers of corporate stock. In 1973, individuals paid capital gains tax on more than $4.5 billion of nominal capital gains on corporate stock. If the costs of these shares are adjusted for the increases in the consumer price level since they were purchased, the $4.5 billion nominal gain becomes a real capital loss of nearly $1 billion. As a result of this incorrect measurement of capital gains, individuals with similar real capital gains were subject to very different total tax liabilities. These findings are based on a new body of official tax return data on individual sales of corporate stock.
Handle: RePEc:nbr:nberwo:0234
Template-Type: ReDIF-Paper 1.0
Title: Price Inflation, Portfolio Choice, and Nominal Interest Rates
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0235
Creation-Date: 1978-03
Order-URL: http://www.nber.org/papers/w0235
File-URL: http://www.nber.org/papers/w0235.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Price Inflation, Portfolio Choice, and Nominal Interest Rates." The American Economic Review, Vol. 70, No. 1, (March 1980), pp. 32-48.
Abstract: Among the different kinds of economic behavior which may account for the familiar Fisherian relationship between nominal interest rates and expected price inflation, portfolio behavior is the most plausibly flexible in the short run. Since substitution into real assets is not a practical portfolio alternative for many investors, however, it is not obvious a priori how important lenders' portfolio behavior can be in bringing about the adjustment of interest rates which Fisher's theory associates with expected inflation. Given the importance of this adjustment for questions of both monetary theory and monetary policy, the underlying economic behavior merits explicit investigation. The empirical results presented in this paper provide evidence that lenders' portfolio behavior does play an important role in the expected-price-inflation/nominal-interest rate relationship. First, results indicate that five of the six major categories of investors in the U.S. long-term bond market reduce their demands for bonds in response to an increase in expected inflation. Secondly, the results of multi-equation partial-equilibrium experiments indicate that ,with all other things unchanged, this response by investors will raise the equilibrium nominal bond yield by about 2/3% in response to a 1% increase in expected inflation.
Handle: RePEc:nbr:nberwo:0235
Template-Type: ReDIF-Paper 1.0
Title: The Supply of Surgeons and the Demand for Operations
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 0236
Creation-Date: 1978-03
Order-URL: http://www.nber.org/papers/w0236
File-URL: http://www.nber.org/papers/w0236.pdf
File-Format: application/pdf
Publication-Status: published as Fuchs, Victor R. "The Supply of Surgeons and the Demand for Operations." The Economics of Physician and Patient Behavior, Vol. XIII, (1978), pp. 35-56 . (Supplement to Journal of Human Resources, edited by Victor R. Fuchsand Joseph P. Newhouse.)
Publication-Status: published as The Supply of Surgeons and the Demand for Operations, Victor R. Fuchs. in The Economics of Physician and Patient Behavior, Fuchs and Newhouse. 1978
Abstract: This paper presents a multi-equation multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970. The results provide considerable support for the hypothesis that surgeons shift the demand for operations. Other things equal, a 10 percent increase in the surgeon/population ratio results in about a 3 percent increase in per capita utilization. Moreover, differences in supply seem to have a perverse effect on fees, raising them when the surgeon/population ratio increases. Surgeon supply is in part determined by factors unrelated to demand, especially by the attractiveness of the area as a place to live.
Handle: RePEc:nbr:nberwo:0236
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Risk and Capital Adequacy For Traditional Banks and Financial Intermediaries
Author-Name: J. Huston McCulloch
Number: 0237
Creation-Date: 1978-03
Order-URL: http://www.nber.org/papers/w0237
File-URL: http://www.nber.org/papers/w0237.pdf
File-Format: application/pdf
Publication-Status: published as McCulloch, J. Huston. "Interest Rate Risk and Capital Adequacy for Traditional Banks and Financial Intermediaries," in Risk and Capital Adequacy in Commercial Banks, ed. Sherman J. Maisel, 1981, Chicago: University of Chicago Press
Publication-Status: published as Interest Rate Risk and Capital Adequacy for Traditional Banks and Financial Intermediaries, J. Huston McCulloch. in Risk and Capital Adequacy in Commercial Banks, Maisel. 1981
Abstract: Traditionally, banks and financial intermediaries borrow short and lend long. This causes a risk of negative net worth (and failure, under simplifying assumptions), because the present discounted value of the assets is more volatile than that of the liabilities. This paper utilizes a new option pricing model for speculative assets whose log price relative is a symmetric stable Paretian random variable. This model is used to empirically evaluate the probability of failure and fair value of deposit insurance as a function of capital-asset ratio for a bank with demand liabilities and longer term, default-risk-free, perfectly marketable assets. The maturities used for the assets range from three months to 30 years (in order to incorporate thrift institutions). Implications for reserve requirement policy and for liability management are discussed.
Handle: RePEc:nbr:nberwo:0237
Template-Type: ReDIF-Paper 1.0
Title: Price Behavior in the Manufacturing Sector for Sixteen Industries Classified by Stage-of-Process
Author-Name: Joel Popkin
Number: 0238
Creation-Date: 1978-03
Order-URL: http://www.nber.org/papers/w0238
File-URL: http://www.nber.org/papers/w0238.pdf
File-Format: application/pdf
Abstract: One major finding of this paper is that prices in most basic materials producing industries are responsive to demand while prices in most finished goods producing industries are not. If the reverse were true, stabilization policies would. have more effect in the short run on prices and less effect on output than is currently the case. A second finding relates to the 1971-4 period of wage and price controls and the period immediately following their termination. During controls, prices in most manufacturing sectors did rise somewhat slower than their historical relationship to costs would suggest. But after controls ended prices rose relative to costs by considerably more than the amount of their shortfall during controls. This suggests that some fundamental change in price-cost relationships may have taken place in 1974.
Handle: RePEc:nbr:nberwo:0238
Template-Type: ReDIF-Paper 1.0
Title: Forecasting with the Index of Leading Indicators
Author-Name: Beatrice N. Vaccara
Author-Name: Victor Zarnowitz
Number: 0244
Creation-Date: 1978-05
Order-URL: http://www.nber.org/papers/w0244
File-URL: http://www.nber.org/papers/w0244.pdf
File-Format: application/pdf
Abstract: The composite index of leading indicators is found to be a valuable tool for predicting not only the direction but also the size of near- term changes in aggregate economic activity. This conclusion is based on assessments of the leading index as a predictor of (1) business cycle turning points as dated by the National Bureau of Economic Research and (2) quantitative changes in real GNP and the composite index of coincident indicators. Specific smoothing rules are identified which reduce the frequency of false signals but still provide adequate early warning of cyclical turning points. Simple regression models based on first differences in the logarithms produce a comparatively good record of forecasts one and two quarters ahead. The best results are obtained by using predictive chains whereby, e.g., quarterly changes in the lagging index (inverted) for Q[sub t] are used to forecast changes in the leading index in quarter Q which in turn are used to forecast changes in real GNP (or the coincident index) in Q[sub t+2].
Handle: RePEc:nbr:nberwo:0244
Template-Type: ReDIF-Paper 1.0
Title: The Propagation of Prices in the Oil Industry
Author-Name: Avram Kisselgoff
Number: 0245
Creation-Date: 1978-05
Order-URL: http://www.nber.org/papers/w0245
File-URL: http://www.nber.org/papers/w0245.pdf
File-Format: application/pdf
Abstract: The main thrust of this report is the development of a price record that would provide a basis for the identification of the areas of activity in the oil industry in which significant price changes have occurred, with expectation that this type of information could serve as a useful ingredient in the policy-making process. The study presents estimates of the selling price of a barrel of oil at three stages of operations of the industry -- the wellhead, the refinery and the end-use levels. Prices of individual classes of petroleum products at refineries and at the end-use level were also estimated. The price data are provided for benchmark years 1958, 1963,1967 and 1972, as well as for 1973, 1974, 1975 and 1976 when crude oil prices rose considerably. The estimating procedure is briefly described in the study. The examination of the transmission of prices from market to market within the oil industry shows that the steep rise in 1973-74 prices paid by end-users of petroleum products was due not only to the large increases in crude oil prices but also to the sizable in-creases in gross operating margins-labor costs, transportation, profits, etc. -- at the refinery and distribution levels. In the post-embargo years of 1975 and 1976, prices continued to advance but at a slower pace. The refiners' gross margins in 1975, however, declined somewhat; they rose significantly above the 1974 level in1976. The marketers' margins made further gains in 1975, but exhibited a decrease in 1976. Another finding is that during 1973-74 there was a considerable narrowing in the price differentials among the various re-fined products; in particular the price of residual fuel oil, which averaged 20 percent of the price of gasoline in the decade of the 1960's,rose to 52 percent of the price of gasoline by 1974. The narrowing process continued in 1975-1976.The study includes a short discussion of the effects of rising oil prices in 1973-1976 on the profitability of the petroleum industry and the general price level.
Handle: RePEc:nbr:nberwo:0245
Template-Type: ReDIF-Paper 1.0
Title: Causation Among Socioeconomic Time-Series
Author-Name: Robert T. Michael
Number: 0246
Creation-Date: 1978-05
Order-URL: http://www.nber.org/papers/w0246
File-URL: http://www.nber.org/papers/w0246.pdf
File-Format: application/pdf
Abstract: Using annual U. S. time series data from 1950-1974, formal tests of causation are performed among three socioeconomic phenomena: women's labor force participation rates, fertility rates, and divorce rates. Box-Jenkins and other techniques are employed with Granger-Sims type definition of causation based on leads and lags. Women's labor force participation appears to be causally prior to both fertility and divorce; the direction of effect on fertility is negative and on divorce, positive. Additional tests with alternative definitions of variables and a longer (1924-1974) time span also exhibit causal influence from fertility to divorce (with no feedback). When per capita income is also tested for causal influence, it, too, appears causally prior to fertility and divorce.
Handle: RePEc:nbr:nberwo:0246
Template-Type: ReDIF-Paper 1.0
Title: Perspective on Bank Capital Adequacy: Time-Series Analysis
Author-Name: Laurie Goodman
Author-Name: William F. Sharpe
Number: 0247
Creation-Date: 1978-05
Order-URL: http://www.nber.org/papers/w0247
File-URL: http://www.nber.org/papers/w0247.pdf
File-Format: application/pdf
Abstract: The first part of this paper provides a historical perspective on bank risks. Five-year moving average measures of total risk, market risk, and nonmarket risk are computed for an index of New York banks from 1929-1975 and for an index of outside New York banks from 1950-1976.We use a carefully constructed series of bank balance sheet data to compute correlations among various components of New York banks' port-folios and observe trends over time. The time series relationship between book values and market values is investigated, and classical measures of capital adequacy are calculated using surrogates for market values rather than book values. Finally, data are presented on the movement of interest rates and the term structure over time. Serial correlations and cross-correlations are computed. The second part of the paper uses the technique proposed in Sharpe ("Bank Capital Adequacy, Deposit Insurance and Security Values," June 1978) to gain information about capital adequacy. He has shown that for a bank with deposit liabilities that do not extend beyond the review period a "value preserving spread" in asset risk is likely to increase the value of capital. Moreover, the less adequate the capital, the larger this effect should be. We outline the method used to develop an econometric model to test for this effect. The model is then applied to time series data from 1938 to 1975.
Handle: RePEc:nbr:nberwo:0247
Template-Type: ReDIF-Paper 1.0
Title: Unionism and the Dispersion of Wages
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0248
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0248
File-URL: http://www.nber.org/papers/w0248.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. "Unionism and the Dispersion of Wages." Industrial and Labor Relations Review, Vol. 34, No. 1, (October 1980), pp. 3-23.
Abstract: This study examines the effect of trade unionism on the dispersion of wages among male wage and salary workers in the private sector in the United States. It finds that the application of union wage policies designed to standardize rates within and across establishments significantly reduces wage dispersion among workers covered by union contracts and that unions further reduce wage dispersion by narrowing the white-collar/blue-collar differential within establishments. These effects dominate the more widely studied impact of unionism on the dispersion of average wages across industries, so that on net unionism appears to reduce rather than increase wage dispersion or inequality in the United States.
Handle: RePEc:nbr:nberwo:0248
Template-Type: ReDIF-Paper 1.0
Title: Education and Self-Selection
Author-Name: Robert J. Willis
Author-Person: pwi192
Author-Name: Sherwin Rosen
Note: LS
Number: 0249
Creation-Date: 1978-06
Order-URL: http://www.nber.org/papers/w0249
File-URL: http://www.nber.org/papers/w0249.pdf
File-Format: application/pdf
Publication-Status: published as Willis, Robert J. and Rosen, Sherwin. "Education and Self-Selection." Journal of Political Economy, Vol. 87, No. 5, (October 1979), Part 2, pp. S7-S36 .
Abstract: A structural model of the demand for college attendance is derived from the theory of comparative advantage and recent statistical models of self-selection and unobserved components. Estimates from NBER-Thorndike data strongly support the theory. First, expected lifetime earnings gains influence the decision to attend college. Second, those who did not attend college would have earned less than measurably similar people who did attend, while those who attended college would have earned less as high school graduates than measurably similar people who stopped after high school. Positive selection in both groups implies no "ability bias in these data.
Handle: RePEc:nbr:nberwo:0249
Template-Type: ReDIF-Paper 1.0
Title: A Theory of the Natural Unemployment Rate and the Duration of Employment
Author-Name: Robert E. Hall
Note: EFG
Number: 0251
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0251
File-URL: http://www.nber.org/papers/w0251.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Robert E. "A Theory of Natural Unemployment Rate and the Duration of Employment." Journal of Monetary Economics, Vol. 5, (1979), PP. 153-169.
Abstract: In this paper, a theory of the natural or equilibrium rate of unemployment is built around a theory of the duration of employment. Evidence is presented that most unemployed workers became unemployed because their previous jobs came to an end; only a minority are on temporary layoff or have just entered the labor force. Thus, high-unemployment labor markets are generally ones where jobs are brief and there is a large flow of newly jobless workers. The model of the duration of employment posits that employment arrangements are the efficient outcome of the balancing of workers' and employers' interests about the length of jobs. Full equilibrium in the labor market also requires that the rate at which unemployed workers find new jobs be efficient. The factors influencing the resulting natural unemployment rate are discussed. Under plausible assumptions, the natural rate is independent of the supply or demand for labor. Only the costs of recruiting, the costs of turnover to employers, the efficiency of matching jobs and workers, and the cost of unemployment to workers are likely to influence the natural rate of unemployment strongly. Since these are probably stable over time, the paper concludes that fluctuations in the natural unemployment rate are unlikely to contribute much to fluctuations in the observed unemployment rate.
Handle: RePEc:nbr:nberwo:0251
Template-Type: ReDIF-Paper 1.0
Title: The Nature and Measurement of Unemployment
Author-Name: Robert E. Hall
Note: EFG
Number: 0252
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0252
File-URL: http://www.nber.org/papers/w0252.pdf
File-Format: application/pdf
Abstract: Problems of defining and measuring unemployemnt in the contemporary American economy are examined here using data from the official employment survey. The paper finds that only a minority of the unemployed conform to the conventional picture of a worker who has lost one job and is looking f or another job. Other important categories are those who have jobs but are not at work because the jobs have not yet started or because of layoff, workers who are in normal spells between temporary jobs, people who are looking into the possibility of work as an alternative to household duties, school, or retirement, and people who have come back into the labor force. None of these categories is dominant. One of the most significant findings is the large number of the unemployed (close to a million in 1977) who are looking for temporary work. Another important finding is that only a minority of the unemployed are looking for work as their major activity during the week of the survey. The majority of those classified officially as unemployed are identified by the household as keeping house, going to school, or retired.
Handle: RePEc:nbr:nberwo:0252
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Choice of Asset Life
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0253
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0253
File-URL: http://www.nber.org/papers/w0253.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Inflation and the Choice of Asset Life." Journal of Political Economy, Vol.87, No. 3, (1979), pp. 621-638.
Abstract: Given the current corporate tax structure in the U.S., inflation may have an important impact on the production decisions of firms, notably the choice of capital durability. This paper presents a model of competitive behavior in which firms may choose the durability of their capital goods. We find that in the presence of inflation, the taxation of corporate profits may influence both the choice of asset life and the market value of equity. In particular, the failure to index depreciation allowances depresses share values and biases the choice of asset life toward greater durability. Integrating this analysis with the traditional one-sector monetary growth model, we study the general equilibrium impact of inflation on such long run characteristics of the economy as output per capita and the real rate of return received by investors.
Handle: RePEc:nbr:nberwo:0253
Template-Type: ReDIF-Paper 1.0
Title: Children's Health and the Family
Author-Name: Linda N. Edwards
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0256
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0256
File-URL: http://www.nber.org/papers/w0256.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Linda N. and Michael Grossman. "Children's Health and the Family." Advances in Health Economics and Health Services Research, edited by Richard M. Schettler, Vol. 2, Greenwich, Conn.: JAI Press. (1981), pp. 35-84.
Abstract: The objective of this paper is to define the relationship between a number of family characteristics and the health of white children aged 6 to 11 years residing in those families. The partial effects of family income on health are1l and seldom statistically significant. Indeed, some health problems -- high blood pressure, allergies, and tension -- are more likely to occur among children from high income families. The general finding of small partial income effects is supported by analysis of gross health differences between children from lower and higher income families. In those cases where significant gross health difference. do exist between children from these two income classes, decomposition of these gross differences shows them to be attributable in large part to factors other than income itself. The finding that differences in health related solely to income are smaller than commonly believed implies that policies to improve the well-being of children via income transfers, such as those advocated by the recent Carnegie Council on Children, would have, at best, very small effects on health. Indeed, the most important conclusion of our study is that the present tendency to base government child health programs on simplistic notions that income is the primary source of differences in children's health will not lead towards fruitful or successful public policy regarding children's health.
Handle: RePEc:nbr:nberwo:0256
Template-Type: ReDIF-Paper 1.0
Title: The Lock-In Effect of the Capital Gains Tax: Some Time Series Evidence
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0257
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0257
File-URL: http://www.nber.org/papers/w0257.pdf
File-Format: application/pdf
Publication-Status: published as Tax Notes, Vol. VII, No. 6, pp. 134-135, (August 1978). (NOTE: Reprint 147 is based on BOTH this Working Paper - 0257- and Working Paper 0250.)
Abstract: This study presents time-series evidence indicating that capital gains taxation reduces the realization of capital gains. The "lock-in" effect is detectable once we divide individuals into categories on the basis of how much recent capital gains tax in- creases have affected them. Since the tax law changes, those individeals who are affected have realized significantly ldss capital gains relative to those not affected. This analysis, in `ddition to evidence fpom cross-sectional research reported in Feldstein and Yitzhaki (1978) and Feldstein, Slemrod and Qitzhaki (1978),indicates that estimates of the tax revenue change resulting from a reduction in capital gains taxation based on the assumption of unchanged realized gains may be misleading.
Handle: RePEc:nbr:nberwo:0257
Template-Type: ReDIF-Paper 1.0
Title: Imported Inflation 1973-74 and the Accommodation Issue
Author-Name: Phillip Cagan
Note: ME
Number: 0258
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0258
File-URL: http://www.nber.org/papers/w0258.pdf
File-Format: application/pdf
Publication-Status: published as Cagan, Phillip. "Imported Inflation 1973-74 and the Accommodation Issue." Journal of Money, Credit, and Banking, Vol. XII, No. 1, (February 1980), pp. 1-16.
Abstract: The purpose of the present study is to measure the amount of price increase that the proposals for accommodation required in 1973-74. Presumably such an estimate of the amount could be made in time to act on it. Whether accommodation is a desirable policy is not addressed here. Consistently followed, it would result in a higher long-run rate of inflation, because there are not likely to be nearly enough episodes of deflationary accommodation to offset the inflationary ones. Notwithstanding the appeal in the short run to accept inflationary fait accompli in order to avoid prolonged economic slack, one may have strong reservations about the long-run consequences on expectations of following such a policy.
Handle: RePEc:nbr:nberwo:0258
Template-Type: ReDIF-Paper 1.0
Title: Inventory Fluctuations, Temporary Layoffs and the Business Cycle
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0259
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0259
File-URL: http://www.nber.org/papers/w0259.pdf
File-Format: application/pdf
Abstract: Firms respond to fluctuations in demand by changing their inventories and their levels of production. The relative magnitudes of the inventory and production responses have important implications for the overall cyclical behavior of the economy. Government policies that affect the costs of holding inventories and the costs of the temporary layoffs that accompany reductions in the level of output can therefore have significant effects on the magnitude of aggregate fluctuations. The current paper presents new econometric evidence on the nature of inventory adjustments and then examines how changes in inventory behavior affect the overall business cycle. The analysis in this paper was motivated by our discovery that the parameter estimates of the traditional productional adjustment model are not consistent with the observed magnitudes of inventory change and the production. We have shown here that this production adjustment model is a special case of a more general two-speed adjustment process in which both production and inventory targets adjust slowly. Our estimates of the two-speed model clearly reject the production adjustment model in favor of the target adjustment model in which the inventory target adjusts slowly to changes in sales but production adjusts rapidly to changes in the desired inventory. Our analysis of the spectral properties of a simple macroeconomic model show that the production adjustment model and the target adjustment model can imply quite different cyclical behavior of the economy as a whole. Depending on the autocorrelation of the disturbance, government policies that reduce the speed with which production responds to changes in desired inventories and that place greater reliance on inventory adjustment may stabilize national income. Further analysis of these questions with more realistic models would clearly be desirable.
Handle: RePEc:nbr:nberwo:0259
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Social Security on Retirement
Author-Name: Anthony J. Pellechio
Number: 0260
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0260
File-URL: http://www.nber.org/papers/w0260.pdf
File-Format: application/pdf
Publication-Status: published as Pellechio, Anthony J. "Social Security Financing And Retirement Behavior," American Economic Review, 1979, v69(2), 284-287.
Abstract: This study examines the impact of social security on the retirement of married men aged 60-70 years. The empirical results are based on a rich file of data from the Social Security Administration (1973 CPS-IRS-SSA Exact Match File). The data permit precise calculation of social security wealth (the actuarial present value of benefits that a person would receive by retiring) denoted SSW. This variable measures social security's effect on retirement. The estimated effects are significant and considerable. When SSW in-creases from $35,000 to $55,000 the probability of retirement rises by .15 for 62-64 year olds relative to a .41 retirement rate. For 65-70 year olds this increase is .22 relative to .78. For 60-61 year olds who are entitled to SSW but not old enough to receive benefits the estimated effect was small and insignificant. This supports the conclusion that the observed effect on men eligible for benefits is a causal relationship. The traditional method of comparing market and reservation wages for analyzing the decision to work provides the basic econometric model. SSW is added to construct a retirement model. A two-step probit analysis is developed to identify structural parameters in the retirement model.
Handle: RePEc:nbr:nberwo:0260
Template-Type: ReDIF-Paper 1.0
Title: Adjudication as a Private Good
Author-Name: William M. Landes
Author-Person: pla327
Author-Name: Richard A. Posner
Author-Person: ppo25
Note: LE
Number: 0263
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0263
File-URL: http://www.nber.org/papers/w0263.pdf
File-Format: application/pdf
Publication-Status: published as Landes, William M. and Posner, Richard A. "Adjudication as a Private Good." Journal of Legal Studies, (March 1979).
Abstract: This paper examines the question whether adjudication can be viewed as a private good, i.e., one whose optimal level will be generated in a free market. Part I focuses on private courts, noting their limitations as institutions for dispute resolution and rule creation but also stressing the important role that the private court, in its various manifestations, has played both historically and today. Part II discusses a recent literature which has argued that the rules generated in the public court system, in areas of the law where the parties to litigation are private individuals or firms and the rules of law are judge-made, are the efficient products of purely private inputs. Our analysis suggests that this literature has overstated the tendency of a common law system to produce efficient rules, although areas can be identified where such a tendency can indeed be predicted on economic grounds. Viewed as a contribution to the emergent literature on the positive economic theory of law, our finding that the public courts do not automatically generate efficient rules is disappointing, since it leaves unexplained the mechanisms by which such rules emerge as they seem to have done in a number of the areas of Anglo-American judge-made law. However, our other major finding, that the practices and law governing private adjudication appear to be strongly influenced by economic considerations and explicable in economic terms, is evidence that economic theory has a major role to play in explaining fundamental features of the legal system.
Handle: RePEc:nbr:nberwo:0263
Template-Type: ReDIF-Paper 1.0
Title: The Pricing of Short-Lived Options When Price Uncertainty Is Log-Symmetric Stable
Author-Name: J. Huston McCulloch
Number: 0264
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0264
File-URL: http://www.nber.org/papers/w0264.pdf
File-Format: application/pdf
Publication-Status: published as McCulloch, J. Huston. "The Value of European Options and Log-Stable Uncertainty," International Advances in Economic Research. Volume 3, Number 4 / November, 1997
Abstract: The well-known option pricing formula of Black and Scholes depends upon the assumption that price fluctuations are log-normal. However, this formula greatly underestimates the value of options with a low probability of being exercised if, as appears to be more nearly the case in most markets, price fluctuations are in fact symmetrics table or log-symmetric stable. This paper derives a general formula for the value of a put or call option in a general equilibrium, expected utility maximization context. This general formula is found to yield the Black-Scholes formula for a wide variety of underlying processes generating log-normal price uncertainty. It is then used to derive the value of a short-lived option for certain processes that generate log-symmetric stable price uncertainty. Our analysis is restricted to short-lived options for reasons of mathematical tractability. Nevertheless, the formula is useful for evaluating many types of risk.
Handle: RePEc:nbr:nberwo:0264
Template-Type: ReDIF-Paper 1.0
Title: The Fundamental Determinants of Risk In Banking
Author-Name: Barr Rosenberg
Author-Name: Philip R. Perry
Number: 0265
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0265
File-URL: http://www.nber.org/papers/w0265.pdf
File-Format: application/pdf
Publication-Status: published as Rosenberg, Barr, and Philip R. Perry, 1978. "Abstract: The Fundamental Determinants of Risk in Banking," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(04), pages 735-735, November.
Publication-Status: published as Rosenberg, Barr, and Philip R. Perry, "The Fundamental Determinants of Risk In Banking," in Risk and Capital Adequacy in Commercial Banks, edited by Sherman J. Maisel, 1981, Chicago: University of Chicago Press
Publication-Status: published as The Fundamental Determinants of Risk in Banking, Barr Rosenberg, Philip R. Perry. in Risk and Capital Adequacy in Commercial Banks, Maisel. 1981
Abstract: This study is concerned with establishing the determinants of banks' exposure to risk and with predicting risk in banking. Using the COMPUSTAT data base, prediction rules have been developed for two aspects of risk: systematic risk (risk that is related to covariance with the market portfolio) and residual risk (the aggregate of specific risk and extra-market covariance). For each type of risk, several models have bean estimated: one model employs only measures of the asset and liability characteristics of the bank; a second employs these characteristics and other data taken from annual reports; a third model adds the history of the behavior of the price at the bank's common stock. The central conclusion of the study is that systematic and residual risk in banks can be predicted from predetermined data. Prediction rules estimated in this way can serve a useful function in monitoring bank risk. Further, the predictive significance of each variable serves as a measure of the appropriateness of that variable as an indicator of risk, and hence as a target for regulation.
Handle: RePEc:nbr:nberwo:0265
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Risk and the Regulation of Financial Institutions
Author-Name: Jay B. Morrison
Author-Name: David H. Pyle
Note: CF
Number: 0266
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0266
File-URL: http://www.nber.org/papers/w0266.pdf
File-Format: application/pdf
Publication-Status: published as "Bank Income Taxes and Interest Rate Risk Management: A Note" Journal of Finance, Vol. 39, no. 4 (1984): 1199-1206
Publication-Status: published as Morrison, Jay B., and David H. Pyle, "Interest Rate Risk and the Regulation of Financial Institutions" in Risk and Capital Adequacy in Commercial Banks, edited by Sherman J. Maisel, 1981, Chicago: University of Chicago Press
Publication-Status: published as Interest Rate Risk and the Regulation of Financial Institutions, Jay B. Morrison, David H. Pyle. in Risk and Capital Adequacy in Commercial Banks, Maisel. 1981
Abstract: A bank or other financial institution is potentially subject to at least four types of risk: (1) Credit risk -- defaults or delays in repayments. (2) Fraud -- embezzlement or insider abuse. (3) Liquidity risk -- or high cost of obtaining needed cash. (4) Interest rate risk -- differential changes in the value of assets and liabilities as interest rates shift. This paper reports a study of the interest-rate elasticity of the net worth of a commercial bank. Most of the study is devoted to the development of the necessary methodology to measure the interest-rate elasticity (IRE) of a bank's asset/liability mix. The report is organized into four major sections. The first summarizes the history of interest-rate elasticity models and points out the problems in applying them to bank assets and liabilities. An analytical framework is then developed to calculate the IRE of a portfolio of assets and liabilities. The next three sections apply the framework to a simulated bank. For simplicity, the bank is assumed to have only two classes of assets (commercial loans and cash) and three classes of liabilities(demand deposits, large denomination CD's, and capital). The second section develops models of the cash flows associated with each of the assets and liabilities. The third section quantifies the parameters necessary to calculate the net worth and IRE measures, and the fourth section details the design of a simulation and some simulation results for the 1973-75 period. The report concludes with a discussion of the regulatory implications of the study.
Handle: RePEc:nbr:nberwo:0266
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Changes and Commercial Bank Revenues and Costs
Author-Name: Sherman J. Maisel
Author-Name: Robert Jacobson
Number: 0267
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0267
File-URL: http://www.nber.org/papers/w0267.pdf
File-Format: application/pdf
Publication-Status: published as Sherman J. Maisel & Robert Jacobson, 1978. "Interest Rate Changes and Commercial Bank Revenues and Costs," The Journal of Financial and Quantitative Analysis, vol 13(4).
Publication-Status: published as Interest Rate Changes and Commercial Bank Revenues and Costs, Sherman J. Maisel, Robert Jacobson. in Risk and Capital Adequacy in Commercial Banks, Maisel. 1981
Abstract: This paper estimates statistical cost. and revenue curves for a cross-section of banks in the years 1962-75. The primary data cover reported accounting or book rates of return. Approximations are also made to estimate economic or total returns. These approximations take into account changes in capital values during the year as a result of movements in interest rates measured by market yields of government securities of the proper duration. Book rates of return and costs adjust towards each other so that marginal rates received or paid for different activities tend to equalize. On the other hand, the rates of adjustment are slow. While movements in the cost of demand and time deposits correlate well with changes in market rates, not all of the advantages of interest rate ceilings are given up to depositors. Movements in interest rates cause sharp fluctuations in total returns. These movements are sharp enough so that in several years economic losses occurred rather than reported book profits. Furthermore, over this period the net economic returns of classes of assets were poorly correlated with their risks (their variance of returns).
Handle: RePEc:nbr:nberwo:0267
Template-Type: ReDIF-Paper 1.0
Title: Calculating the Present Value of An Asset's Future Cash Flows
Author-Name: Stephen D. Nadauld
Number: 0268
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0268
File-URL: http://www.nber.org/papers/w0268.pdf
File-Format: application/pdf
Abstract: This paper describes both the theory and a computer program designed to calculate the present value of an asset's uncertain future cash flows. In this model expected flows may vary in each of "t" future periods. Flows are adjusted to a certainty equivalent by a correction factor derived from a covariance matrix of the flows and market returns. The flows are discounted by a full specification of the term structure of the risk-free interest rate. The specific model illustrated in the paper is that of expected cash flows from a mortgage portfolio. The computer program calculates the expected cash flow, the uncertainty correction, and the term structure of interest rates. Algorithms to solve for each of these factors are included. Alternatively, options are included to input the factors from exogenous forecasts or projections. In addition to calculating the present values under each specification for the factors, the program compares the present values derived from each particular specification.
Handle: RePEc:nbr:nberwo:0268
Template-Type: ReDIF-Paper 1.0
Title: Tax Neutrality and the Investment Tax Credit
Author-Name: David F. Bradford
Note: PE
Number: 0269
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0269
File-URL: http://www.nber.org/papers/w0269.pdf
File-Format: application/pdf
Publication-Status: published as Bradford, David F. "Tax Neutrality and the Investment Tax Credit." The Economics of Taxation, edited by Henry J. Aaron and Michael J. Boskin, pp. 281- 298. Washington, D.C.: The Brookings Institution, 1980.
Abstract: This paper concerns the question of how the rules for calculating the investment tax credit and the associated rules for calculating depreciation allowances for tax purposes should be structured to assure the "appropriate" relationship between the subsidy granted to long-lived assets and that to short-lived assets. The increasing rate of tax subsidy under the investment credit favors long-lived assets by comparison with a flat-rate credit, while the neglect of the credit in calculating depreciation allowances favors short-lived assets (for which the depreciation allowance is a more important element in the cash flow). In reviewing the literature on this issue, Emil Sunley focused on the question of whether the investment credit should vary with the durability of the asset purchased. He concluded that neutrality requires a subsidy rate increasing with the useful life of the asset in a way qualitatively similar to that prescribed in present U.S. law. This paper develops Sunley's discussion through the use of simple formal models of the yield from investment.
Handle: RePEc:nbr:nberwo:0269
Template-Type: ReDIF-Paper 1.0
Title: Explaining Movements in Completed Fertility Across Cohorts
Author-Name: Lawrence W. Kenny
Author-Person: pke84
Number: 0270
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0270
File-URL: http://www.nber.org/papers/w0270.pdf
File-Format: application/pdf
Abstract: A life cycle model of fertility based on the quantity-quality model of fertility successfully explains changes in completed fertility in a period in which completed fertility first fell and then rose. This model furthermore accurately predicts the timing and level of the subsequent peak in completed fertility. Regressions based on Easterlin's relative economic status theory of fertility are less successful in predicting fertility over a fifteen year period than regressions based on the quantity-quality model. Upon investigation, much of the increase in completed fertility associated with the baby boom appears to be primarily attributable to sporadic wage growth.
Handle: RePEc:nbr:nberwo:0270
Template-Type: ReDIF-Paper 1.0
Title: Male Wage Rates and Marital Status
Author-Name: Lawrence W. Kenny
Author-Person: pke84
Number: 0271
Creation-Date: 1978-07
Order-URL: http://www.nber.org/papers/w0271
File-URL: http://www.nber.org/papers/w0271.pdf
File-Format: application/pdf
Abstract: Numerous studies have found that married men earn consider-ably more than single men of the same education, experience, etc. There are several possible explanations of this phenomenon. Recent theoretical developments in the economics of marriage predict that males with higher wage rates have a greater gain from marriage and are therefore more likely to marry. Alternatively, one of the benefits of marriage is specialization in the labor force; married men spend more hours in the labor force than single males and thus have a greater incentive to invest in human capital. The empirical work in this paper suggests that a large fraction of the unexplained wage differential between married males and unmarried males may be attributable to the former explanation.
Handle: RePEc:nbr:nberwo:0271
Template-Type: ReDIF-Paper 1.0
Title: The Social Security Earnings Test, Labor Supply Distortions, and Foregone Payroll Tax Revenues
Author-Name: Anthony J. Pellechio
Note: PE
Number: 0272
Creation-Date: 1978-08
Order-URL: http://www.nber.org/papers/w0272
File-URL: http://www.nber.org/papers/w0272.pdf
File-Format: application/pdf
Publication-Status: published as Pellechio, Anthony. "The Social Security Earnings Test, Labor Supply Distortions, and Foregone Payroll Tax Revenues." Journal of Public Economics, Vol . XIV, No. 2, (October 1980).
Abstract: In this study the social security earnings test is shown to have a significant effect empirically on the labor supply of retirement aged men. A rich data file from the Social Security Administration containing accurate benefit information provides a cross- section sample of 65-70 year old married men who worked some amount for empirical investigation. The data pertain to 1972. The results indicate that eliminating the earnings test would increase labor supply by 151 annual hours and payroll tax revenue by $31 per individual in the sample. The way in which the earnings test is relaxed is important also. Raising the exempt amount increased labor supply while lowering the tax rate did not. This follows from analyzing labor supply decisions over a nonlinear earnings-tested budget constraint. An econometric technique was developed for consistently estimating labor supply over nonlinear budget constraints. This technique conveniently summarized the budget constraint in an expected value calculation.
Handle: RePEc:nbr:nberwo:0272
Template-Type: ReDIF-Paper 1.0
Title: New Estimates of the Industrial Locus of Unionism in the United States
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: James L. Medoff
Note: LS
Number: 0273
Creation-Date: 1978-08
Order-URL: http://www.nber.org/papers/w0273
File-URL: http://www.nber.org/papers/w0273.pdf
File-Format: application/pdf
Publication-Status: published as ILRR, Vol. 32, no. 2 (1979): 143-174.
Abstract: This study presents new estimates of collective bargaining coverage and union membership for detailed U.S. industries. It compares the new coverage and membership figures with each other and with figures derived by researchers for the early 1960's and analyzes the divergences. This analysis leads to three primary conclusions:1) Estimated coverage percentages are on average higher than estimated membership percentages; 2) This relationship is primarily the result of the absence of union security clauses (under which covered employees must at some point become union members); 3) Even among production workers within detailed industries, private sector unionism has been dwindling during the past two decades.
Handle: RePEc:nbr:nberwo:0273
Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of Youth Unemployment
Author-Name: Kim B. Clark
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 0274
Creation-Date: 1978-08
Order-URL: http://www.nber.org/papers/w0274
File-URL: http://www.nber.org/papers/w0274.pdf
File-Format: application/pdf
Publication-Status: published as Clark, Kim B. and Summers, Lawrence. "The Dynamics of Youth Unemployment." The Youth Labor Market Problem: Its Nature, Causes and Consequences, editedby Richard B. Freeman and David A. Wise, pp. 199-234. Chicago: University of Chicago Press, 1982.
Publication-Status: published as The Dynamics of Youth Unemployment, Kim B. Clark, Lawrence H. Summers. in The Youth Labor Market Problem: Its Nature, Causes, and Consequences, Freeman and Wise. 1982
Abstract: This paper analyzes the dynamics of youth unemployment. Three broad conclusions emerge. First, the problem of youth joblessness extends beyond the unemployed. We find that over one-half of youth unemployment spells end in labor force withdrawal. Much of youth non-employment is not picked up in the official unemployment statistics, because many young people give up the search for work and leave the labor force. Second, a large part of youth unemployment is accounted for by a relatively small, hard core group of young people who experience long spells of unemployment. While most unemployment spells are short, this is due to the high rates of labor force withdrawal, rather than to job finding. Among male teenagers out of school, for example, we find that over half of unemployment was due to those with more than six months of unemployment in the year. Third, a shortage of attractive jobs is the principle source of long term non-employment. While instability and frequent turnover are major factors in determining the overall pattern of teenage unemployment, we find that the lack of desirable employment opportunities is the crux of the problem for those most seriously affected by youth unemployment.
Handle: RePEc:nbr:nberwo:0274
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policies, Inflation and Capital Formation
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0275
Creation-Date: 1978-08
Order-URL: http://www.nber.org/papers/w0275
File-URL: http://www.nber.org/papers/w0275.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Fiscal Policies, Inflation, and Capital Formation." The American Economic Review, Vol. 70, No. 4, (September 1980), pp. 636-650.
Publication-Status: published as Fiscal Policies, Inflation, and Capital Formation, Martin Feldstein. in Inflation, Tax Rules, and Capital Formation, Feldstein. 1983
Abstract: Three ways of averting "excess saving" have been emphasized in both theory and practice. The thrust of the Keynesian prescription was to increase the government deficit to provide demand for the resources that would not otherwise be used for either consumption or investment. In this way, aggregate demand would be maintained by substituting public consumption for private consumption. A second alternative prescription was to reduce the private saving rate. Early Keynesians like Seymour Harris saw the new Social Security program as an effective way to reduce aggregate saving. The third type of policy, developed by JamesTobin, relies on increasing the rate of inflation and making money less attractive relative to real capital. In Tobin's analysis, the resulting increase in capital intensity offsets the higher saving rate and therefore maintains aggregate demand. This paper will examine ways of increasing capital intensity without raising the rate of inflation. The analysis will also show why, contrary to Tobin's conclusion, a higher rate of inflation may not succeed in increasing investors' willingness to hold real capital.
Handle: RePEc:nbr:nberwo:0275
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Stock Market
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0276
Creation-Date: 1978-08
Order-URL: http://www.nber.org/papers/w0276
File-URL: http://www.nber.org/papers/w0276.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Inflation and the Stock Market." The American Economic Review, Vol. 70, No. 5, (December 1980), pp. 839-847.
Publication-Status: published as Inflation and the Stock Market, Martin Feldstein. in Inflation, Tax Rules, and Capital Formation, Feldstein. 1983
Abstract: This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.
Handle: RePEc:nbr:nberwo:0276
Template-Type: ReDIF-Paper 1.0
Title: Labor Force Transitions and Unemployment
Author-Name: Kim B. Clark
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 0277
Creation-Date: 1978-08
Order-URL: http://www.nber.org/papers/w0277
File-URL: http://www.nber.org/papers/w0277.pdf
File-Format: application/pdf
Abstract: This paper challenges conventional views of unemployment. Its results suggest that failure to examine closely labor force transitions has led to a misleading picture of unemployment and the way the labor market functions in general. There are four main conclusions. First, labor force transitions are the principal determinant of fluctuations in employment and unemployment. We find that the vast majority of those newly employed come not from unemployment but from outside the labor force. Likewise, most spells of employment end with labor force withdrawal rather than unemployment. Second, traditional estimates of the duration of unemployment and the ease of job finding are seriously flawed by failure to take account of the 45 percent of all unemployment spells which end in labor force withdrawal. Third, re-entrant unemployment is to a large extent the result of job-ending followed by a brief spell outside the labor force. Many re-entrants would almost certainly be better classified as job losers and leavers completing long spells of unemployment rather than as entrants starting a new spell of unemployment. Fourth, it appears that many of those counted as out of the labor force are functionally indistinguishable from the unemployed.
Handle: RePEc:nbr:nberwo:0277
Template-Type: ReDIF-Paper 1.0
Title: A Fixed Effect Logit Model of the Impact Of Unionism on Quits
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0280
Creation-Date: 1978-09
Order-URL: http://www.nber.org/papers/w0280
File-URL: http://www.nber.org/papers/w0280.pdf
File-Format: application/pdf
Abstract: There are two possible reasons for unionized workers to have lower quit rates than otherwise comparable nonunion workers: unions could organize employees with innately lower propensities to quit or they could reduce propensities by offering disgruntled workers alternatives to quitting in the form of grievance arbitration and related industrial jurisprudence systems. This paper uses a fixed effect logit model based on the conditional likelihood function to disentangle these two effects. The paper finds that the observed union-quit tradeoff is due largely to the impact of unionism on worker behavior rather than to the propensity of stable workers to be organized, supporting the notion that unions have important nonwage effects along the lines suggested by the "exit-voice" model of union activity.
Handle: RePEc:nbr:nberwo:0280
Template-Type: ReDIF-Paper 1.0
Title: Disequilibrium Growth Theory: The Kaldor Model
Author-Name: Takatoshi Ito
Number: 0281
Creation-Date: 1978-09
Order-URL: http://www.nber.org/papers/w0281
File-URL: http://www.nber.org/papers/w0281.pdf
File-Format: application/pdf
Publication-Status: published as Ito, Takatoshi. "Disequilibrium Growth Theory." Journal of Economic Theory , Vol. 23, No. 3, (December 1980), pp. 380-409.
Abstract: Disequilibrium macroeconomic theory [e.g. Clower, and Barroand Grossman] is extended to deal with capital accumulation in the long run. A growth model a la Kaldor is chosen for a frame-work. The real wage is supposed to be adjusted slowly, therefore there may be excess demand or supply in the labor market. The transaction takes place at the minimum of supply and demand. Since income shares of workers and capitalists depend on which regime the labor market is in, different equations are associated to different regimes. Local stability of the steady state by the disequilibrium dynamics is demonstrated.
Handle: RePEc:nbr:nberwo:0281
Template-Type: ReDIF-Paper 1.0
Title: Black Economic Progress after 1964: Who Has Gained and Why?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0282
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0282
File-URL: http://www.nber.org/papers/w0282.pdf
File-Format: application/pdf
Publication-Status: published as Black Economic Progress after 1964: Who Has Gained and Why?, Richard B. Freeman. in Studies in Labor Markets, Rosen. 1981
Abstract: This study used three types of evidence to analyze the nature and cause of black economic progress in post-World War II years: aggregate evidence on the timing and incidence among skill groups of changes in the relative earnings or occupational position of blacks; cross-sectional evidence on the family background determinants of the socioeconomic achievement of blacks; and information from company personnel offices regarding personnel policies toward black (and other) workers affected by civil rights legislation.
Handle: RePEc:nbr:nberwo:0282
Template-Type: ReDIF-Paper 1.0
Title: Temporary Income Taxes and Consumer Spending
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0283
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0283
File-URL: http://www.nber.org/papers/w0283.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "Temporary Income Taxes and Consumer Spending."Journal of Political Economy, Vol. 89, No. 1, (February 1981), pp. 26-53.
Abstract: Both economic theory and casual empirical observation of the U.S. economy suggest that spending propensities from temporary tax changes are smaller than those from permanent ones, but neither provides much guidance about the magnitude of this difference. This paper offers new empirical estimates of this difference and finds it to he quite substantial. The analysis is based on an amendment of the standard distributed lag version of the permanent in-conic hypothesis that distinguishes temporary taxes from other income on the grounds that the former are "more transitory." This amendment, which is broadly consistent with rational expectations, leads to a nonlinear consumption function. Though the standard error is unavoidably large, the point estimate suggests that a temporary tax change is treated as a 50-50 blend of a normal income tax change and a pure windfall. Over a 1-year planning horizon, a temporary tax change is estimated to have only a little more than half the impact of a permanent tax change of equal magnitude, and a rebate is estimated to have only about 38 percent of the impact.
Handle: RePEc:nbr:nberwo:0283
Template-Type: ReDIF-Paper 1.0
Title: Crowding Out Or Crowding In? The Economic Consequences of Financing Government Deficits
Author-Name: Benjamin M. Friedman
Note: EFG ME
Number: 0284
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0284
File-URL: http://www.nber.org/papers/w0284.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Crowding Out or Crowding In? The Economic Consequences of Financing Government Deficits." Brookings Papers on Economic Activity , Vol. 3, (1978), pp. 593-654.
Abstract: The prevailing view of the economic consequences of financing government deficits, as reflected in the recent economics literature and in recent public policy debates, reflects serious misunderstandings. Debt-financed deficits need not "crowd out" any private investment, and may even "crowd in" some. Using a model including three assets - money, government bonds, and real capital - the analysis in this paper shows that the direction of the portfolio effect of bond issuing on private investment depends on the relative substitutabilities among these three assets in the public's aggregate portfolio. Since the all-important substitutabilities that make the difference between "crowding out" and "crowding in" are determined in part by the government's choice of debt instrument for financing the deficit, this analysis points to the potential importance of a policy tool that public policy discussion has largely neglected for over a decade - debt management policy. When monetary policy is non-accommodative, within limits debt management policy can take its place in augmenting the potency of fiscal policy, or in improving the trade-off between short-run stimulation and investment for long-run growth.
Handle: RePEc:nbr:nberwo:0284
Template-Type: ReDIF-Paper 1.0
Title: Wage Growth and Job Turnover: An Empirical Analysis
Author-Name: Ann P. Bartel
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 0285
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0285
File-URL: http://www.nber.org/papers/w0285.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. and Borjas, George J. "Wage Growth and Job Turnover: An Empirical Analysis." Studies in Labor Markets, edited by Sherwin Rosen, pp. 65- 90. Chicago: University of Chicago Press, 1981.
Publication-Status: published as Wage Growth and Job Turnover: An Empirical Analysis, Ann P. Bartel, George J. Borjas. in Studies in Labor Markets, Rosen. 1981
Abstract: This paper demonstrates that labor turnover is a significant factor in understanding wage growth since it affects both wage growth across jobs and wage growth within the job. Our analysis shows that young men who quit experience significant wage gains compared to stayers and compared to their own wage growth prior to the job change. Among older men, a quit increases wage growth only if the individual said he changed jobs because he found a better job. Yet in both age groups, individuals who expect to remain on the current job experience steeper wage growth per time period on that job. Thus labor turnover has offsetting effects on wage growth, leading to wage gains across jobs but flatter growth in shorter jobs. Our empirical analysis shows however that total life-cycle wage growth is positively related to current tenure. While early mobility may pay, individuals who are still changing jobs later in life experience lower overall wage growth.
Handle: RePEc:nbr:nberwo:0285
Template-Type: ReDIF-Paper 1.0
Title: On the Choice Between Property Rules and Liability Rules
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Note: LE
Number: 0286
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0286
File-URL: http://www.nber.org/papers/w0286.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell. "On the Choice Between Property Rules and Liability Rules." Economic Inquiry Vol. 18, No. 2, (April 1980), pp. 233-246.
Abstract: When parties can bargain with each other in an externality situation, it is frequently argued that liability rules are preferable to property rules. The case for liability rules is thought to be strongest when the parties behave strategically, when the collective authority responsible for maximizing social welfare has perfect information, and when lump-sum transfers are not available. It is shown here that liability rules are not generally preferable to property rules in these circumstances because of their limited ability to redistribute income between the parties.
Handle: RePEc:nbr:nberwo:0286
Template-Type: ReDIF-Paper 1.0
Title: International Reserves Under Alternative Exchange Rate Regimes and Aspects of The Economics of Managed Float
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 0287
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0287
File-URL: http://www.nber.org/papers/w0287.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, J. A. "The Demand for International Reserves under Pegged and Flexible Exchange Rate Regimes." The Functioning of Floating Exchange Rates: Theory, Evidence, and Policy Implications, edited by David Bigman and Teizo Taya, pp. 169-195. Cambridge: Ballinger Publishing Co., 1980.
Publication-Status: published as Frenkel, Jacob A. "International Reserves Under Pegged Exchange Rates And Managed Float: Corrections And Extensions," Journal of Monetary Economics, 1980, v6(2), 295-302.
Abstract: This paper contains an analysis of the role of international reserves under a regime of pegged exchange rates and under a regime of managed floating. It presents evidence on the stability of the demand for reserves during the periods 1963-72 and 1973-75. It is shown that the demand for reserves by developed countries differs from that of less-developed countries and that the system underwent a structural change by the end of 1972. In view of the drastic change in the international monetary system, the extent of the structural change has not been as large as might have been expected, thus leading to the observation that economic behavior seems to be more stable than legal arrangements. From the policy perspective it follows that the problems concerning the role of the International Monetary Fund in this context are as relevant at the present as they were in the past. The paper concludes with a sketch of a stochastic framework for the analysis of the optimal degree of managed floating. And its purpose is to suggest an additional set of variables which might be incorporated into the specification of the demand for international reserves. It is shown that the optimal degree of exchange rate flexibility depends on the stochastic nature of the shocks that the economy faces. The stochastic characteristics of the shocks include a distinction between real and monetary shocks, domestic and foreign shocks and depend on the covariances among the various shocks.
Handle: RePEc:nbr:nberwo:0287
Template-Type: ReDIF-Paper 1.0
Title: On Transactions and Precautionary Demand For Money
Author-Name: Jacob A. Frenkel
Author-Name: Boyan Jovanovic
Note: ITI EFG IFM
Number: 0288
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0288
File-URL: http://www.nber.org/papers/w0288.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A., and Boyan Jovanovic. "Optimal International Reserves: A Stochastic Framework." The Economic Journal, Vol. 91, (June 1981), pp. 507-514.
Publication-Status: published as Frenkel, Jacob A., and Boyan Jovanovic. "On Transactions and Precautionary Demand for Money," The Quarterly Journal of Economics, MIT Press, vol. 95(1), (August 1980), p. 25-43.
Abstract: This paper develops a stochastic framework for the analysis of transactions and precautionary demand for money. The analysis is based on the principles of inventory managements and the key feature of the model is its stochastic characteristics which lead to the need for precautionary reserves. The formal solution for optimal money holdings is derived and is shown to depend on the rate of interest, the mean rate of net disbursements, the cost of portfolio adjustment and the variance of the stochastic process governing net disbursements. One solution is obtained by minimizing the present value of financial management. This solution is compared with an alternative that is derived from the more conventional methodology of minimizing the steady-state cost function. The comparison shows that the two approaches may yield solutions that differ significantly from each other. The paper concludes with an application of the model to an empirical examination of countries' holdings of international reserves. The empirical results are shown to be consistent with the predictions of the model.
Handle: RePEc:nbr:nberwo:0288
Template-Type: ReDIF-Paper 1.0
Title: Further Evidence On Expectations And The Demand for Money During the German Hyperinflation
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 0289
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0289
File-URL: http://www.nber.org/papers/w0289.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "Further Evidence on Expectations and the Demand for Money During the German Hyperinflation." Journal of Monetary Economics, Vol. 5,(1979), pp. 81-96.
Abstract: Probably no event in monetary history has been more studied than the German hyperinflation of the early 1920's. Economists have been attracted to study this episode since it provides an environment that is close to a controlled experiment which is so rare in the study of social sciences. This paper provides further evidence on the role of expectations in effecting the demand for money during the German hyperinflation. One of the difficulties in studying empirically the role of expectations is the lack of an observable variable measuring expectations. This paper examines three measures of expectations that are derived from observed data from the market for foreign exchange. The first measure is based on the hypothesis that the forward exchange rate measures the expected future spot exchange rate and thereby provides an observable measure of the market's expectations concerning the depreciation of the currency. The other two measures distinguish between the forward exchange rate and the expected exchange rate and are based on the supplementary hypothesis that rational behavior requires expectations to be unbiased. Accordingly, the measures of expectations are constructed by using the forward exchange rate along with the information on the systematic relationship between forward and spot exchange rates. The various measures are then used in estimating the demand for money. The emphasis on measures of expectations that are based on data from the foreign exchange markets reflects the belief that in an inflationary economy with flexible exchange rates one of the relevant substitutes for holding domestic money is foreign exchange.
Handle: RePEc:nbr:nberwo:0289
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates in The 1920's: A Monetary Approach
Author-Name: Jacob A. Frenkel
Author-Name: Kenneth W. Clements
Note: ITI EFG IFM
Number: 0290
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0290
File-URL: http://www.nber.org/papers/w0290.pdf
File-Format: application/pdf
Publication-Status: published as Flanders, M. June (ed.) Development in an Inflationary World. New York: Academic Press, Inc., 1981.
Abstract: Current views about flexible exchange rate systems are based, to a large extent, on the lessons from the period of the 1920's during which many exchange rates were flexible. This paper re-examines the evidence from the perspective of the recently revived monetary approach (or more generally, asset-market approach) to the exchange rate. The analysis starts by developing a simple monetary model of exchange rate determination. The key characteristic of the model lies in the notion that, being a relative price of two monies, the equilibrium exchange rate is attained when the existing stocks of the two monies are willingly held. The equilibrium exchange rate is shown to depend on both real and monetary factors which operate through their influence on the relative demands and supplies of monies. The analysis then proceeds to examine the relationship between spot and forward rates for the Franc/Pound, Dollar/Pound and Franc/Dollar exchange rates and the results are shown to be consistent with the efficient market hypothesis. The monetary model is then estimated using monthly data and using the forward premium on foreign exchange as a measure of expectations. In addition to the single-equation ordinary-least-squares estimates, the various exchange rates are also estimated as a system using the mixed-estimation procedure which combines the sample information with prior information which derives from the homogeneity postulate and from known properties of the demand for money. The various results are shown to be consistent with the predictions of the monetary model.
Handle: RePEc:nbr:nberwo:0290
Template-Type: ReDIF-Paper 1.0
Title: Economic Effects of The Firefighters' Union
Author-Name: Casey Ichniowski
Number: 0291
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0291
File-URL: http://www.nber.org/papers/w0291.pdf
File-Format: application/pdf
Publication-Status: published as Ichniowski, Casey "The Economic Effects of the Firefighters' Union," Industrial and Labor Relations Review, Vol. 33 (January 1980).
Abstract: This is a study of the effects of unionism in the public sector occupation of firefighting. A large and detailed set of data permits the examination of submarkets of this occupation. A before/after methodology is introduced to obtain more precise estimates of union wage differentials. The study's findings are: (1) that there is a greater union effect on fringes than on salaries which indicates a significant alteration in the composition of the compensation package;(2) that the estimates from the before/after methodology confirm the cross-section results which show modest union wage differentials; and ,most significantly, (3) that the union effect varies along different dimensions -- most notably the length of the contractual arrangement between municipality and union.
Handle: RePEc:nbr:nberwo:0291
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Trade Unionism on Fringe Benefits
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0292
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0292
File-URL: http://www.nber.org/papers/w0292.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. "The Effect of Unionism on Fringe Benefits." Industrial& Labor Relations Review, Vol. 34, No. 4, (July 1981), pp. 489-509.
Abstract: This paper analyzes the impact of unionism on the fringes paid blue-collar workers using data on individual establishments. The main substantive finding is that trade unionism raises the fringe share of compensation, particularly pension and life, accident and health insurance. The magnitude of the effect is sufficiently large as to suggest that estimates which neglect fringes understate the union effect on compensation. The paper uses the data on the compensation of blue-collar and white-collar workers within an establishment to control for within-establishment pay policies and estimate the potential effect of blue-collar unionism on the fringes of white-collar workers.
Handle: RePEc:nbr:nberwo:0292
Template-Type: ReDIF-Paper 1.0
Title: Do Multinational Firms Adapt Factor Proportions To Relative Factor Prices?
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Irving B. Kravis
Author-Name: Romualdo A. Roldan
Note: ITI IFM
Number: 0293
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0293
File-URL: http://www.nber.org/papers/w0293.pdf
File-Format: application/pdf
Publication-Status: published as Do Multinational Firms Adapt Factor Proportions to Relative Factor Prices?, Robert E. Lipsey, Irving Kravis. in Trade and Employment in Developing Countries, Volume 2: Factor Supply and Substitution, Krueger. 1982
Abstract: It has been alleged that multinational firms fail to adapt their methods of production to take advantage of the abundance and low price of labor in less developed countries and therefore contribute to the unemployment problems of these countries. This paper asks two questions: do multi-national firms adapt to labor cost differences by using more labor-intensive methods of production in LDC's than in developed countries and do multinational firms' affiliates in LDC's use more capital-intensive methods than locally-owned firms? We concluded that both U.S.-based and Swedish-based firms do adapt to differences in labor cost, using the most capital-intensive methods of production at home and the least capital-intensive methods in low-wage countries. Among host countries, the higher the labor cost, the higher the capital intensity of production for manufacturing as a whole, within individual industries, and within individual companies. When we attempted to separate the capital-intensity differences into choice of technology and method of operation within a technology we found that firms appeared to choose capital-intensive technologies in LDC's but then responded to low wage levels there by substituting labor for capital within the technology. Similarly, U.S. affiliates appeared to use technologies similar to those of locally-owned firms but to operate in a more capital-intensive manner mainly because they faced higher labor costs.
Handle: RePEc:nbr:nberwo:0293
Template-Type: ReDIF-Paper 1.0
Title: How Important is Disaggregation in Structural Models of Interest Rate Determination?
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0294
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0294
File-URL: http://www.nber.org/papers/w0294.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "How Important Is Disaggregation in Structural Modelsof Interest Rate Determination?" The Review of Economics and Statistics, Vol. LXII, No. 2, (May 1980), pp. 271-276.
Abstract: The results presented below demonstrate that the structural modeling approach to interest rate determination not only stands apart from the sectoral disaggregation question conceptually but also performs fairly well without sectoral disaggregation empirically. This paper presents estimation and dynamic simulation results for an aggregated equivalent to the disaggregated model of the determination of bond yields developed in Friedman (1977; 1979). Instead of six bond demand and two bond supply equations, here there are but one demand and one supply equation. The empirical results show that, while disaggregation is of value in structural interest rate modeling (that is, the disaggregated model outperforms the aggregated one), even the aggregated structural model performs very well in comparison with familiar unrestricted reduced-form term structure equations.
Handle: RePEc:nbr:nberwo:0294
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Expectations Versus Forward Rates: Evidence From An Expectations Survey
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0295
Creation-Date: 1978-10
Order-URL: http://www.nber.org/papers/w0295
File-URL: http://www.nber.org/papers/w0295.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Interest Rate Expectations Versus Forward Rates: Evidence from an Expectations Survey." The Journal of Finance, Vol. XXXIV, No . 4, (September 1979), pp. 965-973.
Abstract: The object of this paper is to test several familiar hypotheses about the relationship between the forward rates implied by the term structure and interest rate expectations, using the one ongoing systematic survey that samples market participants' expectations. The substitution of survey data for overidentified constructions removes the principal source of ambiguity that has plagued much of the earlier empirical literature of the term structure. Nevertheless, because of limitations in the available data, it is possible to perform these tests only for the very short end of the maturity spectrum. Section I briefly describes the nature of the interest rate expectations survey and the calculation of the forward rate series from observed term structure data. Sections II-V present the results of testing the hypotheses that the implied term premium is zero on average (II), that it varies systematically with interest rate levels (III), that it varies with outside asset supplies (IV), and that it varies with economic activity (V). Section VI summarizes the findings of these tests and discusses their implications
Handle: RePEc:nbr:nberwo:0295
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Inflation on the Prices of Land And Gold
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0296
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0296
File-URL: http://www.nber.org/papers/w0296.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin, "Inflation, Tax Rules, and the Prices of Land and Gold." Journal of Public Economics, Vol. 14, No. 3, (December 1980), pp. 309-317.
Abstract: Traditional theory implies that the relative price of consumer goods and of such real assets as land and gold should not be permanently affected by the rate of inflation. A change in the general rate of inflation should, in equilibrium, cause an equal change in the rate of inflation for each asset price The experience of the past decade has been very different from the predictions of this theory: the prices of land, gold, and other such stores of value have increased by substantially more than the general price level. The present paper presents a simple theoretical model that explains the positive relation between the rate of inflation and the relative price of such real assets. More specifically, in an economy with an income tax, an increase in the expected rate of inflation causes an immediate increase in the relative price of such 'store of value' real assets. The behavior of real asset prices discussed in this paper is thus a further example of the non-neutral response of capital markets to inflation in an economy with income taxes.
Handle: RePEc:nbr:nberwo:0296
Template-Type: ReDIF-Paper 1.0
Title: A Model of Diffusion In the Production of an Innovation
Author-Name: Michael Gort
Author-Name: Akira Konakayama
Number: 0297
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0297
File-URL: http://www.nber.org/papers/w0297.pdf
File-Format: application/pdf
Publication-Status: published as Gort, Michael and Akira Konakayama. "A Model of Diffusion in the Productionof an Innovation." The American Economic Review, Vol. 72, No. 5 (December 1982), pp. 1111-1124.
Abstract: This paper is an attempt to explain diffusion in the production of an innovation. Diffusion in production is defined as the increase in number of producers, or net entry, in the market for a new product. It is to be distinguished from the more familiar problem in the literature on technical change, namely, the diffusion among producers in the use of new products and, hence, of changes in production processes for "old" products (or services). The empirical results confirm that a simple model -- simple in terms of number of variables -- is sufficient to explain most of diffusion in the production of an innovation. The principal variable that explains diffusion of entry is the demonstration effect. The principal variable that retards entry is the accumulated experience and goodwill of existing firms. A limiting force is the population of potential entrants. None of these variables appears to lend itself readily to influence by public policy. The first stage in diffusion -- the interval from first commercial introduction of the product to entry by competitors -- varies greatly in duration. Institutional variables, including public policy, may have a greater impact on the length of this first stage, which is not covered by this study, than on the diffusion process in the periods examined in this paper.
Handle: RePEc:nbr:nberwo:0297
Template-Type: ReDIF-Paper 1.0
Title: A Status Report on Tax Integration in the United States
Author-Name: Charles E. McLure, Jr.
Author-Person: pmc33
Note: PE
Number: 0298
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0298
File-URL: http://www.nber.org/papers/w0298.pdf
File-Format: application/pdf
Publication-Status: published as McLure, Jr., Charles E. "A Status Report on Tax Integration in the United States." National Tax Journal, Vol. XXXI, No. 4, (December 1978), pp. 312-32 8.
Abstract: Recent years have seen considerable interest in the integration of the corporate and personal income taxes. Full integration, under which corporate-source income would be taxed only to shareholders, has significant economic advantages, but it suffers from severe practical difficulties. Some but not all of its advantages could be realized through dividend relief. Alternative means of providing dividend relief include a deduction for dividends paid, application of a lower corporate rate to distributed income than to retained earnings, and allowing shareholders a dividend-received credit for corporate taxes imputed to have been paid on their behalf. The proper treatment of tax preferences and international flows of corporate-source income raise important issues of tax administration and public policy. It is necessary, for example, to decide whether tax preferences are to be passed through to shareholders or nullified when preference income is distributed. Beyond that, "stacking rules" are required for the presumptive allocation of dividends between preference and taxable income. Further research on both economic effects and administrative feasibility is necessary for an adequate appraisal of integration.
Handle: RePEc:nbr:nberwo:0298
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply Estimates For Public Policy Evaluation
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: James J. Heckman
Note: LS
Number: 0299
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0299
File-URL: http://www.nber.org/papers/w0299.pdf
File-Format: application/pdf
Publication-Status: published as Borjas, George and James Heckman. “Labor Supply Estimates for Public Policy Evaluation." Proceedings of The Industrial and Labor Relations Research Association, Chicago meetings, 1978.
Abstract: In recent years, the study of labor supply has occupied the attention of a large number of economists. With the growth in interest in the topic and with the inevitable diversity of economic models and statistical methods proposed by new entrants in the field, the literature has developed its own folklore. The principal legend is that the empirical estimates of the same parameters obtained from the set of available studies display such diversity that they are of little use to policymakers. This paper disputes the folklore. We claim that there is more agreement than disagreement once a few reasonable criteria based on recent theoretical work are used to eliminate certain studies from consideration, and once we are careful about posing the question we seek the estimates to address.
Handle: RePEc:nbr:nberwo:0299
Template-Type: ReDIF-Paper 1.0
Title: Monetarist Interpretations of the Great Depression: An Evaluation and Critique
Author-Name: Robert J. Gordon
Author-Person: pgo50
Author-Name: James A. Wilcox
Note: EFG
Number: 0300
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0300
File-URL: http://www.nber.org/papers/w0300.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, R. J. and Wilcox, J. A. "Monetarist Interpretations of the Great Depression: An Evaluation and Critique." The Great Depression Revisited, edited by Karl Brunner, pp. 49-107/165-173. Martinus Nijhoff Publishing: Boston/The Hague London, 1981.
Abstract: This paper rejects the proposition that there is only a single interesting question to ask about the decade of the 1930s. It is concerned not only with the role of money in the 1929-33 contraction but also with the relative role of monetary and nonmonetary factors in the recession of 1937-38 and subsequent recovery and, in addition, with the division of nominal income change between prices and real output. New empirical evidence bearing on each of these issues is provided The results suggest that both extreme monetarist and nonmonetarist interpretations of the decade of the l930s are unsatisfactory and leave interesting features of the data unexplained. Arguing against acceptance of an extreme monetarist interpretation are (1) the inability of changes in the money supply alone to explain the severity of the initial collapse in income between 1929 and the fall of 1931, (2) the steady weakening of the correlation between changes in nominal income and money as the 1930s progressed, (3) the failure of monetary factors to explain the nature and timing of the 1938-41 recovery, and (4) the apparent absence of any tendency for the mechanism of price flexibility to provide strong self-correcting forces as required by an approach that stresses monetary rules and opposes policy activism. Arguing against acceptance of an extreme nonmonetarist interpretation are (1) the close association between the collapse in income and the lagged effect of monetary changes after the fall of 1931, (2) the milder contraction and earlier recoveries associated with the more expansive monetary policies pursued in Europe, (3) the close association between money and income in the 1937-38 recession, and (4) the failure of the price change data to adhere to the expectational Phillips curve approach imbedded in many postwar econometric models constructed by nonmonetarists.
Handle: RePEc:nbr:nberwo:0300
Template-Type: ReDIF-Paper 1.0
Title: Should We Organize? Effects of Faculty Unionism on Academic Compensation
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0301
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0301
File-URL: http://www.nber.org/papers/w0301.pdf
File-Format: application/pdf
Abstract: This paper uses the American Association of University Professors surveys for the period 1965 to 1976 to examine the effect of faculty unionism on faculty pay. It compares estimated effects of unionism on compensation from cross-section regressions of faculty pay on union organization and from a longitudinal model designed to correct cross-section estimates for "unobserved characteristics" of schools that are correlated with unionism. The major findings are that: 1. unionism raises faculty pay but that the extent of the effect varies greatly by estimating model and time period covered; 2.the years a school has been organized has a stronger effect on pay than the standard 0-1 union dummy variable; 3. unionism raises the fringe benefit share of compensation; 4. the estimated coefficient on faculty unionism in cross-section regressions overstates the union impact because unionized schools tend to have been higher paying even before organization.
Handle: RePEc:nbr:nberwo:0301
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy in a Life Cycle Model
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0302
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0302
File-URL: http://www.nber.org/papers/w0302.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Capital Taxation and Accumulation in a Life Cycle Growth Model." The American Economic Review, Vol. 71, No. 4, (September 1981),pp. 533-544.
Abstract: This study departs from earlier analyses of the effects of taxes on capital income in several respects. Probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving. It is shown below that the common two-period formulation of saving decisions yields quite misleading results. A more realistic model of life cycle savings demonstrates that, for a wide variety of plausible parameter values, savings are very interest elastic. This implies that shifting away from capital income taxation would significantly increase capital formation, making possible long-run increases in consumption.
Handle: RePEc:nbr:nberwo:0302
Template-Type: ReDIF-Paper 1.0
Title: Towards An Understanding of the Real Effects and Costs of Inflation
Author-Name: Stanley Fischer
Author-Name: Franco Modigliani
Note: ME EFG
Number: 0303
Creation-Date: 1978-11
Order-URL: http://www.nber.org/papers/w0303
File-URL: http://www.nber.org/papers/w0303.pdf
File-Format: application/pdf
Publication-Status: published as Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 810-833, December.
Abstract: The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is fully reflected in inherited contracts, and (iv) future inflation is fully reflected in contracts for the future. After we have discussed the effects of anticipated inflation in this environment, we examine the real effects of inflation that arise as the assumptions (i) to (iv) are dropped one after the other. The effects cumulate in the sense that those present in the economy that has fully adapted to inflation are also present in economies with non-inflation proof institutions, and so on.
Handle: RePEc:nbr:nberwo:0303
Template-Type: ReDIF-Paper 1.0
Title: The Changing Cyclical Behavior of Wages and Prices: 1890-1976
Author-Name: Jeffrey D. Sachs
Note: EFG
Number: 0304
Creation-Date: 1978-12
Order-URL: http://www.nber.org/papers/w0304
File-URL: http://www.nber.org/papers/w0304.pdf
File-Format: application/pdf
Publication-Status: published as Sachs, Jeffrey. "The Changing Cyclical Behavior of Wages and Prices: 1890-1 976." American Economic Review (March 1980).
Abstract: The persistence of inflation during periods of high unemployment poses the central problem for macroeconomic policy in coming years. The extent of success in reducing both inflation and unemployment will depend strongly on the short-run responsiveness of wage inflation to unemployment and excess capacity. This paper studies changes in the cyclical responsiveness of inflation from 1890-1976, and concludes that a given shortfall in production relative to potential now "buys" a smaller reduction in the rate of inflation than in the past. From 1890-1929, a one percent decline in industrial production reduced inflation about .45%; for 1950-1976, the same output decline is estimated to slow inflation only about .l%. The analysis makes use of two methods to study the changing cyclical behavior of inflation. Following an innovative study by Cagan, calculations are made for wage and price inflation before and after eighteen business cycle peaks. While inflation slows in almost every recession, the declines in inflation in recent years are less pronounced than earlier, even when controlling for business cycle severity. In a second section of the study, econometric evidence is provided that also strongly supports the hypothesis of increasing rigidity of wage and price Inflation over the business cycle. In the last section of the paper, some possible reasons are cited for the declining responsiveness of inflation to unemployment. Ironically, successful macroeconomic policy might be in part responsible. To the extent that activist macroeconomic policy breaks the link between current unemployment and expectations of future unemployment, it is argued, unemployment today will not induce wage cuts in contracts for future periods. Also, the tremendous increase in duration and coverage of collective bargaining agreements is suggested as an important force behind the shifting behavior of wages and prices during the period of study.
Handle: RePEc:nbr:nberwo:0304
Template-Type: ReDIF-Paper 1.0
Title: The Percent Organized Wage (POW) Relationship for Union and for NonunionWorkers
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: James L. Medoff
Note: LS
Number: 0305
Creation-Date: 1978-12
Order-URL: http://www.nber.org/papers/w0305
File-URL: http://www.nber.org/papers/w0305.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. and James L. Medoff. "The Impact Of The Percentage Organized On Union And Nonunion Wages," Review of Economics and Statistics, 1981, v63(4), 561-572.
Abstract: This paper analyses the relation between the percent of workers organized in a product market and the wages received by union workers and by nonunion workers. It argues that the greater is the union coverage of a sector, the lower will be the elasticity of demand for the product of organized firms (since there will be fewer nonunion competitors) and as a result the lower will be the elasticity of demand for union labor and the larger the union wage gains. Estimates of the link between coverage and wages using information on individuals and on establishments shows the expected positive relation for union workers across manufacturing industries. By contrast, nonunion wages in manufacturing appear to be unrelated or only modestly related to the percentage organized. Estimates of the link between the percentage of construction workers unionized in a state and the wages of union and nonunion construction workers reveal relationships similar to those for manufacturing. Overall, the results strongly suggest that the percent organized is an important determinant of union wages and of the union-nonunion wage differential.
Handle: RePEc:nbr:nberwo:0305
Template-Type: ReDIF-Paper 1.0
Title: Efficient Wage Bargains Under Uncertain Supply and Demand
Author-Name: Robert E. Hall
Author-Name: David M. Lilien
Note: EFG
Number: 0306
Creation-Date: 1978-12
Order-URL: http://www.nber.org/papers/w0306
File-URL: http://www.nber.org/papers/w0306.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Robert E. and Lilien, David M. "Efficient Wage Bargains under Uncertain Supply and Demand." The American Economic Review, Vol. 69, No. 5, (December 1979), pp. 868-879.
Abstract: Much recent thought has been devoted to the macroeconomic importance of the existence of wage contracts. Still, some puzzling features of the most conspicuous form of wage bargaining, that done formally by employers and labor unions, deserve further theoretical attention. Among these important features are: 1. Collective bargaining agreements are rarely contingent on outside events even though the parties have very imperfect knowledge of prospective economic conditions during the period of the contract. The only important exception is the indexing of wages to the cost of living. 2. Employers are permitted wide discretion in determining the level of employment when demand shifts unexpectedly. As employment varies, total compensation varies according to a formula established in the agreement. 3. Agreements are not permanent but are renegotiated on a regular cycle. 4. In the process of renegotiation, the current state of demand has little impact on the new wage schedule. On the other hand, current wages in other industries have an important influence. This feature especially has been denied or ignored by economic theorists even though it is a prominent part of the thinking of labor economists on wage determination.
Handle: RePEc:nbr:nberwo:0306
Template-Type: ReDIF-Paper 1.0
Title: Restriction of International Production: The Effects on the Domestic Economy
Author-Name: David G. Hartman
Note: PE ITI IFM
Number: 0307
Creation-Date: 1978-12
Order-URL: http://www.nber.org/papers/w0307
File-URL: http://www.nber.org/papers/w0307.pdf
File-Format: application/pdf
Abstract: This paper examines the argument that restricting domestic firms' production abroad by for example, imposing a tax on foreign source income, can increase domestic welfare and alter the income distribution to favor labor. These arguments follow directly from a characterization of the international producer as a facilitator of capital flows. The available evidence suggests, however, that U.S. multinational firms have a much broader role than transferring abundant U.S. capital abroad. In this paper the firm Is viewed as able to compete abroad for a variety of reasons, including an ability to make use of technological and other cost advantages over local producers. Then, the effect of its operations abroad on the domestic capital stock is no longer so obvious. It is argued that at most a part of the marginal capital employed abroad is obtained at the expense of the capital stock of the domestic economy. The paper then presents a simple model which indicates that domestic labor can either gain or lose relative to capital, and home country welfare can either increase or decline, as a result of restricting the foreign operations of domestic firms. The results depend on the ultimate source of the capital placed abroad, the relative factor intensity of production by the multinational firm, and whether the multinational firm produces the home country's importable or exportable good. Since none of the cases considered seems totally implausible, the case for reducing international production cannot be made on the traditional grounds without further empirical evidence.
Handle: RePEc:nbr:nberwo:0307