Labor Economics: Principles in Practice

Ken McLaughlin is Associate Professor of Labor Economics and Applied Microeconomics at City University of New York, Hunter College.

Preface to the Student
Preface to the Instructor

Part One
1. Introduction to Labor Economics
1.1 Tipping Busboys
1.2 Labor Economics
Key Principles
1.3 Economic Detection
Arguments and Explanations
Standards for Evaluating Hypotheses
Scientific Method
1.4 Data
Current Population Survey (CPS)
Current Employment Survey (CES) and Other Datasets
Occupation Averages in the CPS
1.5 Empirical Methods
Regression
Causation and Instrumental Variables
Before-and-After Comparison with and without a Control Group
Confidence with Caution
1.6 For Your Toolbox
Lines
Slopes, Marginal Changes, and Elasticities
Logarithms
Random Variables and Distributions
Adjusting for Inflation

2. Labor Markets
2.1 Competitive Labor Market
Demand for Nurses
Supply of Nurses
Equilibrium in the Market for Nurses
Shifting the Equilibrium
2.2 Minimum Wage
Effect of a Minimum Wage on Employment
Preliminary Evidence
New Jersey Raises Its Minimum Wage
Two Rounds of Federal Minimum Wage Hikes
2.3 Taxes, Subsidies, and Employer Mandates
Employment Taxes
Wage Subsidy
Employer Mandate
2.4 Multiple Competitive Labor Markets
Multi-Market Equilibrium and Migration
Minimum Wage with Partial Coverage
2.5 Monopsony
Monopsony Model
Application: Baseball's Reserve System

3. Labor Supply
3.1 Motivating Evidence
Participation and Employment Rates
Weekly Hours of Work
3.2 Hours of Work
Opportunities
Preferences
Consumption-Leisure Choice
Changing Nonlabor Income
Changing the Wage Rate
Labor Supply Curve
3.3 Applications
Taxing Labor Income
Incredible Shrinking Workweek
Retirement
3.4 Whether to Work
Reservation Wage
Application: Commuting and Other Costs of Work
Application: Cash Grants and Income Guarantees
3.5 Family Labor Supply and Home Production
Family Labor Supply
Home Production
3.6 Market Labor Supply

4. Labor Demand
4.1 Short-Run Labor Demand
Production Function and the Total-Product Curve
Average and Marginal Products of Labor
Profit
Profit-Maximizing Choice of Employment
Short-Run Labor Demand Curve
Factors that Shift Labor Demand in the Short Run
Payroll Tax and Short-Run Labor Demand
4.2 Long-Run Labor Demand
Production Function and Isoquant Curves
Cost Function and Isocost Lines
Cost-Minimizing Mix of Labor and Capital
Application: Cross-Country Differences in Capital Intensity
Profit-Maximizing Choice of Labor and Capital
Long-Run Labor Demand Curve
Factors that Shift Labor Demand in the Long Run
Application: Short-Run v. Long-Run Effects of the Minimum Wage
4.3 Market Labor Demand
Application: Demand for Palestinian Labor in Israel
Equilibrium Price Effects and Marshall's Rules


Part Two
5. Job Attributes
5.1 Market for Work on Dirty Jobs
Supply of Labor to Dirty Jobs
Demand for Labor on Dirty Jobs
Equilibrium Wage Premium on Dirty Jobs
5.2 Model of Compensating Wage Differentials
Wage-Dirt Curve
Worker's Job Choice
Firm's Job Choice
Equilibrium Compensating Wage Differential
Application: Occupational Safety Regulation
Application: Value of Life
5.3 Workday and Job Choice
Employer's Interest in the Length of the Workday
Compensating Wage Differentials for Long Workdays
5.4 Employee Benefits
Composition of Pay
Taxing Wages But Not Benefits
But Cushy Jobs Pay More

6. Schooling
6.1 Schooling as an Investment in Human Capital
Wage Profiles and the Wage-Schooling Curve
Wealth and Iso-Wealth Curves
Wealth-Maximizing Schooling Choice and the Demand for Schooling
Equilibrium Wage-Schooling Curve
6.2 Estimating the Rate of Return to Schooling
Rate of Return to Schooling Across Occupations
Differences in the Interest Rate
Tuition, Death, and Taxes
Differences in Ability
Avoiding Ability Bias
6.3 Schooling as a Signal of Ability
Signaling Model of Schooling
Signaling or Human Capital?
6.4 Application: Schooling and the Workweek

7. Training, Turnover, and Migration
7.1 General Training
On-the-Job Training as an Investment
Productivity and Wage Profiles
Who Pays for General Training?
Wages and Work Experience
Labor Supply over the Life Cycle
7.2 Applications
Military Training of Commercial Pilots
MBAs
Baseball's Reserve System
7.3 Specific Training
Who Pays for Specific Training?
Specific Training and Turnover
7.4 Matching Models of Turnover
Searching on the Job
Learning the Value of the Match
7.5 Migration
Migration as an Investment in Human Capital
Application: Indentured Servitude
Selection on Skill
Effects of Immigration in the Short Run and Long Run
Application: Mariel Boatlift

8. Discrimination
8.1 Measuring Wage Gaps
Wage Gaps by Sex, Race, and Ethnicity
Standardized Comparison
Accounting for Changes in Wage Gaps
Wage Gaps by Sex Across Countries
Wages and the Sex and Race Compositions of Occupations
8.2 Identifying the Effects of Discrimination
Omitted Skill Variables
Control Group of Nondiscriminators
Test Scores and the Long Shadow of Discrimination in Childhood
Discrimination in Hiring: Audit Studies and Blind Auditions
Career Wage Ratios and Family Demands
8.3 Modeling Discrimination
Employer Discrimination
Employee Discrimination
Customer Discrimination
Monopsony Discrimination
Statistical Discrimination
8.4 Can Discrimination Survive in the Long Run?
Paying a Price to Discriminate
Institutionalized Discrimination
8.5 U.S. Anti-Discrimination Policy

9. Unions
9.1 Historical Context
Union Membership
Union Wage Premium
9.2 Models of Unions
Union Bargaining with a Monopsony Employer
Monopoly Union
Efficient-Contracting Union
9.3 Applications
Comparing Union Models
Recipe for a Successful Monopoly Union
Effects of Unions on Nonunion Wages

10. Wage Inequality
10.1 Measuring the Distribution of Wages
Dispersion
Asymmetry
Application: Wage Inequality Across Occupations
10.2 Economic Models of Wage Inequality
Ability
Schooling
Job Assignment in Hierarchies
Superstars
10.3 Application: Increasing Wage Inequality
Increasing Return to Skills
Skill-Biased Innovations and the Baby Boomers
International Trade and Immigration
Institutions

Part Three
11. Compensation Strategies
11.1 Introduction to Compensation
Production Environment
Efficient Effort
Self-Employment
Profit Sharing and Shirking
11.2 Performance Pay
Personal Performance
Relative Performance
Application: Self-Employment and Entrepreneurship
11.3 Efficiency Wage and the Threat of Dismissal
Efficiency Wage
Threat of Dismissal
Application: Mandatory Retirement
11.4 Compensation of Chief Executive Officers
Level of CEO Pay
Sensitivity of CEO Pay to Firm Performance
Application: Personal Use of the Corporate Jet

12. Unemployment
12.1 Disequilibrium Unemployment
Minimum Wage and Efficiency Wage
12.2 Steady-State Unemployment
Flows Between Labor-Market States
Distribution of Lengths of Spells of Unemployment
12.3 Job Search
Reservation Wage
Career Jobs, Low Interest Rates, and Being Well-Connected
12.4 Applications
Unemployment Insurance
European Unemployment
12.5 Unemployment in the Macroeconomy
Inflation and Unemployment
Phillips Curves in a Model of Aggregate Fluctuations
Job Vacancies and Unemployment

Answers to the Practice Questions
Glossary
Index