Reykjavik University International and Labour Economics Essay
Description
(20%) One of the measures the government announced for combating Covid-19 was Hefjum störf. Undir this program organizations could hire individuals who had been unemployed for 12 months or longer. The organization received a subsidy from the government in the amount of the unemployment insurance payment, while the individual hired would receive at least minimum wages. What are the advantages and disadvantages for employees, employers and the government under such a scheme(20%) Assume that disability benefits for individuals with disabilities that prevent them from working full time, is 10.000 krónur per day. The disability benefit is only paid to those who do not work at all. Suppose that the benefit rules are changed so disabled workers are guaranteed income of 10.000 krónur per day. Hence, if their wages are less than 10.000 krónur, they receive a benefit that brings their total daily income (wage plus the benefit) up to 10.000 krónur. When the wages of a disabled individual rise above 10.000 krónur per day, their disability benefits end.
Draw the old and the new budget constraints (label each clearly) associated with the disability benefit program, and analyze the work incentive effects of the change in benefits.
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Modern Labor Economics
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Modern Labor
Economics
Theory and Public Policy
Eleventh Edition
Ronald G. Ehrenberg
School of Industrial and Labor Relations
Cornell University
Robert S. Smith
School of Industrial and Labor Relations
Cornell University
Prentice Hall
Boston Columbus Indianapolis New York San Francisco Upper Saddle River
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Library of Congress Cataloging-in-Publication Data
Ehrenberg, Ronald G.
Modern labor economics : theory and public policy / Ronald G. Ehrenberg,
Robert S. Smith. Eleventh ed.
p. cm.
Includes index.
ISBN-13: 978-0-13-254064-3
ISBN-10: 0-13-254064-9
1. Labor economics. 2. Labor policy. 3. Personnel management. I. Smith,
Robert Stewart. II. Title.
HD4901.E34 2012
331dc22
2011002784
ISBN-13: 978-0-13-254064-3
ISBN-10:
0-13-254064-9
Brief Contents
Contents vi
Preface
xviii
CHAPTER 1
INTRODUCTION
CHAPTER 2
OVERVIEW OF THE LABOR MARKET
CHAPTER 3
THE DEMAND FOR LABOR
CHAPTER 4
LABOR DEMAND ELASTICITIES
CHAPTER 5
FRICTIONS IN THE LABOR MARKET
CHAPTER 6
SUPPLY OF LABOR TO THE ECONOMY: THE DECISION TO WORK
CHAPTER 7
LABOR SUPPLY: HOUSEHOLD PRODUCTION, THE FAMILY, AND THE LIFE
CYCLE 208
CHAPTER 8
COMPENSATING WAGE DIFFERENTIALS AND LABOR MARKETS
CHAPTER 9
INVESTMENTS IN HUMAN CAPITAL: EDUCATION AND TRAINING
CHAPTER 10
WORKER MOBILITY: MIGRATION, IMMIGRATION, AND TURNOVER 323
CHAPTER 11
PAY AND PRODUCTIVITY: WAGE DETERMINATION WITHIN THE
FIRM 357
CHAPTER 12
GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET
CHAPTER 13
UNIONS AND THE LABOR MARKET
CHAPTER 14
UNEMPLOYMENT
CHAPTER 15
INEQUALITY IN EARNINGS 531
CHAPTER 16
THE LABOR-MARKET EFFECTS OF INTERNATIONAL TRADE AND
PRODUCTION SHARING 559
1
25
59
94
127
Subject Index
241
278
393
443
495
Answers to Odd-Numbered Review Questions and Problems
Name Index
165
587
637
642
v
Contents
Preface xviii
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
Example 1.1
12
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
CHAPTER 2
16
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
35
The Demand for Labor 36
The Supply of Labor 40
The Determination of the Wage 42
Applications of the Theory 47
Who Is Underpaid and Who Is Overpaid? 48
International Differences in Unemployment 53
Example 2.1
The Black Death and the Wages of Labor
Example 2.2
Forced Labor in Colonial Mozambique
46
50
Empirical Study Pay Levels and the Supply of Military Officers: Obtaining Sample
Variation from Cross-Section Data 52
vi
C ont ent s
vii
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
Marginal Expense of an Added Input 63
61
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
More Than Two Inputs 72
70
Labor Demand When the Product Market Is Not Competitive
Maximizing Monopoly Profits 74
Do Monopolies Pay Higher Wages?
74
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
79
Example 3.1
The Marginal Revenue Product of College Football Stars 62
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 82
Problems 83
Selected Readings 84
Appendix 3A Graphical Derivation of a Firms Labor
Demand Curve 85
CHAPTER 4
LABOR DEMAND ELASTICITIES 94
The Own-Wage Elasticity of Demand
95
The HicksMarshall Laws of Derived Demand 97
Estimates of Own-Wage Labor Demand Elasticities 100
Applying the Laws of Derived Demand: Inferential Analysis 102
viii
C on te n t s
The Cross-Wage Elasticity of Demand
104
Can the Laws of Derived Demand Be Applied to Cross-Elasticities?
Estimates Relating to Cross-Elasticities 107
Policy Application: Effects of Minimum Wage Laws
105
108
History and Description 108
Employment Effects: Theoretical Analysis 109
Employment Effects: Empirical Estimates 113
Does the Minimum Wage Fight Poverty? 115
Living Wage Laws 116
Applying Concepts of Labor Demand Elasticity to the Issue of
Technological Change 116
Example 4.1
Industry?
Why Are Union Wages So Different in Two Parts of the Trucking
103
Example 4.2
The Employment Effects of the First Federal Minimum Wage
114
Empirical Study Estimating the Labor Demand Curve: Time Series Data and
Coping with Simultaneity 122
Review Questions 124
Problems 125
Selected Readings 126
CHAPTER 5
FRICTIONS IN THE LABOR MARKET 127
Frictions on the Employee Side of the Market
128
The Law of One Price 128
Monopsonistic Labor Markets: A Definition 131
Profit Maximization under Monopsonistic Conditions 132
How Do Monopsonistic Firms Respond to Shifts in the Supply
Curve? 136
Monopsonistic Conditions and the Employment Response to Minimum
Wage Legislation 139
Job Search Costs and Other Labor Market Outcomes 140
Monopsonistic Conditions and the Relevance of the Competitive
Model 142
Frictions on the Employer Side of the Market
143
Categories of Quasi-Fixed Costs 143
The Employment/Hours Trade-Off 147
Training Investments 151
The Training Decision by Employers 151
The Types of Training 152
Training and Post-Training Wage Increases 153
Employer Training Investments and Recessionary
Layoffs 155
C ont ent s
Hiring Investments
ix
156
The Use of Credentials 156
Internal Labor Markets 159
How Can the Employer Recoup Its Hiring Investments?
160
Example 5.1
Does Employment Protection Legislation Protect Workers? 144
Example 5.2
Renting Workers as a Way of Coping with Hiring Costs 149
Example 5.3
Why Do Temporary-Help Firms Provide Free General
Skills Training? 157
Empirical Study What Explains Wage Differences for Workers Who Appear Similar?
Using Panel Data to Deal with Unobserved Heterogeneity 158
Review Questions 161
Problems 162
Selected Readings 164
CHAPTER 6
SUPPLY OF LABOR TO THE ECONOMY: THE DECISION TO WORK 165
Trends in Labor Force Participation and Hours of Work
165
Labor Force Participation Rates 166
Hours of Work 168
A Theory of the Decision to Work
170
Some Basic Concepts 170
Analysis of the Labor/Leisure Choice 175
Empirical Findings on the Income and Substitution Effects 190
Policy Applications
192
Budget Constraints with Spikes 193
Programs with Net Wage Rates of Zero 196
Subsidy Programs with Positive Net Wage Rates 200
Example 6.1
The Labor Supply of Pigeons 173
Example 6.2
The Labor Supply of New York City Taxi Drivers 175
Example 6.3
Do Large Inheritances Induce Labor Force Withdrawal?
Example 6.4
Daily Labor Supply at the Ballpark
Example 6.5
Labor Supply Effects of Income Tax Cuts 192
Example 6.6
Staying Around Ones Kentucky Home: Workers Compensation
Benefits and the Return to Work 195
Example 6.7
Wartime Food Requisitions and Agricultural Work Incentives 204
185
190
Empirical Study Estimating the Income Effect among Lottery Winners: The Search
for Exogeneity 202
Review Questions 205
Problems 206
Selected Readings 207
x
C on te n t s
CHAPTER 7
LABOR SUPPLY: HOUSEHOLD PRODUCTION, THE FAMILY,
AND THE LIFE CYCLE 208
A Labor Supply Model That Incorporates Household Production
208
The Basic Model for an Individual: Similarities with the Labor-Leisure
Model 209
The Basic Model for an Individual: Some New Implications 211
Joint Labor Supply Decisions within the Household
214
Specialization of Function 215
Do Both Partners Work for Pay? 216
The Joint Decision and Interdependent Productivity at Home 218
Labor Supply in Recessions: The Discouraged versus the
Added Worker 218
Life Cycle Aspects of Labor Supply
221
The Substitution Effect and When to Work over a Lifetime 222
The Choice of Retirement Age 224
Policy Application: Child Care and Labor Supply
229
Child-Care Subsidies 229
Child Support Assurance 231
Example 7.1
Obesity and the Household Production Model
Example 7.2
Child Labor in Poor Countries 220
Example 7.3
How Does Labor Supply Respond to Temporary Wage
Increases? 224
212
Empirical Study The Effects of Wage Increases on Labor Supply (and Sleep):
Time-Use Diary Data and Sample Selection Bias 234
Review Questions 236
Problems 238
Selected Readings 240
CHAPTER 8
COMPENSATING WAGE DIFFERENTIALS AND LABOR MARKETS 241
Job Matching: The Role of Worker Preferences
and Information 241
Individual Choice and Its Outcomes 242
Assumptions and Predictions 244
Empirical Tests for Compensating Wage Differentials 247
Hedonic Wage Theory and the Risk of Injury
248
Employee Considerations 249
Employer Considerations 251
The Matching of Employers and Employees 253
Normative Analysis: Occupational Safety and Health Regulation
Hedonic Wage Theory and Employee Benefits
Employee Preferences
262
262
257
C ont ent s
xi
Employer Preferences 264
The Joint Determination of Wages and Benefits 266
Example 8.1
Working on the Railroad: Making a Bad Job Good 248
Example 8.2
Parenthood, Occupational Choice, and Risk
Example 8.3
Indentured Servitude and Compensating Differentials 257
255
Empirical Study How Risky Are Estimates of Compensating Wage Differentials
for Risk? The Errors in Variables Problem 268
Review Questions 270
Problems 271
Selected Readings 272
Appendix 8A Compensating Wage Differentials and Layoffs 273
CHAPTER 9
INVESTMENTS IN HUMAN CAPITAL: EDUCATION AND TRAINING 278
Human Capital Investments: The Basic Model
280
The Concept of Present Value 280
Modeling the Human Capital Investment Decision
The Demand for a College Education
282
284
Weighing the Costs and Benefits of College 284
Predictions of the Theory 285
Market Responses to Changes in College Attendance 291
Education, Earnings, and Post-Schooling Investments in Human
Capital 292
Average Earnings and Educational Level 292
On-the-Job Training and the Concavity of Age/Earnings Profiles 294
The Fanning Out of Age/Earnings Profiles 297
Women and the Acquisition of Human Capital 297
Is Education a Good Investment?
301
Is Education a Good Investment for Individuals? 301
Is Education a Good Social Investment? 304
Is Public Sector Training a Good Social Investment? 313
Example 9.1
War and Human Capital
Example 9.2
Did the G.I. Bill Increase Educational Attainment for Returning
World War II Vets? 288
Example 9.3
Valuing a Human Asset: The Case of the Divorcing Doctor
Example 9.4
The Socially Optimal Level of Educational Investment
279
302
310
Empirical Study Estimating the Returns to Education Using a Sample of
Twins: Coping with the Problem of Unobserved Differences
in Ability 314
Review Questions 316
Problems 317
xii
C on te n t s
Selected Readings 318
Appendix 9A A Cobweb Model of Labor Market
Adjustment 319
Appendix 9B A Hedonic Model of Earnings
and Educational Level
Available online at http://wps.aw.com/aw_ehrensmith_mlaborecon_
10/83/21281/5447988.cw/index.html.
CHAPTER 10 WORKER MOBILITY: MIGRATION, IMMIGRATION, AND TURNOVER 323
The Determinants of Worker Mobility
Geographic Mobility 325
324
The Direction of Migratory Flows 325
Personal Characteristics of Movers 326
The Role of Distance 328
The Earnings Distribution in Sending Countries and International
Migration 328
The Returns to International and Domestic Migration 330
Policy Application: Restricting Immigration 333
U.S. Immigration History 334
Naive Views of Immigration 337
An Analysis of the Gainers and Losers 339
Do the Overall Gains from Immigration Exceed the Losses? 343
Employee Turnover
346
Wage Effects 347
Effects of Employer Size 347
Gender Differences 348
Cyclical Effects 348
Employer Location 349
International Comparisons 349
Is More Mobility Better? 351
Example 10.1
The Great Migration: Southern Blacks Move North
Example 10.2
Migration and Ones Time Horizon
Example 10.3
The Mariel Boatlift and Its Effects on Miamis Wage
and Unemployment Rates 342
Example 10.4
Illegal Immigrants, Personal Discount Rates, and Crime
327
329
345
Empirical Study Do Political Refugees Invest More in Human Capital than
Economic Immigrants? The Use of Synthetic Cohorts 352
Review Questions 353
Problems 354
Selected Readings 356
C ont ent s
CHAPTER 11 PAY AND PRODUCTIVITY: WAGE DETERMINATION WITHIN THE FIRM
Motivating Workers: An Overview of the Fundamentals
xiii
357
359
The Employment Contract 359
Coping with Information Asymmetries 360
Motivating Workers 363
Motivating the Individual in a Group 364
Compensation Plans: Overview and Guide to the Rest of
the Chapter 366
Productivity and the Basis of Yearly Pay
366
Employee Preferences 366
Employer Considerations 368
Productivity and the Level of Pay
374
Why Higher Pay Might Increase Worker Productivity
Efficiency Wages 375
Productivity and the Sequencing of Pay
374
377
Underpayment Followed by Overpayment
Promotion Tournaments 381
Career Concerns and Productivity 383
377
Applications of the Theory: Explaining Two Puzzles
Why Do Earnings Increase with Job Tenure?
Why Do Large Firms Pay More? 387
385
385
Example 11.1
The Wide Range of Possible Productivities: The Case of the Factory
That Could Not Cut Output 358
Example 11.2
Calorie Consumption and the Type of Pay
Example 11.3
Poor Group Incentives Doom the Shakers 370
Example 11.4
Did Henry Ford Pay Efficiency Wages? 376
Example 11.5
The Rat Race in Law Firms 383
364
Empirical Study Are Workers Willing to Pay for Fairness? Using Laboratory
Experiments to Study Economic Behavior 388
Review Questions 390
Problems 391
Selected Readings 392
CHAPTER 12 GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET 393
Measured and Unmeasured Sources of Earnings
Differences 394
Earnings Differences by Gender 395
Earnings Differences between Black
and White Americans 405
Earnings Differences by Ethnicity 409
xiv
C on te n t s
Theories of Market Discrimination
411
Personal-Prejudice Models: Employer Discrimination 411
Personal-Prejudice Models: Customer Discrimination 416
Personal-Prejudice Models: Employee Discrimination 417
Statistical Discrimination 419
Noncompetitive Models of Discrimination 420
A Final Word on the Theories of Discrimination 424
Federal Programs to End Discrimination
425
Equal Pay Act of 1963 425
Title VII of the Civil Rights Act 426
The Federal Contract Compliance Program 430
Effectiveness of Federal Antidiscrimination Programs
431
Example 12.1
Bias in the Selection of Musicians by Symphony Orchestras 398
Example 12.2
The Gender Earnings Gap across Countries 401
Example 12.3
Fear and Lathing in the Michigan Furniture Industry
Example 12.4
Comparable Worth and the University
418
428
Empirical Study Can We Catch Discriminators in the Act? The Use of Field
Experiments in Identifying Labor Market Discrimination 434
Review Questions 436
Problems 437
Selected Readings 438
Appendix 12A Estimating Comparable-Worth Earnings Gaps: An
Application of Regression Analysis 439
CHAPTER 13 UNIONS AND THE LABOR MARKET
Union Structure and Membership
443
444
International Comparisons of Unionism 444
The Legal Structure of Unions in the United States 446
Constraints on the Achievement of Union Objectives 449
The Monopoly-Union Model 451
The Efficient-Contracts Model 452
The Activities and Tools of Collective Bargaining
456
Union Membership: An Analysis of Demand and Supply 457
Union Actions to Alter the Labor Demand Curve 462
Bargaining and the Threat of Strikes 464
Bargaining in the Public Sector: The Threat of Arbitration 469
The Effects of Unions
472
The Theory of Union Wage Effects 472
Evidence of Union Wage Effects 476
Evidence of Union Total Compensation Effects 478
C ont ent s
xv
The Effects of Unions on Employment 479
The Effects of Unions on Productivity and Profits 480
Normative Analyses of Unions 481
Example 13.1
The Effects of Deregulation on Trucking and Airlines 461
Example 13.2
Permanent Replacement of Strikers 467
Example 13.3
Do Right-to-Work Laws Matter? 482
Empirical Study What is the Gap Between Union and Nonunion Pay? The
Importance of Replication in Producing Credible Estimates 484
Review Questions 487
Problems 488
Selected Readings 489
Appendix 13A Arbitration and the Bargaining Contract Zone 490
CHAPTER 14 UNEMPLOYMENT
495
A Stock-Flow Model of the Labor Market
497
Sources of Unemployment 498
Rates of Flow Affect Unemployment Levels
499
Frictional Unemployment 501
The Theory of Job Search 502
Effects of Unemployment Insurance Benefits
Structural Unemployment
505
508
Occupational and Regional Unemployment Rate Differences 509
International Differences in Long-Term Unemployment 511
Do Efficiency Wages Cause Structural Unemployment? 511
Demand-Deficient (Cyclical) Unemployment
Downward Wage Rigidity 515
Financing U.S. Unemployment Compensation
Seasonal Unemployment 521
When Do We Have Full Employment?
514
519
523
Defining the Natural Rate of Unemployment 524
Unemployment and Demographic Characteristics 524
What Is the Natural Rate? 525
Example 14.1
Unemployment Insurance and Seasonal Unemployment:
A Historical Perspective 522
Empirical Study Do Reemployment Bonuses Reduce Unemployment?
The Results of Social Experiments 526
Review Questions 528
Problems 529
Selected Readings 530
xvi
C on te n t s
CHAPTER 15 INEQUALITY IN EARNINGS 531
Measuring Inequality 532
Earnings Inequality since 1980: Some Descriptive Data
535
The Increased Returns to Higher Education 538
Growth of Earnings Dispersion within Human-Capital Groups 540
The Underlying Causes of Growing Inequality
542
Changes in Supply 543
Changes in Demand: Technological Change 545
Changes in Demand: Earnings Instability 548
Changes in Institutional Forces 549
Example 15.1
Differences in Earnings Inequality across Developed
Countries 539
Example 15.2
Changes in the Premium to Education at the Beginning of the
Twentieth Century 541
Empirical Study Do Parents Earnings Determine the Earnings of Their Children?
The Use of Intergenerational Data in Studying Economic
Mobility 550
Review Questions 551
Problems 552
Selected Readings 553
Appendix 15A Lorenz Curves and Gini Coefficients 554
CHAPTER 16 THE LABOR-MARKET EFFECTS OF INTERNATIONAL TRADE AND PRODUCTION
SHARING 559
Why Does Trade Take Place?
560
Trade between Individuals and the Principle of Comparative
Advantage 560
The Incentives for Trade across Different Countries 562
Effects of Trade on the Demand for Labor
566
Product Demand Shifts 568
Shifts in the Supply of Alternative Factors of Production
The Net Effect on Labor Demand 571
Will Wages Converge across Countries?
Policy Issues 577
575
Subsidizing Human-Capital Investments 577
Income Support Programs 579
569
C ont ent s
Subsidized Employment 579
How Narrowly Should We Target Compensation?
Summary 583
xvii
580
Example 16.1
The Growth Effects of the Openness to Trade: Japans Sudden Move
to Openness in 1859 567
Example 16.2
Could a Quarter of American Jobs Be Offshored? Might Your
Future Job Be among Them? 573
Empirical Study Evaluating European Active Labor Market Policies: The Use of
Meta-Analysis 582
Review Questions 584
Problems 584
Suggested Readings 585
Answers to Odd-Numbered Review Questions and Problems
Name Index 637
Subject Index 642
587
Preface
New to This Edition
This eleventh edition of Modern Labor Economics has been thoroughly
updated in terms of both tabular material and references to the latest literature. Our goal in these updates is to make our textbook a comprehensive reference, for both students and professors, to critical factual information about
the labor market and to the professional literature in labor economics.
In recognition of the growing need for rigorous and dispassionate analyses
of American immigration policy, we have expanded our analysis of undocumented immigration in chapter 10 to include an enhanced analysis of both
its theoretical and measured effects on society.
We have also incorporated, in relevant chapters, discussions that include
labor-market effects of the Great Recession of 2008, along with an examination of recent changes in such outcomes as earnings inequality, human-capital
acquisition, and labor-force participation.
In chapter 6, we added a discussion of the labor supply behavior of married
women and a new boxed example on the labor supply of New York City taxi
drivers.
In chapter 11, we amplified the Group Incentives and Executive Pay section
and added a new boxed example on the rat race in law firms.
In addition to including new material on the recession, we added a new
boxed example on earnings inequality in developed countries and a new
section on earnings instability to chapter 15.
Modern Labor Economics: Theory and Public Policy has grown out of our experiences
over the last three decades in teaching labor market economics and conducting
research aimed at influencing public policy. Our text develops the modern theory of
labor market behavior, summarizes empirical evidence that supports or contradicts
each hypothesis, and illustrates in detail the usefulness of the theory for public policy analysis. We believe that showing students the social implications of concepts
enhances the motivation to learn them, and that using the concepts of each chapter
in an analytic setting allows students to see the concepts in action. The extensive use
of detailed policy applications constitutes a major contribution of this text.
If, as economists believe, passing the market test is the ultimate criterion
for judging the success of an innovation, launching this eleventh edition of
Modern Labor Economics is an endeavor that we have approached with both satisfaction and enthusiasm. We believe that economic analysis has become more
widely accepted and valued in the area of policy analysis and evaluation, and that
xviii
Preface
xix
labor economics has become an ever-more vibrant and vigorous field within economics. Modern Labor Economics was first published about a decade after neoclassical
analysis of the labor market replaced institutional treatment as the dominant paradigm, and in the intervening three decades, this paradigm has grown increasingly
sophisticated in its treatment of labor-market issues and the institutions that affect
them. This period has been a very exciting and rewarding time to be a labor economist, and our enthusiasm for bringing this field to the student remains unabated.
Overview of the Text
Modern Labor Economics is designed for one-semester or one-quarter courses in labor
economics at the undergraduate or graduate level for students who may not have
extensive backgrounds in economics. Since 1974, we have taught such courses at
the School of Industrial and Labor Relations at Cornell University. The undergraduate course requires only principles of economics as a prerequisite, and the graduate course (for students in a professional program akin to an MBA program) has no
prerequisites. We have found that it is not necessary to be highly technical in ones
presentation in order to convey important concepts and that students with limited
backgrounds in economics can comprehend a great deal of material in a single
course. However, for students who have had intermediate microeconomics, we
have included seven chapter appendixes that discuss more advanced material or
develop technical concepts in much greater detail than the text discussion permits.
Labor economics has always been an applied branch of study, and a thorough grounding in the field requires at least an acquaintance with basic methodological techniques and problems. The appendix to chapter 1 presents a brief
overview of regression analysis. Then, each succeeding chapter ends with an
empirical studyrelevant to that chapters contentthat introduces students
to different methodological issues faced by economists doing applied research. It is
our hope that this unique feature of the textbook will both enlighten students
about, and interest them in, the challenges of empirical research.
After an introduction to basic economic concepts in chapter 1, chapter 2 presents a quick overview of demand and supply in labor markets so that students
will see from the outset the interrelationship of the major forces at work shaping
labor market behavior. This chapter can be skipped or skimmed by students
with strong backgrounds in economics or by students in one-quarter courses.
Chapters 35 are concerned primarily with the demand for labor, while
chapters 610 focus on labor supply issues.
Beginning with chapter 11, the concepts of economics are used to analyze
several topics of special interest to students of labor markets. The relationship
between pay and productivity is analyzed in chapter 11, and the earnings of
women and minoritiesencompassing issues of discriminationare the subjects of
chapter 12. Chapter 13 uses economic concepts to analyze collective bargaining in
the private and public sectors, and chapter 14 discusses the issue of unemployment.
Chapters 15 and 16 offer analyses of two issues of major policy importance
in the last two or three decades: the growth in earnings inequality (chapter 15)
xx
Preface
and the effects of greater international trade and production sharing (chapter 16).
Both chapters serve a dual role: analyzing important policy issues while reviewing
and utilizing key concepts presented in earlier chapters.
In addition to the use of public policy examples, the inclusion of technical
appendixes, and our end-of-chapter discussions of methodological issues, the text
has a number of other important pedagogical features. First, each chapter contains boxed examples that illustrate an application of that chapters theory in a
nontraditional, historical, business, or cross-cultural setting. Second, each chapter
contains a number of discussion or review questions that allow students to apply
what they have learned to specific policy issues. To enhance student mastery, we
provide answers to the odd-numbered questions at the back of the book. Third,
lists of selected readings at the ends of chapters refer students to more advanced
sources of study. Fourth, the footnotes in the text have been updated to cite the
most recent literature on each given topic; they are intended as a reference for students and professors alike who may want to delve more deeply into a given topic.
Accompanying Supplements
Supplements enrich the eleventh edition of Modern Labor Economics for both students and instructors.
Students receive a cohesive set of online study tools that are available on
the Companion Web site, http://www.aw-bc.com/ehrenberg/. For each chapter,
students will find a chapter summary, review questions, problems, and applications revised by Léonie Stone at the State University of New York at Geneseo, a
multiple-choice quiz revised by Walter Wessels of North Carolina State University, econometric and quantitative problems revised by Elizabeth Wheaton
of Southern Methodist University, case studies compiled by Lawrence Wohl of
Gustavus Adolphus College that illustrate concepts central to the chapters, Web
links to labor data sources, and PowerPoint presentations containing all numbered figures and tables from the text. In addition, students can also access Web
Appendix 9B: A Hedonic Model of Earnings and Educational Level.
In addition to the Study Guide, students receive a cohesive set of online
study tools that are available on the Companion Web site, www.aw-bc.com/
ehrenberg_smith. For each chapter, students will find a multiple-choice quiz
revised by Walter Wessels of North Carolina State University, econometric and
quantitative problems revised by Elizabeth Wheaton of Southern Methodist University, case studies compiled by Lawrence Wohl of Gustavus Adolphus College
that illustrate concepts central to the chapter, Web links to labor data sources, and
PowerPoint lecture presentations.
For instructors, an extensive set of online course materials is available
for download at the Instructor Resource Center (www.pearsonhighered.com/irc) on
the catalog page for Modern Labor Economics. All resources are password-protected
for instructor use only. An Online Test Bank consists of approximately 500 multiplechoice questions that can be downloaded and edited for use in problem sets and
Preface
xxi
exams. The Test Bank has been thoroughly revised and updated by Walter Wessels
and is also available as an Online Computerized Test Bank in TestGen format.
Also available is the Online Instructors Manual, written by co-author Robert
Smith. The Online Instructors Manual presents answers to the even-numbered
review questions and problems in the text, outlines the major concepts in each chapter, and contains two new suggested essay questions per chapter (with answers).
Finally, an Online PowerPoint presentation is available for each chapter. The
slides consist of all numbered figures and tables from the text. The PowerPoint
presentations can then be used electronically in the classroom or they can be
printed for use as overhead transparency masters.
Acknowledgments
Enormous debts are owed to four groups of people. First are those instrumental
in teaching us the concepts and social relevance of labor economics when we were
students or young professionals: Orley Ashenfelter, Frank Brechling, George
Delehanty, Dale Mortensen, John Pencavel, Orme Phelps, and Mel Reder. Second
are the generations of undergraduate and gradu
