Program report: labor studies.

Freeman, Richard B.

Program Report

Labor Studies

During the three years since my last article, the NBER's Program in Labor Sudies has produced reports on nearly 200 individual studies as working papers and conference papers. These studies dealt with a very wide range of subjects. Fourteen percent of the working papers focused on traditional human capital analyses of earnings and mobility; 13 percent studied trade unionism in the United States; 18 percent examined the effects of government programs on labor markets; 11 percent focused on labor supply behavior; 11 percent were about market determination of wages and employment; and 4 percent dealt with methodology and data. The program's most recent research is slightly different from the earlier work, in that 15 percent of the papers deal with overseas labor market institutions, and another 15 percent concentrate on the behavior of employers and demand-side issues.

Firm Behavior and Market Outcomes

The growing research on firm behavior, and much of the work on market determination of wages and employment, is more balanced than in the recent past when labor economists tended to focus solely on supply behavior and the effects of individual characteristics on wages. John M. Abowd, Roland G. Ehrenberg, and others have studied how firm policies on compensation and human resources affect economic performance.(1) Other papers explained industry wage differentials as rent sharing, rather than efficiency wages.(2) Katharine G. Abraham considered employers' strategies for adjusting to shifts in the demand for their product;(3) and Charles C. Brown and James L. Medoff analyzed the relationship between employer size and wages.(4) One trigger for this new research on labor demand has been the widespread recognition that demand-side factors explain much of the sharp rise in education differentials and inequality of earnings in the 1980s.(5)

Several recent NBER studies of firm behavior use new and different datasets. While many labor economists in our program work with CPS files and longitudinal individual files, others have constructed firm datasets and have used them to assess wage behavior, turnover, and modes of adjustment to external shocks.(6) In fact, a joint NBER-Cornell conference (organized by Ehrenberg) brought together NBER researchers, other economists, and corporate personnel managers to discuss the potential for creating datasets on business compensation and personnel policies.

Comparative Labor Markets

How do labor markets operate in other developed countries? NBER researchers have examined patterns of unionization in different countries. David G. Blanchflower and I found that U.S. unions have a larger effect on wages than unions in other countries.(7) Blanchflower and his colleagues found that unionization in England is highest in areas of high unemployment.(8) Louis N. Christofides and Andrew J. Oswald concluded from data on Canadian labor contracts that collective bargaining is a form of rent sharing in which external unemployment weakens workers' bargaining strength.(9) Jeffrey Pelletier and I examined changes in British union density during 1945-86, and found that the Thatcher government's labor laws caused much of the 1980s fall in rates of unionization.(10) Blanchflower and others also studied the effect of unions on earnings determination,(11) and the effect of different wage-payment mechanisms and institutions on turnover and labor market adjustments.(12)

Further, two of the labor program's research conferences on immigration had significant comparative components.(13) In addition, a joint conference with Japanese economists examined unionization, earnings differentials, and employment responsiveness in the two countries.(14)

Labor Supply, Government Programs, Human Capital, and Unionism

Labor supply analysis traditionally has focused on hours worked, labor force participation, and mobility, and a substantial number of NBER papers pursued these topics.(15) Much of the research on government programs was concerned with supply issues, including the effects of: transfer payments and Medicaid on participation;(16) unemployment insurance systems on the duration of unemployment;(17) and workers' compensation and disability insurance on the supply of labor.(18)

Recent NBER research on pensions has shown the effect of "window" plans on retirement, has estimated the cost in lost benefits of changing jobs, and has examined related issues.(19) However, program members also have tackled such nontraditional topics as immigrant location and participation in welfare; queues for federal jobs; the quality of army retentions; self-employment; the underground economy; fertility; and the allocation of time to sleep.(20)

We have studied several government programs' effects on private employers. Alan B. Krueger and John F. Burton, Jr. estimated the cost to employers of workers' compensation,(21) and looked at the growth in unfair dismissal legislation.(22) Wayne B. Gray, in work with Carol Adaire Jones and John T. Scholz, analyzed employers' responses to OSHA health and safety inspections.(23) Other NBER research focused on public sector arbitration mechanisms,(24) and on the effects of public sector laws on wages.(25)

Since the "human capital revolution" in labor economics, a significant part of the NBER's research has focused on the returns to: education, on-the-job training, and total market experience and seniority. Recent research on these issues has made use of direct measures of training.(26) David Card and Krueger examined the effect of school quality--based on differences in state resources spent on education--on earnings.(27) Other research considered the effect of: community influences on labor market outcomes;(28) health and the risk of injury on wages;(29) career plans on male-female earnings differentials;(30) and "schmoozing" on productivity and wages.(31) Jacob A. Mincer and others also have contributed to the debate over the magnitude and interpretation of age-earnings profiles.(32)

Krueger and Joshua D. Angrist used time of birth as an instrument to differentiate the effect on earnings of unobserved earnings potential from those of veteran status.(33) Mincer, Ann P. Bartel, and others studied the effect of technological change on human capital and career patterns,(34) in work that parallels the increasing concern for the effects of demand on market outcomes.

Unionism, the last "traditional topic" for labor economists, has declined in the U.S. private sector. As a result, NBER research on unionism increasingly has focused on: the effects of unions in the public sector, where they remain strong;(35) the reasons for the precipitous fall in union density in America;(36) and unions' effects on firms. In addition, various papers have examined the effects of union activity on the value of firms.(37)

Methodology and Data

The working papers on methodology reveal a general concern for two issues that had been relatively neglected during the heyday of structural econometric modeling. First, John Bound and others explored measurement error, comparing measures of earnings across different datasets, and investigating the problems with data on retrospective unemployment.(38)

Card and others have attempted to discover better "pseudo-experiments" and more imaginative instruments for econometric analysis. He assessed the effect of immigrants on labor market outcomes by looking specifically at the Mariel boatlift.(39) Bruce D. Meyer estimated the impact of government unemployment programs by concentrating on selected states that have experienced periodic increases in benefit levels.(40) Morris M. Kleiner and I examined union effects in firms that only recently had become unionized.(41) James J. Heckman and Brook S. Payner attempted to determine the effect of government programs on blacks by concentrating specifically on particular sectors in South Carolina.(42) The underlying theme of these and other studies is that if research finds the "right" experiment (even if it covers only a modest number of workers) or the "right" instrument, it potentially can yield better estimates of behavior than complicated models that treat larger, but arguably less appropriate, samples.

Future Endeavors

The NBER Program in Labor Studies had begun a major new area of work on comparative labor markets and social insurance programs, contrasting the United States and other advanced OECD countries. Five conferences are planned for the next three years covering a wide range of topics, including: works councils, wage structures, training, social insurance systems, and safety net programs for the very poor. Undoubtedly there will be additional comparative work on the emerging market economies of Eastern Europe.

(1)J. M. Abowd, J. M. Hannon, and G. T. Milkovich, "The Effects of Human Resource Management Decisions on Shareholder Values," NBER Working Paper No. 3148, October 1989; C. Ichniowski, "Human Resource Management Systems and the Performance of U.S. Manufacturing Businesses," NBER Working Paper No. 3349, September 1990; J. M. Abowd, "Does Performance-Based Managerial Compensation Affect Subsequent Corporate Performance?" NBER Working Paper No. 3149, October 1989; A. P. Bartel, "Formal Employee Training Programs and Their Impact on Productivity: Evidence from Human Resources Survey," NBER Working Paper No. 3026, July 1989; and H. J. Holzer, "Wages, Employer Costs, and Employee Performance in the Firm," NBER Reprint No. 1374, April 1990. For the public sector: R. G. Ehrenberg, R. A. Ehrenberg, E. L. Ehrenberg, and D. I. Rees, "School District Leave Policies, Teacher Absenteeism, and Student Achievement," NBER Working Paper No. 2874, March 1989. (2)W. T. Dickens, L. F. Katz, and L. H. Summers, "Employee Crime and the Monitoring Puzzle," NBER Reprint No. 1309, November 1989. (3)K. G. Abraham, "Flexible Staffing Arrangements and Employers' Short-Term Adjustment Strategies," NBER Working Paper No. 2617, June 1988. (4)C. C. Brown and J. L. Medoff, "The Employer Size-Wage Effect," NBER Reprint No. 1327, December 1989. (5)M. L. Blackburn, D. E. Bloom, and R. B. Freeman, "The Declining Position of Less-Skilled American Males," NBER Working Paper No. 3186, November 1989; J. Bound and G. E. Johnson, "Changes in the Structure of Wages during the 1980s: An Evaluation of Alternative Explanations," NBER Working Paper No. 2983, May 1989; and L. F. Katz and A. L. Revenga, "Changes in the Structure of Wages: The United States versus Japan," NBER Reprint No. 1354, February 1990. (6)A. B. Krueger, "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," NBER Working Paper No. 3334, April 1990; D. S. Hamermesh and S. A. Woodbury," Taxes, Fringe Benefits, and Faculty," NBER Working Paper No. 3455, September 1990; C. C. Brown, "Wage Levels and Method of Pay," NBER Reprint No. 1409, May 1990; H. J. Holzer and E. B. Montgomery, "Asymmetries and Rigidities in Wage Adjustments by Firms," NBER Working Paper No. 3274, March 1990; J. R. Barro and R. J. Barro, "Pay, Performance, and Turnover of Bank CEOs," NBER Working Paper No. 3262, February 1990; and R. G. Ehrenberg, H. Kasper, and D. I. Rees, "Faculty Turnover at American Colleges and Universities: Analysis of AAUP Data," NBER Working Paper No. 3239, January 1990. (7)D. G. Blanchflower and R. B. Freeman, "Going Different Ways: Unionism in the United States and Other Advanced OECD Countries," NBER Working Paper No. 3342, April 1990. (8)D. G. Blanchflower, R. Crouchley, S. Estrin, and A. J. Oswald, "Unemployment and the Demand for Unions," NBER Working Paper No. 3251, February 1990. (9)L. N. Christofides and A. J. Oswald, "Real Wage Determination in Collective Bargaining Agreements," NBER Working Paper No. 3188, November 1989. (10)R. B. Freeman and J. Pelletier, "The Impact of Industrial Relations Legislation on British Union Density," NBER Working Paper No. 3167, November 1989. (11)D. G. Blanchflower, "Fear, Unemployment, and Pay Flexibility," NBER Working Paper No. 3365, May 1990; D. E. Bloom and M. Gunderson, "An Analysis of the Earnings of Canadian Immigrants," NBER Working Paper No. 3035, July 1989; D. G. Blanchflower and A. J. Oswald, "The Wage Curve," NBER Reprint No. 1449, September 1990; D. G. Blanchflower, A. J. Oswald, and M. D. Garrett, "Insider Power in Wage Determination," NBER Reprint No. 1443, August 1990; D. E. Bloom, R. B. Freeman, and S. D. Korenman, "The Labour Market Consequences of Generational Crowding," NBER Reprint No. 1206, June 1989; and L. F. Katz and A. L. Revenga, "Changes in the Structure of Wages . . ." (12)R. B. Freeman and M. L. Weitzman, "Bonuses and Employment in Japan," NBER Reprint No. 1106, February 1989; K. G. Abraham and S. N. Houseman, "Job Security and Work Force Adjustments: How Different Are U.S. and Japanese Practices?" NBER Reprint No. 1413, June 1990; T. Ito and K. Kang, "Bonuses, Overtime, and Employment: Korea versus Japan," NBER Reprint No. 1391, April 1990; J. A. Mincer and Y. Higuchi, "Wage Structures and Labor Turnover in the United States and Japan," NBER Reprint No. 1101, February 1989; and R. B. Freeman, "Evaluating the European View That the United States Has No Unemployment Problem," NBER Reprint No. 1150, March 1989. (13)The effects of immigration and trade on American employment and wages, including comparisons with Canada and Australia, were explored in Immigration, Trade, and the Labor Market, J. M. Abowd and R. B. Freeman, eds. Chicago: University of Chicago Press, forthcoming. The effects of immigration on source countries were explored in Immigration in Source and Receiving Countries, G. J. Borjas and R. B. Freeman, eds. (14)Journal of the Japanese and International Economies 3, 4 (November 1989). (15)J. D. Angrist, "Does Labor Supply Explain Fluctuations in Average Hours Worked?" NBER Working Paper No. 3312, March 1990; B. Jovanovic and R. Moffitt, "An Estimate of a Sectorial Model of Labor Mobility," NBER Working Paper No. 3227, January 1990; and F. D. Blau and A. J. Grossberg, "Wage and Employment Uncertainty and the Labor Force Participation Decisions of Married Women," NBER Working Paper No. 3081, August 1989. (16)R. Moffitt and B. Wolfe, "The Effect of the Medicaid Program on Welfare Participation and Labor Supply," NBER Working Paper No. 3286, March 1990; P. de Jong, R. Haveman, and B. Wolfe, "Labor and Transfer Incomes and Older Women's Work: Estimates from the United States," NBER Working Paper No. 2728, October 1988. (17)L. F. Katz and B. D. Meyer, "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," NBER Reprint No. 1435, July 1990; B. D. Meyer, "Implications of the Illinois Reemployment Bonus Experiments for Theories of Unemployment and Policy Design," NBER Working Paper No. 2783, December 1988, and "A Quasi-Experimental Approach to the Effects of Unemployment Insurance," NBER Working Paper No. 3159, November 1989; and A. Alba-Ramirez and R. B. Freeman, "Jobfinding and Wages When Long-Run Unemployment Is Really Long: The Case of Spain," NBER Working Paper No. 3409, August 1990. (18)J. Bound, "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Reprint No. 1260, August 1989; R. G. Ehrenberg, "Workers' Compensation, Wages, and the Risk of Injury," NBER Reprint No. 1293, October 1989; and A. B. Krueger, "Workers' Compensation Insurance and the Duration of Workplace Injuries," NBER Working Paper No. 3253, February 1990, and "Incentive Effects of Workers' Compensation Insurance," NBER Reprint No. 1466, November 1990. (19)R. J. Lumsdaine, J. H. Stock, and D. A. Wise, "Efficient Windows and Labor Force Reduction," NBER Working Paper No. 3369, May 1990; A. L. Gustman and T. L. Steinmeier, "Changing the Social Security Rules for Workers over 65: Proposed Policies and Their Effects," NBER Working Paper No. 3087, August 1989; A. L. Gustman and O. S. Mitchell, "Pensions and Labor Market Activity: Behavior and Data Requirements," NBER Working Paper No. 3331, April 1990; S. G. Allen, R. L. Clark, and A. A. McDermed, "The Pension Cost of Changing Jobs," NBER Working Paper No. 2935, April 1989; and O. S. Mitchell, "The Effects of Mandating Benefits Packages," NBER Working Paper No. 3260, February 1990. (20)G. J. Borjas and S. J. Trejo, "Immigrant Participation in the Welfare System," NBER Working Paper No. 3423, August 1990; A. P. Bartel, "Where Do the New Immigrants Live?" NBER Reprint No. 1395, May 1990; G. J. Borjas and S. G. Bronars, "Consumer Discrimination and Self-Employment," NBER Reprint No. 1269, September 1989; A. B. Krueger, "The Determinants of Queues for Federal Jobs," NBER Reprint No 1079, December 1988; C. C. Brown, "The Quality Dimension in Army Retention," NBER Working Paper No. 3337, April 1990; B. Fortin, P. Frechette, and T. Lemieux, "An Empirical Model of Labor Supply in the Underground Economy," NBER Working Paper No. 3392, June 1990; J. J. Heckman and J. R. Walker, "Forecasting Aggregate Period-Specific Birth Rates: The Time-Series Properties of a Microdynamic Neoclassical Model of Fertility," NBER Working Paper No. 3133, October 1989; M. L. Blackburn, D. E. Bloom, and D. Neumark, "Fertility, Timing, Wages, and Human Capital," NBER Working Paper No. 3422, August 1990; and J. E. Biddle and D. S. Hamermesh, "Sleep and the Allocation of Time," NBER Working Paper No. 2988, May 1989. (21)A. B. Krueger and J. F. Burton, Jr., "The Employers' Cost of Workers' Compensation Insurance: Magnitudes, Determinants, and Public Policy," NBER Working Paper No. 3029, July 1989. (22)A. B. Krueger, "The Evolution of Unjust-Dismissal Legislation in the United States," NBER Working Paper No. 3127, September 1989. (23)W. B. Gray and C. A. Jones, "Longitudinal Patterns of Compliance with OSHA Health and Safety Regulations in the Manufacturing Sector," NBER Working Paper No. 3213, December 1989, and "Are OSHA Health Inspections Effective? A Longitudinal Study in the Manufacturing Sector," NBER Working Paper No. 3233, January 1990; and W. B. Gray and J. T. Scholz, "A Behavioral Approach to Compliance: OSHA Enforcement's Impact on Workplace Accidents," NBER Working Paper No. 2813, January 1989. (24)R. S. Gibbons, "Learning in Equilibrium Models of Arbitration," NBER Reprint No. 1218, July 1989; O. C. Ashenfelter, J. Currie, H. S. Farber, and M. Spiegel, "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," NBER Working Paper No. 3417, August 1990; and H. S. Farber and M. H. Bazerman, "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbritration Schemes," NBER Reprint No. 1249, August 1989. (25)J. Gyourko and J. S. Tracy, "Public Sector Bargaining and the Local Budgetary Process," NBER Working Paper No. 2915, March 1989; J. S. Tracy, "Comparisons of Public and Private Sector Union Wage Differentials: Does the Legal Environment Matter?" NBER Working Paper No. 2755, November 1988; and R. B. Freeman, C. Ichniowski, and H. Lauer, "Collective Bargaining Laws, Threat Effects, and the Determination of Police Compensation," NBER Reprint No. 1190, May 1989. (26)J. A. Mincer, "Job Training: Costs, Returns, and Wage Profiles," NBER Working Paper No. 3208, December 1989; and L. M. Lynch, "Private Sector Training and Its Impact on the Earnings of Young Workers," NBER Working Paper No. 2872, March 1989. (27)D. Card and A. B. Krueger, "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," NBER Working Paper No. 3358, May 1990. (28)M. Corcoran, R. H. Gordon, D. Laren, and G. Solon, "Effects of Family and Community Background on Men's Economic Status," NBER Working Paper No. 2896, March 1989. (29)R. H. Haveman, M. Stone, and B. Wolfe, "Market Work, Wages, and Men's Health," NBER Working Paper No. 3020, June 1989; and D. S. Hamermesh and J. R. Wolfe, "Compensating Wage Differentials and the Duration of Wage Loss," NBER Reprint No. 1411, May 1990. (30)F. D. Blau and M. A. Farber, "Career Plans and Expectations of Young Women and Men: The Earnings Gap and Labor Force Participation," NBER Working Paper No. 3445, September 1990. (31)D. S. Hamermesh, "Shirking of Productive Schmoozing: Wages and the Allocation of Time at Work," NBER Reprint No. 1375, April 1990. (32)J. A. Mincer, "Job Training, Wage Growth, and Labor Turnover," NBER Working Paper No. 2690, August 1988; R. H. Topel, "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Paper No. 3294, March 1990; L. J. Kotlikoff, "Estimating the Age-Productivity Profile Using Lifetime Earnings," NBER Working Paper No. 2788, December 1988; and K. G. Abraham and H. S. Farber, "Returns to Seniority in Union and Nonunion Jobs: A New Look at the Evidence," NBER Reprint No. 1160, April 1989. (33)J. D. Angrist and A. B. Krueger, "Why Do World War II Veterans Earn More Than Nonveterans?" NBER Working Paper No. 2991, May 1989. (34)J. A. Mincer, "Human Capital Responses to Technological Change in the Labor Market," NBER Working Paper No. 3207, December 1989; A. P. Bartel and N. Sicherman, "Technological Change and the Careers of Older Workers," NBER Working Paper No. 3433, September 1990; A. P. Bartel and F. R. Lichtenberg, "Technical Change, Learning, and Wages," NBER Working Paper No. 2732, October 1988; and M. L. Blackburn and D. E. Bloom, "Earnings and Income Inequality in the United States," NBER Reprint No. 1187, May 1989. (35)S. G. Allen, "Unions and Job Security in the Public Sector," NBER Reprint No. 1257, August 1989; and J. S. Tracy, "Comparisons of Public and Private Sector Union Wage Differentials: Does the Legal Environment Matter?" NBER Working Paper No. 2755, November 1988. (36)H. S. Farber, "Trends in Worker Demand for Union Representation," NBER Working Paper No. 2857, February 1989, and "The Recent Decline of Unionization in the United States," NBER Reprint No. 1012, June 1988; S. G. Allen, "Declining Unionization in Construction: The Facts and the Reasons," NBER Reprint No. 1103, February 1989; J. M. Abowd and H. S. Farber, "Product Market Competition, Union Organizing Activity, and Employer Resistance," NBER Working Paper No. 3353, May 1990; D. G. Blanchflower and R. B. Freeman, "Going Different Ways . . ."; and R. B. Freeman and M. B. Kleiner, "Employer Behavior in the Face of Union Organizing Drives," NBER Reprint No. 1467, November 1990. (37)J. M. Abowd, "The Effect of Wage Bargains on the Stock Market Value of the Firm," NBER Reprint No. 1319, November 1989; J. S. Tracy, "Testing Strategic Bargaining Models Using Stock Market Data," NBER Working Paper No. 2754, November 1988; and J. Rosett, "Do Union Wealth Concessions Explain Takeover Premiums? The Evidence on Contract Wages," NBER Working Paper No. 3187, November 1989. (38)J. Bound and A. B. Krueger, "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?" NBER Working Paper No. 2885, March 1989; and J. Bound, C. C. Brown, G. J. Duncan, and W. L. Rodgers, "Measurement Error in Cross-Sectional and Longitudinal Labor Market Surveys: Results from Two Validation Studies," NBER Working Paper No. 2884, March 1989. (39)D. Card, "The Impact of the Mariel Boatlift on the Miami Labor Market," NBER Working Paper No. 3069, August 1989. (40)B. D. Meyer, "A Quasi-Experimental Approach to the Effects of Unemployment Insurance," NBER Working Paper No. 3159, November 1989. (41)R. B. Freeman and M. M. Kleiner, "The Impact of New Unionization on Wages and Working Conditions," NBER Reprint No. 1410, May 1990. (42)J. J. Heckman and B. S. Payner, "Determining the Impact of Federal Antidiscrimination Policy on the Economic Status of Blacks: A Study of South Carolina," NBER Working Paper No. 2854, February 1989.