INTRODUCTION TO CLASSIC AND THE NEW LABOR ECONOMICS SYRACUSE UNIVERSITY W. W. NORTON AND COMPANY NEW YORK LONDON
Preface xv PRELIMINARIES 1 Introduction 1 2 The U.S. Labor Market 33 PARTI FOUNDATIONS 3 The Short-Run Demand for Labor 55 4 The Supply of Labor 101 5 Human Capital 141 S On-the-Job Training 1??? Competitive Equilibrium 205 PARTS! APPLICATIONS 8c EXTENSIONS 8 Policy Application: The Minimum Wage 235 9 Policy Application: The War on Poverty 253 10 Death and Injury in the U.S. Workplace: A Hedonic Analysis 289 11 Discrimination I: Theory 32? 12 Discrimination II: Evidence and Policy 369 13 The Hiring Process 415 PART III THE EMPLOYMENT RELATION 14 Incentives 459 15 Tasks, Technologies, and Organizational Design 513 1G Careers and the Employment Relation 545 1? Executive Pay 605 18 Trade Unions I: Density and Impact 625 PAOTi THE AGGREGATE LABOR MARKET 19 Earnings I: The Wage Structure 653 20 Labor Mobility I: Migration 68? 21 Labor Mobility II: Immigration and Outsourcing 717 22 Unemployment I: Contractual Frictions?55 23 Unemployment II: Market Frictions 801 VII
viii Brief Contents 24 Turnover I: Job Search and Accessions 835 25 Turnover II: Quits and Layoffs 861 PARTY TOOLS OF THE TRADE Appendix A Econometric Methods A-3 Appendix B Proportions, Percentages, and Elasticities A-23 Appendix C Present Values and Discounted Utilities A-33 Appendix D Decision Making under Uncertainty A-41 Notes N-l References R-l End of Chapter Review Questions and Problems Solutions S-l Credits C-l Name Index 1-1 Subject Index 1-5 SUPPLEMENTARY WEBSITE CHAPTERS 26 The Long-Run Demand for Labor and Adjustment Costs 2? Policy Application: Income Taxes 28 Labor Supply over the Life Cycle 29 The Family 30 Retirement 31 Crime 32 Trade Unions II: Collective Bargaining and Strikes 33 Earnings II: Sectoral Shocks and Aggregate Disturbances 34 Education I: The Performance of Schools and Colleges 35 Education II: Governance and Finance
Preface xv PRELIMINARIES Chapter 1 Introduction i 1.1 Methodology 1 1.2 The Supply and Demand Framework 8 1.3 Applications: Supply and Demand Shocks 17 1.4 Elements of Microeconomics 22 Chapter 2 The U.S. Labor Market 33 2.1 Core Concepts I: Populations 34 2.2 Core Concepts II: Labor Costs 41 2.3 Core Concepts III: Empirical Aspects of the U.S. Labor Market 45 PARTI FOUNDATIONS Chapter 3 The Short-Run Demand for Labor 55 3.1 The Neoclassical Labor-Demand Model 56 3.2 The Constraints Bl 3.3 Perfect Competition and Monopoly Power 73 3.4 Monopsony 80 Technical Appendix 3.A Mathematical Derivations 94 Chapter 4 The Supply of Labor 101 4.1 Preferences 104 4.2 The Constraints 110 4.3 The Optimal Choice I: Determination 114 4.4 The Optimal Choice II: Properties 120 4.B The Empirical Evidence 128 Appendix 4.A The Supply of Labor: A Mathematical Approach 137 Chapter 5 Human Capital 141 5.1 Human Capital: An Overview 142 5.2 The Individual Investment Decision 146 5.3 The Level of Human Capital Investments 152
Contents 5.4 Extensions 15? 5.5 The Return to Investments in Human Capital 166 Appendix 5.A Econometric Obstacles and Remedies 172 On-the-Job Training 1?? 6.1 Overview 178 6.2 The Theory of General and Specific Training 181 6.3 The Specifics of Specific Human Capital 189 6.4 The OJT Model: The Evidence 192 Appendix 6.A Do Wages Rise with Seniority? 200 Chapter? Competitive Equilibrium 205 7.1 Competitive Equilibrium 206 7.2 Policy Applications 211 7.3 Compensating Wage Differentials 219 7.4 Fringe Benefits 226 PARTH APPLICATIONS 8c EXTENSIONS Chapter 8 Policy Application: The Minimum Wage 235 8.1 From Perfect Competition to Monopsony 236 8.2 Offsets, Inequality, and Education 242 8.3 The Minimum Wage: The U.S. Experience 245 Chapters Policy Application: The War on Poverty 253 9.1 The Battlefield: Poverty in the United States 254 9.2 The Armory 259 9.3 The Economic Consequences of Five Major Policy Weapons 266 9.4 The Battle Is Joined: Welfare Reforms 282 Chdpifei 10 Death and Injury in the U.S. Workplace: A Hedonic Analysis 289 10.1 The Hedonic Framework I: Building Blocks 291 10.2 The Hedonic Framework II: Equilibrium 299 10.3 Death and Cost-Benefit Analysis 306 10.4 Policy Application: OSHA 311 10.5 Policy Application: Workers'Compensation 318 D-.Sf)ter ii Discrimination I: Theory 32? 11.1 Discrimination: An Overview 328 11.2 Employer Discrimination 336
Contents xi 11.3 Coworker Discrimination 348 11.4 Consumer Discrimination 351 11.5 The Modern Theory of Discrimination 355 Chapter 12 Discrimination II: Evidence and Policy 369 12.1 Measuring Discrimination 370 12.2 Race 378 12.3 Gender 386 12.4 Public Policy 392 12.5 Antidiscrimination Policies: The Evidence 399 Appendix 12.A Estimation Difficulties 406 Appendix 12.B Occupational Crowding 410 Chapter 13 The Hiring Process 415 13.1 The Economics of Hiring 416 13.2 Public Information (The Roy Model) 421 13.3 Asymmetric Information I: Signaling 427 13.4 Asymmetric Information II: Screening 436 13.5 Symmetric Information 440 Appendix 13.A The Theory of Job-Market Signaling 448 PART III THE EMPLOYMENT RELATION Chapter 14 Incentives 459 14.1 Incentives: An Overview 460 14.2 Risk Sharing and Incentives 464 14.3 Extensions of the Principal Agent Framework 472 14.4 The "You Get What You Pay For" Principle 484 14.5 Tournaments 489 Appendix 14.A Risk Sharing and Incentives 500 Appendix 14.B Relative Performance Pay 507 Appendix 14.C Multitasking: The Root Cause of the "You Get What You Pay for" Principle 508 Chapter IS Tasks, Technologies, and Organizational Design 513 15.1 Task Assignments 514 15.2 Organizational Design 523 15.3 Human-Resource Management 532 15.4 Hierarchies 539
xii Contents Chapter 16 Careers and the Employment Relation 545 16.1 Internal Labor Markets 546 16.2 Careers I: Investments 556 16.3 Careers II: Payments Over Time 566 16.4 Careers III: The Employment Relationship 571 Appendix 16.A Ability Shocks and Insurance 587 Appendix 16.B A Model of the Rat Race 590 Appendix 16.C Implicit or Relational Contracts 593 Appendix 16.D The Waldman Model 600 Chapter 1? Executive Pay 605 17.1 The Evidence 606 17.2 The Theory of Executive Pay 613 Chapter 18 Trade Unions I: Density and Impact 625 18.1 Evidence and Institutional Background 626 18.2 Union Coverage 632 18.3 The Economic Impact of Trade Unions 639 PART If THE AGGREGATE LABOR MARKET Chapter 19 Earnings I: The Wage Structure 653 19.1 The Distribution of Earnings 654 $ 19.2 Superstars 661 19.3 Earnings Inequality: The Evidence 665 19.4 Explaining the Evidence of Inequality 670 19.5 Institutional Factors and the SDI Framework 680 f. Chapter 20 Labor Mobility I: Migration 68? 20.1 The Individual Migration Decision 689 20.2 Topics: Risk, Repeat and Return Migration, and Tied Moves 695 20.3 Regional Migration 702 20.4 Rural-Urban Migration 70? Chapter 21 Labor Mobility II: Immigration and Outsourcing?1? 21.1 Immigration and Outsourcing: The Evidence 718 21.2 Immigration: Labor-Market Effects 721 21.3 The Assimilation of Immigrants 729»% 21.4 Illegal Immigration 740 21.5 Outsourcing 744 1
Contents xiii Chapter 22 Unemployment I: Contractual Frictions 755 22.1 Unemployment: Concepts, Measurement, and the U.S. Experience 756 22.2 The Theory of Unemployment 764 22.3 Efficiency Wage Models 770 22.4 Other Models of Unemployment 780 22.5 Wage Rigidity: The Empirical Evidence 785 Appendix 22.A Implicit Contracts 797 Chapter 23 Unemployment II: Market Frictions 801 23.1 The Flow Approach to Labor Markets 802 23.2 Worker and Job Flows: The Evidence 808 23.3 The Stock-Flow Approach: Steady-State Unemployment 814 23.4 Matching 820 23.5 Job Destruction 82? Chapter 24 Turnover I: Job Search and Accessions 835 24.1 Search Activity 836 24.2 Extensions of the Simple Search Model 843 24.3 Wage Determination 845' 24.4 Accessions: Search Models 852 Appendix 24.A The Reservation Wage 859 Chapter 25 Turnover II: Quits and Layoffs 861 25.1 Turnover: Evidence and Interpretation 862 25.2 Efficient Separations 868 25.3 Displaced Workers: The Evidence 876 25.4 Displaced Workers: Theory 882 25.5 Easing the Burden of Worker Displacements 888 PAiT TOOLS OF THE TRADE AppendixA Econometric Methods A-3 A.I Linear Regression A-4 A.2 Hypothesis Testing and the Goodness of Fit A-10 A.3 Problems and Pitfalls A-14 A.4 Categories of Economic Data A-19 Appendix B Proportions, Percentages, and Elasticities A-23 B.I Proportionate and Percentage Changes A-23 B.2 Elasticities A-26
xiv Contents Appendix C Present Values and Discounted Utilities A-33 C.I Present Values A-34 C.2 Payment Streams A-36 C.3 Discounted Utilities A-38 Appendix D Decision Making under Uncertainty A-41 D.I The Expected Utility Hypothesis A-42 D.2 Attitudes Toward Risk A-45 D.3 The Insurance Business A-48 Notes N-l References R-l End of Chapter Review Questions and Problems Solutions S-l Credits C-l Name Index 1-1 Subject Index 1-5 SUPPLEMENTARY WEBSITE CHAPTERS Chapter 26 The Long-Run Demand for Labor and Adjustment Costs Chapter 2? Policy Application: Income Taxes Chapter 28 Labor Supply over the Life Cycle Chapter 29 The Family Chapter 30 Retirement Chapter 31 Crime Chapter 32 Trade Unions II: Collective Bargaining and Strikes Chapter 33 Earnings II: Sectoral Shocks and Aggregate Disturbances Chapter 34 Education I: The Performance of Schools and Colleges Chapter 35 Education II: Governance and Finance