CHAPTER 1 INTRODUCTION 1
The Labor Market 2
Labor Economics: Some Basic Concepts 2
Positive Economics 3
The Models and Predictions of Positive Economics 4
Normative Economics 7
Normative Economics and Government Policy 10
Efficiency versus Equity 11
Plan of the Text 12
Example 1.1 Positive Economics: What Does It Mean to “Understand”Behavior? 5
Review Questions 13
Problems 14
Selected Readings 15
Appendix 1A Statistical Testing of Labor Market Hypotheses 16
CHAPTER 2 OVERVIEW OF THE LABOR MARKET 25
The Labor Market: Definitions, Facts, and Trends 26
The Labor Force and Unemployment 27
Industries and Occupations: Adapting to Change 30
The Earnings of Labor 31
How the Labor Market Works 36
The Demand for Labor 37
The Supply of Labor 41
The Determination of the Wage 43
Applications of the Theory 48
Who Is Underpaid and Who Is Overpaid? 49
Unemployment and Responses to Technological Change across Countries 52
Example 2.1 Real Wages across Countries and Time: Big Macs per Hour Worked 34
Example 2.2 The Black Death and the Wages of Labor 47
Example 2.3 Forced Labor in Colonial Mozambique 51
Empirical Study Pay Levels and the Supply of Military Officers: Obtaining Sample Variation from Cross-Section Data 54
Review Questions 55
Problems 57
Selected Readings 58
CHAPTER 3 THE DEMAND FOR LABOR 59
Profit Maximization 60
Marginal Income from an Additional Unit of Input 61
Marginal Expense of an Added Input 62
The Short-Run Demand for Labor When Both Product and Labor Markets Are Competitive 63
A Critical Assumption: Declining MPL 64
From Profit Maximization to Labor Demand 65
The Demand for Labor in Competitive Markets When Other Inputs Can Be Varied 70
Labor Demand in the Long Run 70
More Than Two Inputs 73
Labor Demand When the Product Market Is Not Competitive 74
Maximizing Monopoly Profits 74
Do Monopolies Pay Higher Wages? 75
Policy Application: The Labor Market Effects of Employer Payroll Taxes and Wage Subsidies 76
Who Bears the Burden of a Payroll Tax? 76
Employment Subsidies as a Device to Help the Poor 78
Example 3.1 The Marginal Revenue Product of College Football Stars 63
Example 3.2 Coal Mining Wages and Capital Substitution 72
Empirical Study Do Women Pay for Employer-Funded Maternity Benefits? Using Cross-Section Data Over Time to Analyze “Differences in Differences” 80
Review Questions 83
Problems 84
Selected Readings 85
Appendix 3A Graphical Derivation of a Firm's Labor Demand Curve 86
CHAPTER 4 LABOR DEMAND ELASTICITIES 95
The Own-Wage Elasticity of Demand 96
The Hicks-Marshall Laws of Derived Demand 98
Estimates of Own-Wage Labor Demand Elasticities 101
Applying the Laws of Derived Demand: Inferential Analysis 103
The Cross-Wage Elasticity of Demand 105
Can the Laws of Derived Demand Be Applied to Cross-Elasticities? 106
Estimates Relating to Cross-Elasticities 108
Policy Application: Effects of Minimum Wage Laws 109
History and Description 109
Employment Effects: Theoretical Analysis 110
Employment Effects: Empirical Estimates 114
Does the Minimum Wage Fight Poverty? 116
“Living Wage” Laws 117
Applying Concepts of Labor Demand Elasticity to the Issue of Technological Change 118
Example 4.1 Why Are Union Wages So Different in Two Parts of the Trucking Industry? 104
Example 4.2 The Employment Effects of the First Federal Minimum Wage 115
Example 4.3 Gross Complementarity in the 19th Century Apparel Industry 120
Empirical Study Estimating the Labor Demand Curve: Time Series Data and Coping with “Simultaneity” 124
Review Questions 127
Problems 128
Selected Readings 129
CHAPTER 5 FRICTIONS IN THE LABOR MARKET 130
Frictions on the Employee Side of the Market 131
The Law of One Price 131
Monopsonistic Labor Markets: A Definition 134
Profit Maximization under Monopsonistic Conditions 135
How Do Monopsonistic Firms Respond to Shifts in the Supply Curve? 139
Monopsonistic Conditions and the Employment Response to Minimum Wage Legislation 142
Job Search Costs and Other Labor Market Outcomes 143
Monopsonistic Conditions and the Relevance of the Competitive Model 145
Frictions on the Employer Side of the Market 146
Categories of Quasi-Fixed Costs 146
The Employment/ Hours Trade-Off 150
Training Investments 154
The Training Decision by Employers 154
The Types of Training 155
Training and Post-Training Wage Increases 156
Employer Training Investments and Recessionary Layoffs 158
Hiring Investments 159
The Use of Credentials 159
Internal Labor Markets 161
How Can the Employer Recoup Its Hiring Investments? 163
Example 5.1 Does Employment Protection Legislation Protect Workers? 147
Example 5.2 “Renting” Workers as a Way of Coping with Hiring Costs 152
Example 5.3 Why Do Temporary-Help Firms Provide Free General Skills Training? 160
Empirical Study What Explains Wage Differences for Workers Who Appear Similar? Using Panel Data to Deal with Unobserved Heterogeneity 162
Review Questions 164
Problems 165
Selected Readings 167
CHAPTER 6 SUPPLY OF LABOR TO THE ECONOMY: THE DECISION TO WORK 168
Trends in Labor Force Participation and Hours of Work 168
Labor Force Participation Rates 169
Hours of Work 171
A Theory of the Decision to Work 173
Some Basic Concepts 173
Analysis of the Labor/Leisure Choice 177
Empirical Findings on the Income and Substitution Effects 192
Policy Applications 195
Budget Constraints with “Spikes” 195
Programs with Net Wage Rates of Zero 198
Subsidy Programs with Positive Net Wage Rates 202
Example 6.1 The Labor Supply of New York City Taxi Drivers 177
Example 6.2 Do Large Inheritances Induce Labor Force Withdrawal? 187
Example 6.3 Daily Labor Supply at the Ballpark 193
Example 6.4 Labor Supply Effects of Income Tax Cuts 194
Example 6.5 Staying Around One's Kentucky Home: Workers' Compensation Benefits and the Return to Work 198
Example 6.6 Wartime Food Requisitions and Agricultural Work Incentives 205
Empirical Study Estimating the Income Effect Among Lottery Winners: The Search for “Exogeneity” 206
Review Questions 207
Problems 209
Selected Readings 210
CHAPTER 7 LABOR SUPPLY: HOUSEHOLD PRODUCTION, THE FAMILY,AND THE LIFE CYCLE 211
A Labor Supply Model That Incorporates Household Production 211
The Basic Model for an Individual: Similarities with the Labor-Leisure Model 212
The Basic Model for an Individual: Some New Implications 214
Joint Labor Supply Decisions within the Household 217
Specialization of Function 218
Do Both Partners Work for Pay? 219
The Joint Decision and Interdependent Productivity at Home 221
Labor Supply in Recessions: The “Discouraged” versus the“Added” Worker 221
Life Cycle Aspects of Labor Supply 225
The Substitution Effect and When to Work over a Lifetime 225
The Choice of Retirement Age 227
Policy Application: Child Care and Labor Supply 232
Child-Care Subsidies 232
Child Support Assurance 235
Example 7.1 Obesity and the Household Production Model 215
Example 7.2 Child Labor in Poor Countries 223
Example 7.3 How Does Labor Supply Respond to Housing Subsidies? 227
Empirical Study The Effects of Wage Increases on Labor Supply （and Sleep）:Time-Use Diary Data and Sample Selection Bias 238
Review Questions 240
Problems 242
Selected Readings 244
CHAPTER 8 COMPENSATING WAGE DIFFERENTIALS AND LABOR MARKETS 245
Job Matching: The Role of Worker Preferences and Information 245
Individual Choice and Its Outcomes 246
Assumptions and Predictions 248
Empirical Tests for Compensating Wage Differentials 251
Hedonic Wage Theory and the Risk of Injury 252
Employee Considerations 253
Employer Considerations 255
The Matching of Employers and Employees 257
Normative Analysis: Occupational Safety and Health Regulation 261
Hedonic Wage Theory and Employee Benefits 266
Employee Preferences 266
Employer Preferences 268
The Joint Determination of Wages and Benefits 270
Example 8.1 Working on the Railroad: Making a Bad Job Good 252
Example 8.2 Parenthood, Occupational Choice, and Risk 259
Example 8.3 Indentured Servitude and Compensating Differentials 261
Empirical Study How Risky are Estimates of Compensating Wage Differentials for Risk? The “Errors in Variables” Problem 272
Review Questions 274
Problems 275
Selected Readings 276
Appendix 8A Compensating Wage Differentials and Layoffs 277
CHAPTER 9 INVESTMENTS IN HUMAN CAPITAL: EDUCATION AND TRAINING 282
Human Capital Investments: The Basic Model 284
The Concept of Present Value 284
Modeling the Human Capital Investment Decision 286
The Demand for a College Education 288
Weighing the Costs and Benefits of College 288
Predictions of the Theory 289
Market Responses to Changes in College Attendance 295
Education, Earnings, and Post-Schooling Investments in Human Capital 296
Average Earnings and Educational Level 296
On-the-Job Training and the Concavity of Age/Earnings Profiles 299
The Fanning Out of Age/Earnings Profiles 301
Women and the Acquisition of Human Capital 301
Is Education a Good Investment? 306
Is Education a Good Investment for Individuals? 306
Is Education a Good Social Investment? 309
Is Public Sector Training a Good Social Investment? 317
Example 9.1 War and Human Capital 283
Example 9.2 Can Language Affect Investment Behavior? 291
Example 9.3 Did the G.I.Bill Increase Educational Attainment for Returning World War Ⅱ Vets? 293
Example 9.4 Valuing a Human Asset: The Case of the Divorcing Doctor 307
Example 9.5 The Socially Optimal Level of Educational Investment 315
Empirical Study Estimating the Returns to Education Using a Sample of Twins: Coping with the Problem of Unobserved Differences in Ability 318
Review Questions 320
Problems 321
Selected Readings 322
Appendix 9A A “Cobweb” Model of Labor Market Adjustment 323
CHAPTER 10 WORKER MOBILITY: MIGRATION, IMMIGRATION, AND TURNOVER 327
The Determinants of Worker Mobility 328
Geographic Mobility 329
The Direction of Migratory Flows 329
Personal Characteristics of Movers 330
The Role of Distance 332
The Earnings Distribution in Sending Countries and International Migration 332
The Returns to International and Domestic Migration 334
Policy Application: Restricting Immigration 337
U.S.Immigration History 338
Naive Views of Immigration 341
An Analysis of the Gainers and Losers 343
Do the Overall Gains from Immigration Exceed the Losses? 349
Employee Turnover 352
Wage Effects 352
Effects of Employer Size 353
Gender Differences 354
Cyclical Effects 354
Employer Location 355
Is More Mobility Better? 355
Example 10.1 The Great Migration: Southern Blacks Move North 331
Example 10.2 Migration and One's Time Horizon 333
Example 10.3 The Mariel Boatlift and Its Effects on Miami's Wage and Unemployment Rates 348
Example 10.4 Illegal Immigrants, Personal Discount Rates, and Crime 351
Empirical Study Do Political Refugees Invest More in Human Capital than Economic Immigrants? The Use of Synthetic Cohorts 356
Review Questions 358
Problems 359
Selected Readings 360
CHAPTER 11 PAY AND PRODUCTIVITY: WAGE DETERMINATION WITHIN THE FIRM 361
Motivating Workers: An Overview of the Fundamentals 363
The Employment Contract 363
Coping with Information Asymmetries 364
Motivating Workers 367
Motivating the Individual in a Group 369
Compensation Plans: Overview and Guide to the Rest of the Chapter 371
Productivity and the Basis of Yearly Pay 371
Employee Preferences 371
Employer Considerations 373
Productivity and the Level of Pay 379
Why Higher Pay Might Increase Worker Productivity 379
Efficiency Wages 381
Productivity and the Sequencing of Pay 382
Underpayment Followed by Overpayment 382
Promotion Tournaments 386
Career Concerns and Productivity 388
Applications of the Theory: Explaining Two Puzzles 390
Why Do Earnings Increase with Job Tenure? 390
Why Do Large Firms Pay More? 392
Example 11.1 The Wide Range of Possible Productivities: The Case of the Factory That Could Not Cut Output 362
Example 11.2 Calorie Consumption and the Type of Pay 368
Example 11.3 The Effects of Low Relative Pay on Worker Satisfaction 370
Example 11.4 Poor Group Incentives Doom the Shakers 375
Example 11.5 Did Henry Ford Pay Efficiency Wages? 380
Example 11.6 The “Rat Race” in Law Firms 388
Empirical Study Are Workers Willing to Pay for Fairness? Using Laboratory Experiments to Study Economic Behavior 394
Review Questions 396
Problems 397
Selected Readings 398
CHAPTER 12 GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET 399
Measured and Unmeasured Sources of Earnings Differences 400
Earnings Differences by Gender 401
Earnings Differences between Black and White Americans 410
Earnings Differences by Ethnicity 416
Theories of Market Discrimination 418
Personal-Prejudice Models: Employer Discrimination 419
Personal-Prejudice Models: Customer Discrimination 424
Personal-Prejudice Models: Employee Discrimination 424
Statistical Discrimination 425
Noncompetitive Models of Discrimination 428
A Final Word on the Theories of Discrimination 432
Federal Programs to End Discrimination 432
Equal Pay Act of 1963 432
Title Ⅶ of the Civil Rights Act 433
The Federal Contract Compliance Program 437
Effectiveness of Federal Antidiscrimination Programs 439
Example 12.1 Bias in the Selection of Musicians by Symphony Orchestras 405
Example 12.2 Race Discrimination May “Strike” When Few Are Looking: The Case of Umpires in Major League Baseball 415
Example 12.3 Fear and Lathing in the Michigan Furniture Industry 426
Example 12.4 Comparable Worth and the University 436
Empirical Study Can We Catch Discriminators in the Act? The Use of Field Experiments in Identifying Labor Market Discrimination 440
Review Questions 443
Problems 444
Selected Readings 445
Appendix 12A Estimating Comparable-Worth Earnings Gaps: An Application of Regression Analysis 446
CHAPTER 13 UNIONS AND THE LABOR MARKET 450
Union Structure and Membership 451
International Comparisons of Unionism 451
The Legal Structure of Unions in the United States 453
Constraints on the Achievement of Union Objectives 457
The Monopoly-Union Model 459
The Efficient-Contracts Model 461
The Activities and Tools of Collective Bargaining 465
Union Membership: An Analysis of Demand and Supply 465
Union Actions to Alter the Labor Demand Curve 470
Bargaining and the Threat of Strikes 472
Bargaining in the Public Sector: The Threat of Arbitration 477
The Effects of Unions 480
The Theory of Union Wage Effects 481
Evidence of Union Wage Effects 484
Evidence of Union Total Compensation Effects 486
The Effects of Unions on Employment 487
The Effects of Unions on Productivity and Profits 488
Normative Analyses of Unions 489
Example 13.1 A Downward Sloping Demand Curve for Football Players? 458
Example 13.2 The Effects of Deregulation on Trucking and Airlines 469
Example 13.3 Permanent Replacement of Strikers 475
Empirical Study What Is the Gap Between Union and Nonunion Pay? The Importance of Replication in Producing Credible Estimates 492
Review Questions 494
Problems 495
Selected Readings 496
Appendix 13A Arbitration and the Bargaining Contract Zone 497
CHAPTER 14 UNEMPLOYMENT 502
A Stock-Flow Model of the Labor Market 504
Sources of Unemployment 505
Rates of Flow Affect Unemployment Levels 506
Frictional Unemployment 509
The Theory of Job Search 510
Effects of Unemployment Insurance Benefits 513
Structural Unemployment 517
Occupational and Regional Unemployment Rate Differences 517
International Differences in Long-Term Unemployment 519
Do Efficiency Wages Cause Structural Unemployment? 520
Demand-Deficient （Cyclical） Unemployment 523
Downward Wage Rigidity 523
Financing U.S.Unemployment Compensation 527
Seasonal Unemployment 529
When Do We Have Full Employment? 531
Defining the Natural Rate of Unemployment 531
Unemployment and Demographic Characteristics 532
What Is the Natural Rate? 533
Example 14.1 Is Unemployment Self-Perpetuating? 512
Example 14.2 Unemployment Insurance and Seasonal Unemployment:A Historical Perspective 530
Empirical Study Do Reemployment Bonuses Reduce Unemployment? The Results of Social Experiments 534
Review Questions 536
Problems 537
Selected Readings 538
CHAPTER 15 INEQUALITY IN EARNINGS 539
Measuring Inequality 540
Earnings Inequality Since 1980: Some Descriptive Data 543
The Increased Returns to Higher Education 547
Growth of Earnings Dispersion within Human-Capital Groups 548
The Underlying Causes of Growing Inequality 550
Changes in Supply 551
Changes in Demand: Technological Change 553
Changes in Demand: Earnings Instability 556
Changes in Institutional Forces 557
Example 15.1 Differences in Earnings Inequality across Developed Countries 547
Example 15.2 Changes in the Premium to Education at the Beginning of the Twentieth Century 549
Empirical Study Do Parents' Earnings Determine the Earnings of Their Children? The Use of Intergenerational Data in Studying Economic Mobility 558
Review Questions 559
Problems 561
Selected Readings 562
Appendix 15A Lorenz Curves and Gini Coefficients 563
CHAPTER 16 THE LABOR-MARKET EFFECTS OF INTERNATIONAL TRADE AND PRODUCTION SHARING 567
Why Does Trade Take Place? 568
Trade between Individuals and the Principle of Comparative Advantage 568
The Incentives for Trade across Different Countries 570
Effects of Trade on the Demand for Labor 574
Product Demand Shifts 575
Shifts in the Supply of Alternative Factors of Production 577
The Net Effect on Labor Demand 579
Will Wages Converge across Countries? 583
Policy Issues 585
Subsidizing Human-Capital Investments 586
Income Support Programs 587
Subsidized Employment 588
How Narrowly Should We Target Compensation? 589
Summary 592
Example 16.1 The Growth Effects of the Openness to Trade: Japan's Sudden Move to Openness in 1859 575
Example 16.2 Could a Quarter of American Jobs Be Offshored? Might Your Future Job Be among Them? 581
Empirical Study Evaluating European Active Labor Market Policies: The Use of Meta-Analysis 590
Review Questions 592
Problems 593
Selected Readings 594
Answers to Odd-Numbered Review Questions and Problems 595
Name Index 645
Subject Index 651