SOCIAL COMPARISON AND EFFORT PROVISION: EVIDENCE FROM A FIELD EXPERIMENT

Social comparison has potentially far reaching consequences in many economic domains. We conducted a field experiment to examine how social comparison affects workers' effort provision if their own wage or that of a co‐worker is cut. Workers were assigned to groups of two, performed identical individual tasks, and received the same performance‐independent hourly wage. Cutting both group members' wages caused a decrease in performance. But when only one group member's wage was cut, the affected workers decreased their performance more than twice as much as when both workers' wages were cut. This finding indicates that social comparison among workers affects effort provision because the only difference between the two wage‐cut treatments is the other group member's wage level. In contrast, workers whose wage was not cut but who witnessed their group member's pay being cut displayed no change in performance relative to the baseline treatment in which both workers' wages remained unchanged. This indicates that social comparison exerts asymmetric effects on effort.     

Estimation and Inference With Weak,Semi‐Strong,and Strong Identification

This paper analyzes the properties of standard estimators, tests, and confidence sets (CS's) for parameters that are unidentified or weakly identified in some parts of the parameter space. The paper also introduces methods to make the tests and CS's robust to such identification problems. The results apply to a class of extremum estimators and corresponding tests and CS's that are based on criterion functions that satisfy certain asymptotic stochastic quadratic expansions and that depend on the parameter that determines the strength of identification. This covers a class of models estimated using maximum likelihood (ML), least squares (LS), quantile, generalized method of moments, generalized empirical likelihood, minimum distance, and semi‐parametric estimators. The consistency/lack‐of‐consistency and asymptotic distributions of the estimators are established under a full range of drifting sequences of true distributions. The asymptotic sizes (in a uniform sense) of standard and identification‐robust tests and CS's are established. The results are applied to the ARMA(1, 1) time series model estimated by ML and to the nonlinear regression model estimated by LS. In companion papers, the results are applied to a number of other models.     

Wage Expectations for Higher Education Students in Spain

We assess students' ability to forecast future earnings by using data on expected wages self‐reported by college students with different graduation horizons. We find a significant gender gap, by which wage expectations are systematically lower for women than for men. However, women do not fully account for the gender gap in their future earnings. We also find that student performance, degree type, and graduation horizon play a relevant role in wage forecasts. In any case, students' expectations do not conform market wages but become more realistic as they approach graduation.     

Minimum Wages and Trainers' Dilemma

This paper examines how a minimum wage, viewed as an incentive to trainers, would affect the informal help provided through on‐the‐job training. In the work environment, experienced employees play a significant role in training new employees. However, the more help they provide to trainees, the less likely that the trainers themselves will be promoted. This is the trainer's dilemma: help trainees or work for promotion. We show that a minimum wage alleviates the trainer's dilemma, as it increases the earnings of non‐promoted workers and reduces the net benefit of promotion for experienced employees. Hence, minimum wage regulation encourages informal help and enhances welfare, although it reduces the firm's profit.     

Wage Bargaining with On‐the‐Job Search: Theory and Evidence

Most applications of Nash bargaining over wages ignore between‐employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on‐the‐job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on‐the‐job search, and the workers' bargaining power. We find that between‐firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' “reservation wages,” defined as out‐of‐work income. In particular, we detect no significant bargaining power for intermediate‐ and low‐skilled workers, and a modestly positive bargaining power for high‐skilled workers.     

Heterogeneous Firm Responses to Rising Teenage Wages

Substantial youth minimum wage changes in New Zealand between 2000 and 2007 raised teenage average wages by 5–10 per cent relative to those for adults. We use Statistics New Zealand's Linked Employer–Employee Database (LEED) to examine whether firms' teenage labour demand responses to these changes are greater for firms with higher teenage‐employment share. We find evidence that high teen‐employers reduced their teen employment relative to other firms and had lower survival rates over the period. However, firms that entered the main teen‐employment industries had higher teen‐employment shares than continuing firms. The results are consistent with endogenous technology adoption in response to non‐marginal changes in relative wages.     

Preliminary Evidence on Wage Setting in Greek Manufacturing

Abstract. The negotiating power of the unions and their role in wage determination depends on the level of centralization of the wage bargaining system as well as on other institutional arrangements. In this study, we estimate a set of wage equations in order to study the employment effects of different unions’ stances in wage determination as well as to investigate other characteristics of employment in Greek manufacturing. We discriminate between workers and employees (blue‐ and white‐collar workers) and between sectors in order to capture differences in the relative supply as well as differences in the negotiating power among the staff of the same industry. Empirical findings reveal that the persistence of unemployment arises as a result of the great bargaining power of the unions in negotiations at a sectoral level. White‐collar workers exhibit a stronger negotiating power compared with blue‐collar workers because of differences in the institutional framework.     

Wage Dispersion and Equilibrium Search Models: Some Evidence from Italy

This paper provides a structural estimation of an equilibrium search model with on‐the‐job search and heterogeneity in firms' productivities using a sample of Italian male workers. Results indicate that arrival rates of offers for workers are higher when unemployed than when employed and firms exploit their monopsony power when setting wages. As a result, workers earn far less than their marginal product. The model is then used to study regional labour market differentials in Italy. Wide variation in frictional transition parameters across areas helps to explain persistent unemployment and wage differentials.     

Efficiency Wage,Fixed Employment Costs,and Dual Labour Markets

The standard efficiency wage‐based explanation of labour market dualism hinges on the existence of differences in monitoring across sectors. The paper proposes fixed employment costs as an alternative source of wage differentials for homogeneous workers. It shows that firms with larger fixed costs pay higher wages in order to elicit more effort from their workers, and tend to have higher capital/labour ratio and labour productivity. The model generates both involuntary unemployment and involuntary confinement in the secondary sector: high effort–high wage jobs are preferred to low effort–low wage jobs and either are preferred to unemployment. The proposed framework can also account for the various types of treatment of marginal jobs in primary sector firms envisaged by Doeringer and Piore (Internal Labour Markets and Manpower Analysis, 1971). In particular, an increase in fixed costs beyond a certain level may induce primary sector firms to restructure, segment production, and enter the secondary sector, thus converting their jobs into secondary jobs. From a welfare point of view, we cannot state in general the desirability of subsidizing fixed employment costs; however, we show that an employment subsidy financed by a wage tax is able to increase employment with no loss in terms of production.     

Nonparametric Test for Causality with Long‐range Dependence

This paper introduces a nonparametric Granger‐causality test for covariance stationary linear processes under, possibly, the presence of long‐range dependence. We show that the test is consistent and has power against contiguous alternatives converging to the parametric rate T^−1/2. Since the test is based on estimates of the parameters of the representation of a VAR model as a, possibly, two‐sided infinite distributed lag model, we first show that a modification of Hannan's (1963, 1967) estimator is root‐ T consistent and asymptotically normal for the coefficients of such a representation. When the data are long‐range dependent, this method of estimation becomes more attractive than least squares, since the latter can be neither root‐ T consistent nor asymptotically normal as is the case with short‐range dependent data.     

Wage Inequality of US Truck Drivers

Using CPS data for the period 1979–2009, the wage dispersion of truck drivers (and subsets of the truck driving sample) is compared with the trends in wage dispersion of males economy‐wide. We find that truckers' wages experienced a decrease in inequality post‐deregulation, as expected given the literature on regulation's impact on the labor market. We also find that the wage dispersion for truckers is markedly different from males economy‐wide, providing evidence that the wage distribution of truck drivers has been dominated by the changing structure of the occupation post‐deregulation and largely immune to the factors that increased inequality for the aggregate labor market.     

Prices,Markups, and Trade Reform

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi‐product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity‐based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory‐gate prices and that output tariff declines have the expected pro‐competitive effects. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass‐through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms.     

Equilibrium Wage‐Tenure Contracts

In this study we consider a labor market matching model where firms post wage‐tenure contracts and workers, both employed and unemployed, search for new job opportunities. Given workers are risk averse, we establish there is a unique equilibrium in the environment considered. Although firms in the market make different offers in equilibrium, all post a wage‐tenure contract that implies a worker's wage increases smoothly with tenure at the firm. As firms make different offers, there is job turnover, as employed workers move jobs as the opportunity arises. This implies the increase in a worker's wage can be due to job‐to‐job movements as well as wage‐tenure effects. Further, there is a nondegenerate equilibrium distribution of initial wage offers that is differentiable on its support except for a mass point at the lowest initial wage. We also show that relevant characteristics of the equilibrium can be written as explicit functions of preferences and the other market parameters.     

An Equilibrium Theory of Learning,Search, and Wages

We examine the labor market effects of incomplete information about the workers' own job‐finding process. Search outcomes convey valuable information, and learning from search generates endogenous heterogeneity in workers' beliefs about their job‐finding probability. We characterize this process and analyze its interactions with job creation and wage determination. Our theory sheds new light on how unemployment can affect workers' labor market outcomes and wage determination, providing a rational explanation for discouragement as the consequence of negative search outcomes. In particular, longer unemployment durations are likely to be followed by lower reemployment wages because a worker's beliefs about his job‐finding process deteriorate with unemployment duration. Moreover, our analysis provides a set of useful results on dynamic programming with optimal learning.     

Dedicated Transportation Subnetworks: Design,Analysis, and Insights

A dedicated subnetwork (DSN) refers to a subset of lanes, with associated loads, in a shipper's transportation network, for which resources—trucks, drivers, and other equipment—are exclusively assigned to accomplish shipping requirements. The resources assigned to a DSN are not shared with the rest of the shipper's network. Thus, a DSN is an autonomously operated subnetwork and, hence, can be subcontracted. We address a novel problem of extracting a DSN for outsourcing to one or more subcontractors, with the objective of maximizing the shipper's savings. In their pure form, the defining conditions of a DSN are often too restrictive to enable the extraction of a sizable subnetwork. We consider two notions—deadheading and lane‐sharing—that aid in improving the size of the DSN. We show that all the optimization problems involved are both strongly NP‐hard and APX‐hard, and demonstrate several polynomially solvable special cases arising from topological properties of the network and parametric relationships. Next, we develop a network‐flow‐based heuristic that provides near‐optimal solutions to practical instances in reasonable time. Finally, using a test bed based on data obtained from a national 3PL company, we demonstrate the substantial monetary impact of subcontracting a DSN and offer useful managerial insights.     

Why Do Women's Wages Increase So Slowly Throughout Their Career? A Dynamic Model of Statistical Discrimination

Abstract. The aim of this paper is to explain the growing wage differentials between men and women during their working careers. We provide a dynamic model of statistical discrimination, which integrates specific human capital decisions: on‐the‐job training investment and wages are endogenously determined. We reveal a small wage differential at the beginning of women's career, but women's wages increase more slowly; this is partly due to a lower level of human capital investment by women and partly because firms smooth training costs between different periods.     

EQUILIBRIUM INCENTIVE CONTRACTS AND EFFICIENCY WAGES

We analyze the optimal (efficiency) wage contract when output is contractible but firms neither observe the workers' effort nor their match‐specific productivity. Firms offer wage contracts that optimally trade off effort and wage costs. As a result, employed workers enjoy rents, which in turn creates unemployment. Nonetheless, the incentive power of the equilibrium wage contract is constrained efficient in the absence of taxes and unemployment benefits. We also show that more high‐powered incentive contracts tend to be associated with higher equilibrium unemployment rates. (JEL: E24, J30, J41)     

Decision Theory Applied to a Linear Panel Data Model

This paper applies some general concepts in decision theory to a linear panel data model. A simple version of the model is an autoregression with a separate intercept for each unit in the cross section, with errors that are independent and identically distributed with a normal distribution. There is a parameter of interest γ and a nuisance parameter τ, a N×K matrix, where N is the cross‐section sample size. The focus is on dealing with the incidental parameters problem created by a potentially high‐dimension nuisance parameter. We adopt a “fixed‐effects” approach that seeks to protect against any sequence of incidental parameters. We transform τ to (δ, ρ, ω), where δ is a J×K matrix of coefficients from the least‐squares projection of τ on a N×J matrix x of strictly exogenous variables, ρ is a K×K symmetric, positive semidefinite matrix obtained from the residual sums of squares and cross‐products in the projection of τ on x, and ω is a (N−J) ×K matrix whose columns are orthogonal and have unit length. The model is invariant under the actions of a group on the sample space and the parameter space, and we find a maximal invariant statistic. The distribution of the maximal invariant statistic does not depend upon ω. There is a unique invariant distribution for ω. We use this invariant distribution as a prior distribution to obtain an integrated likelihood function. It depends upon the observation only through the maximal invariant statistic. We use the maximal invariant statistic to construct a marginal likelihood function, so we can eliminate ω by integration with respect to the invariant prior distribution or by working with the marginal likelihood function. The two approaches coincide. Decision rules based on the invariant distribution for ω have a minimax property. Given a loss function that does not depend upon ω and given a prior distribution for (γ, δ, ρ), we show how to minimize the average—with respect to the prior distribution for (γ, δ, ρ)—of the maximum risk, where the maximum is with respect to ω. There is a family of prior distributions for (δ, ρ) that leads to a simple closed form for the integrated likelihood function. This integrated likelihood function coincides with the likelihood function for a normal, correlated random‐effects model. Under random sampling, the corresponding quasi maximum likelihood estimator is consistent for γ as N→∞, with a standard limiting distribution. The limit results do not require normality or homoskedasticity (conditional on x) assumptions.     

Strong Duality for a Multiple‐Good Monopolist

We characterize optimal mechanisms for the multiple‐good monopoly problem and provide a framework to find them. We show that a mechanism is optimal if and only if a measure μ derived from the buyer's type distribution satisfies certain stochastic dominance conditions. This measure expresses the marginal change in the seller's revenue under marginal changes in the rent paid to subsets of buyer types. As a corollary, we characterize the optimality of grand‐bundling mechanisms, strengthening several results in the literature, where only sufficient optimality conditions have been derived. As an application, we show that the optimal mechanism for n independent uniform items each supported on [c,c+1] is a grand‐bundling mechanism, as long as c is sufficiently large, extending Pavlov's result for two items Pavlov, 2011. At the same time, our characterization also implies that, for all c and for all sufficiently large n, the optimal mechanism for n independent uniform items supported on [c,c+1] is not a grand‐bundling mechanism.     

Dose‐Response Models Incorporating Aerosol Size Dependency for Francisella tularensis

The effect of bioaerosol size was incorporated into predictive dose‐response models for the effects of inhaled aerosols of Francisella tularensis (the causative agent of tularemia) on rhesus monkeys and guinea pigs with bioaerosol diameters ranging between 1.0 and 24 μm. Aerosol‐size‐dependent models were formulated as modification of the exponential and β‐Poisson dose‐response models and model parameters were estimated using maximum likelihood methods and multiple data sets of quantal dose‐response data for which aerosol sizes of inhaled doses were known. Analysis of F. tularensis dose‐response data was best fit by an exponential dose‐response model with a power function including the particle diameter size substituting for the rate parameter k scaling the applied dose. There were differences in the pathogen's aerosol‐size‐dependence equation and models that better represent the observed dose‐response results than the estimate derived from applying the model developed by the International Commission on Radiological Protection (ICRP, 1994) that relies on differential regional lung deposition for human particle exposure.