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Labor Economics

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Reasons and Remedies
Edited by Martin Werding

Structural unemployment, or persistently high levels of unemployment that do not follow the ups and downs of a typical business cycle, varies significantly across industrialized countries. In this CESifo volume, leading labor economists analyze the widely diverging patterns of long-term unemployment across Western Europe. Drawing on recent developments in labor market theory and macroeconomics to explain the emergence and persistence of unemployment, the studies look for fundamental explanations and common patterns that might lead to policy solutions.The two opening chapters offer overviews of the problem: European labor market expert Stephen Nickell highlights the unemployment situation in the "Big Four" continental European states of France, Germany, Italy, and Spain, and American economist Edmund S. Phelps focuses on new theoretical approaches that examine institutional factors influencing unemployment in a given country. Following these introductory essays, prominent economists consider the experiences of their home countries, in chapters on Denmark, Sweden, the Netherlands, Finland, Ireland, the United Kingdom, France, Germany, Italy, and Spain. By taking advantage of the richness of research conducted at a national level and making the work accessible to an international audience, this volume contributes to a new understanding of structural unemployment and how it can be overcome through labor market reforms and other economic policy measures.Contributors:Torben Andersen, Samuel Bentolila, Norbert Berthold, Guiseppe Bertola, Rainer Fehn, Pietro Garibaldi, Bertil Holmlund, Juan F. Jimeno, Erkki Koskela, Stephen J. Nickell, Jan C. van Ours, Edmund S. Phelps, Jean Pisany-Ferry, Christopher Pissarides, Roope Uusitalo, Brendan Walsh, Martin Werding

The contrasting trends toward earlier retirement and greater longevity have resulted in steadily increasing retirement costs over the last forty years. One important factor influencing early retirement decisions is the expansion of retirement benefits; but studies predict that most countries, particularly those with early retirement incentives, will be unable to meet future pension and social security obligations. In this timely CESifo volume, Robert Fenge and Pierre Pestieau examine empirical and theoretical evidence that explains why early retirement has become such a burden for social security systems and suggest pension system reforms that will reverse the trend.

Drawing on evidence from the European Union (with comparisons to other industrialized countries including the United States and Canada), the authors demonstrate that the effective retirement age is influenced by social security regulations (such as a change in eligibility age) and discuss ways of measuring these embedded incentives. Fenge and Pestieau examine the implicit taxes on prolonged working life from normative and political economy perspectives. They discuss optimal payroll tax rates that minimize distortions of labor supply and retirement decisions and consider alternative ways to finance benefits, including consumption and capital income taxation. They discuss why policies are designed to discourage employment among older workers and why reforms to counter this often meet resistance. They demonstrate, contrary to the belief of many European governments, that pushing older workers into retirement does not free jobs for young unemployed workers. They show that the gap between salaries and productivity is an incentive for employers to rid themselves of older workers and argue that governments should not support this behavior by compensating older workers for the difference between severance payments and salaries in early retirement programs.

What Role for Human Capital Policies?

The surge of inequality in income and wealth in the United States over the past twenty-five years has reversed the steady progress toward greater equality that had been underway throughout most of the twentieth century. This economic development has defied historical patterns and surprised many economists, producing vigorous debate. Inequality in America: What Role for Human Capital Policies? examines the ways in which human capital policies can address this important problem. Taking it as a given that potentially low-income workers would benefit from more human capital in the form of market skills and education, James Heckman and Alan Krueger discuss which policies would be most effective in providing it: should we devote more resources to the entire public school system, or to specialized programs like Head Start? Would relaxing credit restraints encourage more students to attend college? Does vocational training actually work? What is the best balance of private and public sector programs?

The book preserves the character of the symposium at which the papers were originally presented, recreating its atmosphere of lively debate. It begins with separate arguments by Krueger and Heckman (writing with Pedro Carneiro), which are followed by comments from other economists. Krueger and Heckman and Carneiro then offer separate responses to the comments and final rejoinders.

Why Are Similar Workers Paid Differently?

Why are workers with identical skills found in both "good" jobs and "bad" jobs? Why are workers who do similar jobs paid differently, contrary to standard competitive theory? Observable differences in workers doing the same job account for only 30 percent of wage variation. In Wage Dispersion, Dale Mortensen examines the reasons for pay differentials in the other 70 percent. He finds that these differentials, or wage dispersion, are largely the result of job search friction (which arises when workers do not know the wages offered by all employers) and cross-firm differences in wage policy and productivity.

Mortensen examines previous theoretical explanations for wage dispersion, testing them against data from a Danish matched employer-employee database. He begins by offering a simple one-period model of the problem, then expands this basic model intertemporally to include the role of on-the-job worker search behavior. Following this, he discusses theoretical modifications that offer an explanation for the nature of observed wage dispersion, particularly the shape of cross-firm wage distribution. He then examines the hypothesis that wage policies are determined by profit-maximizing behavior and finds that the Danish data do not support it; he argues that bilateral wage bargaining is the more likely determinant. Finally, he reviews recent work that extends the basic theoretical framework to explain wage dispersion within firms.

Despite the vast research literature on topics relating to contract theory, only a few of the field's core ideas are covered in microeconomics textbooks. This long-awaited book fills the need for a comprehensive textbook on contract theory suitable for use at the graduate and advanced undergraduate levels. It covers the areas of agency theory, information economics, and organization theory, highlighting common themes and methodologies and presenting the main ideas in an accessible way. It also presents many applications in all areas of economics, especially labor economics, industrial organization, and corporate finance. The book emphasizes applications rather than general theorems while providing self-contained, intuitive treatment of the simple models analyzed. In this way, it can also serve as a reference for researchers interested in building contract-theoretic models in applied contexts.The book covers all the major topics in contract theory taught in most graduate courses. It begins by discussing such basic ideas in incentive and information theory as screening, signaling, and moral hazard. Subsequent sections treat multilateral contracting with private information or hidden actions, covering auction theory, bilateral trade under private information, and the theory of the internal organization of firms; long-term contracts with private information or hidden actions; and incomplete contracts, the theory of ownership and control, and contracting with externalities. Each chapter ends with a guide to the relevant literature. Exercises appear in a separate chapter at the end of the book.

Downloadable instructor resources available for this title: solutions to all exercises in the book

The six studies collected in this CESifo volume analyze the sometimes unpredictable effects of public regulation on the labor market. Examining a wide range of policy interventions—from subsidized employment to an increased tax on capital—and using a variety of methodologies to analyze them, these contributions by leading scholars of the European labor market will advance the policy debate over regulation at a time of serious labor market problems in Europe and elsewhere.

The first three chapters of Labor Market Institutions and Public Regulation present empirical findings, comparing the effects of job training and subsidized employment on the Swedish labor market, analyzing the effect of extended unemployment benefits on unemployment duration for older Austrian workers, and examining poor labor market performance in Spain even after policy reforms. The following chapters take a more theoretical approach, applying the analytical tools of theory to policy issues. These three studies examine the general equilibrium repercussions of public support for both basic and higher education, develop an efficiency wage model to analyze mandated severance pay, and compare different kinds of redistribution to low-skill workers financed by an increased tax on capital.

A Primer on American Labor Law is an accessible guide written for nonspecialists—labor and management representatives, students, general practice lawyers, and trade unionists, government officials, and academics from other countries. It covers such topics as the National Labor Relations Act, unfair labor practices, the collective bargaining relationship, dispute resolution, the public sector, and public-interest labor law. This thoroughly updated fourth edition contains extensive new material, covering developments in the eleven years since the third edition, including the continuing decline in union membership, job security rights, wrongful discharge litigation and dispute resolution procedures, ADA (Americans with Disabilities Act) litigation, cases involving sexual harassment and sexual orientation, the most recent collective bargaining agreements in professional sports, and the debate—spurred by globalism—on international labor standards. Much of the discussion of the National Labor Relations Act discusses decisions and policy changes by the National Labor Relations Board during the author's chairmanship in 1994-1998.

This landmark graduate-level text combines depth and breadth of coverage with recent, cutting-edge work in all the major areas of modern labor economics. Labor Economics is the only textbook available for advanced graduate students in the field, and it will be widely used; because of its command of the literature and the freshness of the material included, it will also prove to be a valuable resource for practicing labor economists.

The book moves back and forth between factual data and theoretical reasoning. The space devoted to theory reflects the profound theoretical restructuring in the field that has taken place in the last thirty years; the authors present these developments within a unified pedagogic framework. The teaching methods are based on mathematical models, with the mathematical analyses laid out clearly, and the derivation of most results given in five mathematical appendixes that provide a toolkit for understanding the models.

The book is divided into four parts: "Supply and Demand Behaviors" examines the determinants of labor supply and demand; "Wage Formation" discusses wage determinants, including the influences of the wage policies of firms and collective bargaining; "Unemployment and Inequality" considers these problems in a macroeconomic setting; and "Institutions and Economic Policy" treats labor market policies and the impact of institutions on labor market performance.

A Study of New England Industrial Community, 1937–1939 and 1942

A detailed statistical case study of job changing in a New England city with diversified industries, citing the economic, geographical, social, and psychological factors conducive to worker stability and to worker mobility.

From the Preface:

This volume is a cooperative venture to make generally available the results of intensive research and thought over many years at half a dozen leading university research centers. The conceptual and statistical analysis of the major general attributes of labor mobility by Philip M. Hauser, based upon his work at the University of Chicago and earlier in the U. S. Bureau of the Census, provides an effective background for the interpretation of the subsequent essays. The principal findings of a series of pioneering studies undertaken at the University of Pennsylvania, the Massachusetts Institute of Technology, and the University of Minnesota are presented by Gladys L. Palmer, Charles A. Myers, and Dale Yoder. Impediments to Labor mobility are discussed by Clark Kerr in his chapter on "The Balkanization of Labor Markets," and important interpretations of certain crucial problems relating to the future flexibility of the American economy are given in Gladys Palmer's essay on "Social Values in Labor Mobility." These considerations, and others, are summarized in challenging fashion by E. Wight Bakke in the essay that introduces the entire volume.

The suggestion that this volume be prepared grew out of the research planning discussions of the Committee on Labor Market Research of the Social Science Research Council. The authors are members of the Committee, which has been concerned for some years with the identification and encouragement of basic research on the behavior of labor markets. Particularly intensive efforts have been directed by the Committee to the analysis of the factors affecting occupational, industrial, and geographic mobility in individual labor markets and for specific groups in the labor supply. In the course of these efforts the Committee has sponsored a major study of patterns and factors in labor mobility in six cities and a technical appraisal of research developments relating to labor mobility, both of which will be published by the Social Science Research Council. These undertakings and other related research have been subjected to thorough review and criticism at sundry research conferences held under the Committee's auspices, and these disucssions have in turn been reflected in the research of the Committee's own members and their associates. It seems timely, therefore, to bring together the results of certain of their studies and of their current thinking as a progress report on this significant phase of labor and industrial relations research.

—Paul Webbink

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