CONTENTS
1 Introduction = 1
The Labor Market = 2
Labor Economics : Some Basic Concepts = 2
Plan of the Text = 10
2 Overview of the Labor Market = 11
The Labor Market : Definitions, Facts, and Trends = 12
How the Market Works = 22
Applications of the Theory = 36
Example 2.1 The Black Death and the Wages of Labor = 30
Example 2.2 Restricted Labor Supply in the Soviet Union = 39
3 The Demand for Labor = 49
A Simple Model of Labor Demand = 50
Modified Models of Labor Demand = 62
Policy Application : Minimum Wage Legislation = 69
Example 3.1 Store Detectives and the Optimal Rate of Shoplifting = 55
Example 3.2 Coal Mining = 58
Example 3.3 Minimum Wages in Developing Countries = 79
Appendix 3A Graphic Derivation of a Firm's Labor Demand Curve = 82
The Production Function = 82
Demand for Labor In the Short Run = 84
Demand for Labor in the Long Run = 85
4 Elasticities of the Demand for Labor = 90
Elasticity and Cross-Elasticity Defined = 90
The Hicks-Marshall Laws of Derived Demand = 92
Empirical Evidence on Wage Elasticities of Demand = 99
Applying the Laws of Derived Demand = 102
Policy Applications = 103
Example 4.1 How to Finance Black Lung Benefits = 96
Example 4.2 The Slowdown in U.S. Productivity Growth = 107
Appendix 4A The Laws of Derived Demand = 110
Scale Effect But No Substitution Effect = 110
Substitution Effect But No Scale Effect = 116
5 Quasi-Fixed Labor Costs and Their Effects on Demand = 120
Nonwage Labor Costs = 120
The Employment／Hours Trade-off = 125
Firms' Labor Investments and the Demand for Labor = 130
Training Investments = 135
Hiring Investments = 141
Policy Application : Why Do Employers Discriminate In Hiring? = 143
Example 5.1 Recruiting Strategies = 122
Example 5.2 Paternalism in Japan-Is It Rooted in Feudalism or Economics? = 139
Example 5.3 Coping with Fluctuations in Product Demand = 144
6 Supply of Labor to the Economy : The Decision to Work = 149
Trends in Labor Force Participation and Hours of Work = 149
A Theory of the Decision to Work = 154
Policy Applications = 175
Example 6.1 Incentives and Absenteeism = 158
Example 6.2 The Economics of the "Workaholic" = 178
Example 6.3 Worker Adjustment to Incentives = 187
7 Labor Supply : Household Production, the Family, and the Life Cycle = 193
The Theory of Household Production = 193
Joint Husband-Wife Labor Supply Decisions = 198
Household Production Theory and Some Social Issues = 202
Life-Cycle Aspects of Labor Supply = 206
Example 7.1 Household Productivity and Labor Supply in Japan = 199
Example 7.2 The Value of a Homemaker's Time = 208
8 Compensating Wage Differentials and Labor Markets = 219
A Verbal Analysis of Occupational Choice = 219
A Hedonte Theory of Wages = 226
Empirical Testa of the Theory of Compensating Wage Differentials = 233
Policy Applications = 236
Example 8.1 Coal Mining in the Soviet Union = 221
Example 8.2 Compensating Wage Differentials in 19th-century Britain = 234
Example 8.3 Mandatory Risk Reduction in Coal Mining = 236
Appendix 8A Compensating Wage Differentials and Layoffs = 248
Unconstrained Choice of Work Hours = 248
Constrained Hours of Work = 249
The Effects of Uncertain Layoffs = 250
The Observed Wage-Layoff Relationship = 252
9 Investments In Human Capital : Education and Training = 253
Demand for Education by Workers = 254
The Education/Wage Relationship = 267
Is Education a Good Investment? = 272
Applications of Human Capital Theory = 284
Example 9.1 Do Unskilled Jobs Cause Poor Mental Health? = 262
Example 9.2 Schooling, Earnings, and Compensation for Wrongful Death = 273
Example 9.3 The Socially Optimal Level of Educational nvestment = 281
Example 9.4 Communists or(Human) Capitalists? = 284
Appendix 9A "Signaling" in the Labor Market = 298
The Firm's Desire for Signals = 299
Worker Supply of Signals = 299
The Usefulness of Educational Signaling = 300
10 Worker Mobility : Turnover and Migration = 302
The Determinants of Worker Mobility = 304
Geographic Mobility = 306
Voluntary Turnover = 314
National Immigration Policy = 320
Example 10.1 Job Satisfaction : An Alternative View = 305
Example 10.2 The New Economics of Job Rotation = 313
Example 10.3 A Positive and Normative Theory of Quitting in 19th-Century Japan = 319
Example 10.4 "Economic" vs. "Political" Immigrants = 323
Example 10.5 Indentured Servitude and Human. Capital Investments = 329
11 The Structure of Compensation = 333
The Economics of Fringe Benefits = 334
Implicit Contracts, Explicit Contracts, and Asymmetric Information = 347
The Basis of Pay = 349
Internal Labor Markets and the Time Pattern of Compensation = 355
Example 11.1 The Wage／Fringe Trade-off in the Collective Bargaining Process = 344
Example 11.2 Incentive Pay and Output-or "You Get What You Pay For" = 353
Example 11.3 Compensation Schemes to Modify Worker Behavior in Other Times and Places = 357
12 Unions and Collective Bargaining in the Private Sector = 366
Unions and Collective Bargaining = 368
How Unions Achieve Their Objectives = 376
The Effects of Unions = 388
Unions In Regulated Industries : Conflicting Policy Goals = 403
Example 12.1 The Davis-Bacon Act = 379
Example 12.2 Concession Bargaining and the Airlines = 381
Example 12.3 Codetermination and Union Relative Wage Gains in West Germany = 397
Appendix 12A "Monopoly Unions" or "Efficient Contracts"? = 406
13 Public Sector Labor Markets = 411
A Model of a Public Sector Labor Market = 416
The Growth and Effects of Public Sector Unions = 419
The Effects of Arbitration Statutes on the Wages of State and Local Government Employees = 424
Public vs. Private Pay Comparisons = 426
The Effect of Expenditure- and Tax-Limitation Legislation = 428
Public Sector Employment Programs = 431
Example 13.1 Pension Underfunding in the Government Sector = 424
Appendix 13A Arbitration and the Incentive to Bargain = 437
14 The Economics of Discrimination = 441
What Is Discrimination? = 441
Earnings Disparities by Race, Ethnicity, and Sex = 444
Theories of Market Discrimination = 454
State Fair Employment Practice Legislation = 468
Federal Programs to End Discrimination = 469
Example 14.1 Age and the End of Discrimination = 447
Example 14.2 Comparable Worth and the University = 475
Example 14.3 Is Affirmative Action Consistent with Equal Employment Opportunity? = 479
Example 14.4 How Fast Can Discrimination Be Eradicated? = 483
Appendix 14A Estimating "Comparable Worth" Earning Gaps : An Application of Regression Analysis = 487
15 Unemployment = 490
A Stock-Flow Model of the Labor Market = 492
Types of Unemployment and Their Causes = 496
The Demographic Structure of Unemployment Rates = 508
Search Unemployment and the Role of Unemployment Insurance Benefits = 513
Normative Issues in Unemployment = 516
Example 15.1 International Unemployment Rate Differentials = 502
Example 15.2 Unemployment Insurance Benefits in Great Britain = 517
Appendix 15A The Relationship Between the Unemployment Rate and Labor Market Flows = 522
16 Inflation and Unemployment = 524
Introduction = 524
The Wage Inflation／Unemployment Trade-off = 529
Wage Inflation, Price Inflation, Productivity, and the Long-Run Trade-off = 541
Unions and Inflation = 545
Incomes Policies = 547
Example 16.1 Wage Inflation and Unemployment Around the World = 539
Example 16.2 Incomes Policies During the Roman Empire = 553
Appendix 16A Does a Long-Run Trade-off Exist Between the Rate of Price Inflation and the Unemployment Rate? = 559
Name Index = 565
Subject Index = 569
1 Introduction = 1
The Labor Market = 2
Labor Economics : Some Basic Concepts = 2
Plan of the Text = 10
2 Overview of the Labor Market = 11
The Labor Market : Definitions, Facts, and Trends = 12
How the Market Works = 22
Applications of the Theory = 36
Example 2.1 The Black Death and the Wages of Labor = 30
Example 2.2 Restricted Labor Supply in the Soviet Union = 39
3 The Demand for Labor = 49
A Simple Model of Labor Demand = 50
Modified Models of Labor Demand = 62
Policy Application : Minimum Wage Legislation = 69
Example 3.1 Store Detectives and the Optimal Rate of Shoplifting = 55
Example 3.2 Coal Mining = 58
Example 3.3 Minimum Wages in Developing Countries = 79
Appendix 3A Graphic Derivation of a Firm's Labor Demand Curve = 82
The Production Function = 82
Demand for Labor In the Short Run = 84
Demand for Labor in the Long Run = 85
4 Elasticities of the Demand for Labor = 90
Elasticity and Cross-Elasticity Defined = 90
The Hicks-Marshall Laws of Derived Demand = 92
Empirical Evidence on Wage Elasticities of Demand = 99
Applying the Laws of Derived Demand = 102
Policy Applications = 103
Example 4.1 How to Finance Black Lung Benefits = 96
Example 4.2 The Slowdown in U.S. Productivity Growth = 107
Appendix 4A The Laws of Derived Demand = 110
Scale Effect But No Substitution Effect = 110
Substitution Effect But No Scale Effect = 116
5 Quasi-Fixed Labor Costs and Their Effects on Demand = 120
Nonwage Labor Costs = 120
The Employment／Hours Trade-off = 125
Firms' Labor Investments and the Demand for Labor = 130
Training Investments = 135
Hiring Investments = 141
Policy Application : Why Do Employers Discriminate In Hiring? = 143
Example 5.1 Recruiting Strategies = 122
Example 5.2 Paternalism in Japan-Is It Rooted in Feudalism or Economics? = 139
Example 5.3 Coping with Fluctuations in Product Demand = 144
6 Supply of Labor to the Economy : The Decision to Work = 149
Trends in Labor Force Participation and Hours of Work = 149
A Theory of the Decision to Work = 154
Policy Applications = 175
Example 6.1 Incentives and Absenteeism = 158
Example 6.2 The Economics of the "Workaholic" = 178
Example 6.3 Worker Adjustment to Incentives = 187
7 Labor Supply : Household Production, the Family, and the Life Cycle = 193
The Theory of Household Production = 193
Joint Husband-Wife Labor Supply Decisions = 198
Household Production Theory and Some Social Issues = 202
Life-Cycle Aspects of Labor Supply = 206
Example 7.1 Household Productivity and Labor Supply in Japan = 199
Example 7.2 The Value of a Homemaker's Time = 208
8 Compensating Wage Differentials and Labor Markets = 219
A Verbal Analysis of Occupational Choice = 219
A Hedonte Theory of Wages = 226
Empirical Testa of the Theory of Compensating Wage Differentials = 233
Policy Applications = 236
Example 8.1 Coal Mining in the Soviet Union = 221
Example 8.2 Compensating Wage Differentials in 19th-century Britain = 234
Example 8.3 Mandatory Risk Reduction in Coal Mining = 236
Appendix 8A Compensating Wage Differentials and Layoffs = 248
Unconstrained Choice of Work Hours = 248
Constrained Hours of Work = 249
The Effects of Uncertain Layoffs = 250
The Observed Wage-Layoff Relationship = 252
9 Investments In Human Capital : Education and Training = 253
Demand for Education by Workers = 254
The Education/Wage Relationship = 267
Is Education a Good Investment? = 272
Applications of Human Capital Theory = 284
Example 9.1 Do Unskilled Jobs Cause Poor Mental Health? = 262
Example 9.2 Schooling, Earnings, and Compensation for Wrongful Death = 273
Example 9.3 The Socially Optimal Level of Educational nvestment = 281
Example 9.4 Communists or(Human) Capitalists? = 284
Appendix 9A "Signaling" in the Labor Market = 298
The Firm's Desire for Signals = 299
Worker Supply of Signals = 299
The Usefulness of Educational Signaling = 300
10 Worker Mobility : Turnover and Migration = 302
The Determinants of Worker Mobility = 304
Geographic Mobility = 306
Voluntary Turnover = 314
National Immigration Policy = 320
Example 10.1 Job Satisfaction : An Alternative View = 305
Example 10.2 The New Economics of Job Rotation = 313
Example 10.3 A Positive and Normative Theory of Quitting in 19th-Century Japan = 319
Example 10.4 "Economic" vs. "Political" Immigrants = 323
Example 10.5 Indentured Servitude and Human. Capital Investments = 329
11 The Structure of Compensation = 333
The Economics of Fringe Benefits = 334
Implicit Contracts, Explicit Contracts, and Asymmetric Information = 347
The Basis of Pay = 349
Internal Labor Markets and the Time Pattern of Compensation = 355
Example 11.1 The Wage／Fringe Trade-off in the Collective Bargaining Process = 344
Example 11.2 Incentive Pay and Output-or "You Get What You Pay For" = 353
Example 11.3 Compensation Schemes to Modify Worker Behavior in Other Times and Places = 357
12 Unions and Collective Bargaining in the Private Sector = 366
Unions and Collective Bargaining = 368
How Unions Achieve Their Objectives = 376
The Effects of Unions = 388
Unions In Regulated Industries : Conflicting Policy Goals = 403
Example 12.1 The Davis-Bacon Act = 379
Example 12.2 Concession Bargaining and the Airlines = 381
Example 12.3 Codetermination and Union Relative Wage Gains in West Germany = 397
Appendix 12A "Monopoly Unions" or "Efficient Contracts"? = 406
13 Public Sector Labor Markets = 411
A Model of a Public Sector Labor Market = 416
The Growth and Effects of Public Sector Unions = 419
The Effects of Arbitration Statutes on the Wages of State and Local Government Employees = 424
Public vs. Private Pay Comparisons = 426
The Effect of Expenditure- and Tax-Limitation Legislation = 428
Public Sector Employment Programs = 431
Example 13.1 Pension Underfunding in the Government Sector = 424
Appendix 13A Arbitration and the Incentive to Bargain = 437
14 The Economics of Discrimination = 441
What Is Discrimination? = 441
Earnings Disparities by Race, Ethnicity, and Sex = 444
Theories of Market Discrimination = 454
State Fair Employment Practice Legislation = 468
Federal Programs to End Discrimination = 469
Example 14.1 Age and the End of Discrimination = 447
Example 14.2 Comparable Worth and the University = 475
Example 14.3 Is Affirmative Action Consistent with Equal Employment Opportunity? = 479
Example 14.4 How Fast Can Discrimination Be Eradicated? = 483
Appendix 14A Estimating "Comparable Worth" Earning Gaps : An Application of Regression Analysis = 487
15 Unemployment = 490
A Stock-Flow Model of the Labor Market = 492
Types of Unemployment and Their Causes = 496
The Demographic Structure of Unemployment Rates = 508
Search Unemployment and the Role of Unemployment Insurance Benefits = 513
Normative Issues in Unemployment = 516
Example 15.1 International Unemployment Rate Differentials = 502
Example 15.2 Unemployment Insurance Benefits in Great Britain = 517
Appendix 15A The Relationship Between the Unemployment Rate and Labor Market Flows = 522
16 Inflation and Unemployment = 524
Introduction = 524
The Wage Inflation／Unemployment Trade-off = 529
Wage Inflation, Price Inflation, Productivity, and the Long-Run Trade-off = 541
Unions and Inflation = 545
Incomes Policies = 547
Example 16.1 Wage Inflation and Unemployment Around the World = 539
Example 16.2 Incomes Policies During the Roman Empire = 553
Appendix 16A Does a Long-Run Trade-off Exist Between the Rate of Price Inflation and the Unemployment Rate? = 559
Name Index = 565
Subject Index = 569