Why Was there Mandatory Retirement? or the Impossibility of Efficient Bonding Contracts

Lazear has argued that hours constraints, in general, and mandatory retirement, in particular, form part of an efficient labor market contract designed to increase output by inhibiting worker shirking. Since the contract is efficient, legislative interference is welfare reducing. However, in any case where bonding is costly, the hours constraints will not be chosen optimally. Although it is theoretically possible that bonding is costless, in this case the earnings profile is indeterminate and we should never observe monitoring aimed at reducing shirking. It therefore appears that bonding should be modelled as costly. If so, the role of policy depends on the source of bonding costs, the set of feasible contracts and the policy options which are available to government.

Poverty and Discrimination

Many ideas about poverty and discrimination are nothing more than politically driven assertions unsupported by evidence. And even politically neutral studies that do try to assess evidence are often simply unreliable. In Poverty and Discrimination , economist Kevin Lang cuts through the vast literature on poverty and discrimination to determine what we actually know and how we know it. Using rigorous statistical analysis and economic thinking to judge what the best research is and which theories match the evidence, this book clears the ground for students, social scientists, and policymakers who want to understand--and help reduce--poverty and discrimination. It evaluates how well antipoverty and antidiscrimination policies and programs have worked--and whether they have sometimes actually made the problems worse. And it provides new insights about the causes of, and possible solutions to, poverty and discrimination. The book begins by asking, "Who is poor?" and by giving a brief history of poverty and poverty policy in the United States in the twentieth century, including the Welfare Reform Act of 1996. Among the topics covered are the changing definition of poverty, the relation between economic growth and poverty, and the effects of labor markets, education, family composition, and concentrated poverty. The book then evaluates the evidence on racial discrimination in areas such as education, employment, and criminal justice, as well as sex discrimination in the labor market, and assesses the effectiveness of antidiscrimination policies. Throughout, the book is grounded in the conviction that we must have much better empirical knowledge of poverty and discrimination if we hope to reduce them.poverty, discrimination, welfare, reform, economic growth, labor markets, education, family, race, employmwent, criminal justice

Monitoring for worker quality

Much nonmanagerial work is routine, with all workers having similar output most of the time. However, failure to address occasional challenges can be very costly, and consequently easily detected, while challenges handled well pass unnoticed. We analyze job assignment and worker monitoring for such “guardian” jobs. If monitoring costs are positive but small, monitoring is nonmonotonic in the firm’s belief about the probability that a worker is good. The model explains several empirical regularities regarding nonmanagerial internal labor markets: low use of performance pay, seniority pay, rare demotions, wage ceilings within grade, and wage jumps at promotion.The research in this paper was supported in part by National Science Foundation grant SES-1260917. We are grateful to Costas Cavounidis, Bob Gibbons, Sambuddha Ghosh, Eddie Lazear, Bart Lipman, Andy Newman, Mike Waldman, and participants at seminars, workshops, and conferences at Boston University, Massachusetts Institute of Technology, the National Bureau of Economic Research, the Society of Labor Economics, Tel Aviv University, University of California, Santa Barbara, and the University of New South Wales for helpful comments and suggestions. The usual caveat applies. Contact the corresponding author, Kevin Lang, at [email protected]; and coauthor Gautam Bose at [email protected]. (SES-1260917 - National Science Foundation

School entry, educational attainment, and quarter of birth: a cautionary tale of a local average treatment effect

Studies of the effects of school entry age on short-run and long-run outcomes generally fail to capture the parameter of policy interest and/or are inconsistent because the instrument they use violates monotonicity, required for identification of a local average treatment effect. Our instrument addresses both problems and shows no effect of entry age on the educational attainment of children born in the fourth quarter who delay enrollment only because they are constrained by the law. We provide suggestive evidence that a waiver policy allowing some children to enter before the legally permissible age increases average educational attainment.We are grateful to Josh Angrist, Garry Barrett, Sandy Black, Jim Heckman, Caroline Hoxby, Claudia Olivetti, Daniele Paserman, two anonymous referees, the editors of this Journal, and participants in seminars at the Australian National University, Boston University, University of Chicago, Massachusetts Institute of Technology, University of California, Irvine, New York University, Pomona College, Singapore Management University, Tilburg University, the Tinbergen Institute, the University of Wollongong, Society of Labor Economists, and Econometric Society for helpful comments and suggestions. The usual caveat applies. Barua acknowledges funding under National Science Foundation American Educational Research Association grant REC-0634035. Lang acknowledges funding from the National Science Foundation under grant SEC-0339149. The opinions expressed here are those of the authors and not necessarily those of the funding agencies. (REC-0634035 - National Science Foundation American Educational Research Association; SEC-0339149 - National Science Foundation

Ben-Porath meets Lazear: lifetime skill investment and occupation choice with multiple skills

We develop a fairly general and tractable model of investment when workers can invest in multiple skills and different jobs put different weights on those skills. In addition to expected findings such as that younger workers are more likely than older workers to respond to a demand shock by investing in skills whose value unexpectedly increases, we derive some less obvious results. Credit constraints may affect investment even when they do not bind it equilibrium. If there are mobility costs, firms will generally have an incentive to invest in some of their workers' skills even when there are a large number of similar competitors, and, in equilibrium, there can be overinvestment in all skills. Worker skill accumulation resembles learning by doing even in its absence. We demonstrate how the model can be simulated to show the effect of a shock to the price of individual skills.Othe

Social ties and the job search of recent immigrants

This article highlights a specific mechanism through which social networks help in job search. The authors characterize the strength of a network by its likelihood of providing a job offer. Using a theoretical model, they show that the difference between wages in jobs found using networks versus those found using formal channels decreases as the network becomes stronger. The authors verify this result for recent immigrants to Canada for whom a strong network is captured by the presence of a “close tie.” Furthermore, structural estimates confirm that the presence of a close tie operates by increasing the likelihood of generating a job offer from the network rather than by altering the network wage distribution.Accepted manuscrip

Educational homogamy and assortative mating have not increased

Some economists have argued that assortative mating between men and women has increased over the last several decades, thereby contributing to increased family income inequality. Sociologists have argued that educational homogamy has increased. We clarify the relation between the two and, using both the Current Population Surveys and the decennial Censuses/American Community Survey, show that neither is correct. The former is based on the use of inappropriate statistical techniques. Both are sensitive to how educational categories are chosen. We also find no evidence that the correlation between spouses' potential earnings has changed dramatically.Othe

A Theory of Monitoring and Internal Labor Markets

We analyze a firm's job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.