Henry S. Farber

Learning and Wage Dynamics

We develop a dynamic model of learning and wage determination: education may convey initial information about ability, but subsequent performance observations also are informative. Although the role of schooling in the labor markets inference process declines as performance observations accumulate, the estimated effect of schooling on the level of wages is independent of labor-market experience. In addition: time-invariant variables correlated with ability but unobserved by employers are increasingly correlated with wages as experience increases; wage residuals are a martingale; and wage cuts -are not rare, even for workers who do not change jobs. We present evidence from the National Longitudinal Survey of Youth that is generally consistent with all four of the models predictions. We conclude that a blend of the learning model with an on-the-job-training model is more plausible than either model alone.

The Changing Face of Job Loss in the United States, 1981-1993

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Job queues and the union status of workers

This paper develops a model of the determination of the union status of workers that allows for the possibility of queuing for union jobs. The empirical results derived, using a sample from the University of Michigan Panel Study of Income Dynamics, are supportive of the queuing hypothesis. The no-queue model can be rejected using a likelihood-ratio test. This suggests that a simple probit or logit model for union status is misspecified because it is not based on any consistent behavioral theory. An important implication of the model is that because most new entrants to the labor market prefer union jobs but cannot get them and because accrual of nonunion seniority makes workers progressively less likely to desire union jobs, the union status of workers is largely determined by their success in being selected from the queue early in their working life.

Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers

The labor supply of taxi drivers is consistent with the existence of intertemporal substitution. My analysis of the stopping behavior of New York City cabdrivers shows that daily income effects are small and that the decision to stop work at a particular point on a given day is primarily related to cumulative daily hours to that point. This is in contrast to the analysis of Camerer et al., who find that the daily wage elasticity of labor supply of New York City cabdrivers is substantially negative, implying large daily income effects. This difference in findings is due to important differences in empirical methods and to problems with the conception and measurement of the daily wage rate used by Camerer et al.

The Analysis of Interfirm Worker Mobility

I use a large sample of jobs from the National Longitudinal Survey of Youth to examine job mobility patterns and to evaluate theories of interfirm worker mobility. There are three main findings. First, the monthly hazard of job ending is not monotonically decreasing in tenure as most earlier work using annual data has found, but it increases to a maximum at 3 months and declines thereafter. Second, mobility is strongly positively related to the frequency of job change prior to the start of the job. Finally, job change in the most recent year prior to the start of the job is more strongly related than earlier job change to mobility on the current job.

Why Workers Want Unions: The Role of Relative Wages and Job Characteristics

In this study a model of the determination of individual votes in National Labor Relations Board representation elections was developed and estimated. The major conclusions fall into four areas. First, the perceived advantage of unionization is inversely related to the individuals position in the intrafirm earnings distribution. Second, explicitly measured perceptions of the impact of unionization on the nonwage aspects of the job are important determinants of the vote. Third, concern for the impact of unionization on job security is an important aspect of the unionization decision. Finally, it was found that after controlling for the effects of unionization on various aspects of the employment relationship, blacks are more likely and older workers are less likely to vote for unionization.

The Incidence and Costs of Job Loss: 1982-1991

I focus on two aspects of Job loss. First, I examine evidence on the incidence of job loss by worker and job characteristics including age, education, race, sex, industry, and tenure over the period from 1982 to 1991. Second, I examine the cost of job loss to workers in the form of 1) lower post-displacement employment probabilities, 2) lower probabilities of full-time employment for re-employed workers, and 3) lower earnings for full-time workers. Using data from Displaced Workers Surveys (DWS) from 1984 through 1992 to study job loss from 1982-91, I find that older workers and more educated workers are relatively more likely to suffer a job loss in the latter part of this period. Additionally, job loss became more common in some important service industries and relatively less common in manufacturing during the latter part of the ten-year period studied. Supplementing the DWS data with data from the outgoing rotation groups of the Current Population Survey from 1982-1991, I find that displaced workers are, relative to non-displaced workers, 1) less likely to be employed and 2) more likely to be employed part-time conditional on being employed. These effects seem to decline with time since displacement. There is no systematic secular change in these costs of displacement, either in the aggregate or for particular groups. Finally, I examine the earnings losses of full-time re-employed displaced workers by comparing their earnings change with the earnings change of full-time employed workers who were not displaced. I find, consistent with what others have found, that these earnings losses are substantial. Overall, the costs to displaced workers of job loss are substantial and come in several forms. However, the public perception that the current sluggish economy is worse than earlier downturns may reflect more who has lost jobs recently rather than either increased overall job loss or increased costs to those who are losing Jobs.

Polities and Peace

In this paper, we review the central claim of a growing literature: that is, that democratic states rarely, if ever, wage war against and are very unlikely to engage in militarized disputes with other democratic states. We first examine the analytic foundations of this claim. We conclude that they are tenuous. Next, we examine the evidence. We find that no statistically significant relationship exists between regime type and the probability of war before World War I. We also find that the probability of disputes short of war is significantly higher for democratic-democratic pairs than for other pairs of states in the pre- 1914 period. In both cases, our analysis shows that the hypothesized relationship prevails only after World War H. Because of the Cold War that ensued after 1945, our results suggest that the relationship we observe between democracy and conflict is the product of common interests rather than of common polities. An analysis of the relationship between regime type and the probability of alliance formation lends support to this interpretation.

Individual Preferences and Union Wage Determination: The Case of the United Mine Workers

In order to investigate the preferences of union members and the formation of union bargaining goals, a model of union behavior applicable to the United Mine Workers (UMW) and based on maximization of the expected utility of the median-aged member of the union is developed. The relationships determining the optimal wage-ton tax policy of the UMW are estimated over the 1948-73 period. It is found that (1) union members are quite risk averse with a coefficient of relative risk aversion greater than 2.5; (2) union members discount future benefits at the relatively low rate of 3.5-4.5 percent annually; and (3) union members value a dollar spent on fixed fringe benefits almost 40 percent more than a dollar spent on discretionary income. The latter result suggests that the income tax makes nontaxable fringe benefits a relatively attractive method of compensation. Another result which may be important for national energy policy is that the bargaining goals of the UMW are not very responsive to shifts in the demand for coal.

Job Loss in the United States, 1981-2001

I examine changes in the incidence and consequences of job loss between 1981 and 2001 using data from the Displaced Workers Surveys (DWS) from 1984-2002. The overall rate of job loss has a strong counter-cyclical component, but the job loss rate was higher than might have been expected during the mid-1990s given the strong labor market during that period. While the job loss rate of more-educated workers increased, less-educated workers continue to have the highest rates of job loss overall. Displaced workers have a substantially reduced probability of employment and an increased probability of part-time employment subsequent to job loss. The more educated have higher post-displacement employment rates and are more likely to be employed full-time. The probabilities of employment and full-time employment among those reemployed subsequent to job loss increased substantially in the late 1990s, suggesting that the strong labor market eased the transition of displaced workers. Reemployment rates dropped sharply in the recession of 2001. Those re-employed, even full-time and regardless of education level earnings declines relative to what they earned before they were displaced. Additionally, foregone earnings growth (the growth in earnings that would have occurred had the workers not been displaced), is an important part of the cost of job loss for re-employed full-time job losers. There is no evidence of a decline during the tight labor market of the 1990s in the earnings loss of displaced workers who were reemployed full-time. In fact, earnings losses of displaced workers have been increasing since the mid 1990s.