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.

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

Worker Sorting, Taxes and Health Insurance Coverage

We develop a model in which firms hire heterogeneous workers but must offer all workers insurance benefits under similar terms. In equilibrium, some firms offer free health insurance, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost to workers of a given employee premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. We test the model using the expansion of section 125 plans between 1987 and 1996. The results are generally supportive.

Social Ties and the Job Search of Recent Immigrants

We show that increasing the probability of obtaining a job offer through the network should raise the observed mean wage in jobs found through formal (non-network) channels relative to that in jobs found through the network. This prediction also holds at all percentiles of the observed wage distribution, except the highest and lowest. The largest changes are likely to occur below the median. We test and con rm these implications using a survey of recent immigrants to Canada. We also develop a simple structural model, consistent with the theoretical model, and show that it can replicate the broad patterns in the data. For recent immigrants, our results are consistent with the primary effect of strong networks being to increase the arrival rate of offers rather than to alter the distribution from which offers are drawn.

Constraints on the Choice of Work Hours: Agency vs. Specific-Capital

Most models of implicit lifetime contracts imply that at any particular point in time, workers' wages and value of marginal product (VMP) will diverge. As a result, the contract will have to specify hours as well as wages, since firms will desire to prevent workers from working more when the wage is greater than VMP and from working less when the wage is less than VMP. this divergence, combined with the fact that in efficient contracts, the hours are set so that VMP equals the marginal value of leisure, implies that workers will face binding hours constraints. We show that the two major models of lifetime contracts, the agency model and the firm-specific capital model, make opposite predictions regarding the relation between work hours constraints and job tenure. We test these predictions. Our results indicate that neither model of efficient long-term contracts explains the observed pattern of hours constraints. Therefore, we briefly consider other explanations.

The Role of Social Ties in the Job Search of Recent Immigrants

We show that among workers whose network is weaker than formal (nonnetwork) channels, those finding a job through the network should have higher wages than those finding a job through formal channels. Moreover, this wage differential is decreasing in network strength. We test these implications using a survey of recent immigrants into Canada. At least at the lower end of an individual’s wage distribution above his reservation wage, finding a network job is associated with higher wages for those with weak networks, and the interaction between network strength and finding a job through the network is negative as predicted.Immigrants, Job Search, Social Networks, Strong Ties

Education and Labor-Market Discrimination

We propose a model that combines statistical discrimination and educational sorting that explains why blacks get more education than do whites of similar cognitive ability. Our model explains the difference between blacks and whites in the relations between education and AFQT and between wages and education. It cannot easily explain why, conditional only on AFQT, blacks earn no more than do whites. It does, however, suggest, that when comparing the earnings of blacks and whites, one should control for both AFQT and education in which case a substantial black-white wage differential reemerges. We explore and reject the hypothesis that differences in school quality between blacks and whites explain the wage and education di%uFB00erentials. Our findings support the view that some of the black-white wage di%uFB00erential reflects the operation of the labor market.