David Levine Industrial
Relations
January 19, 2005 PHDBA
259C
Syllabus
Class:
Tuesday 9:30 to 12:30 in F678 Haas.
Professer: You can reach me at my office, F671
Haas, phone 642-1697, fax 643-1420, email Levine@haas.berkeley.edu
Office
hours: are by appointment or just drop by.
Grading:
is based 30% on class participation, 10% on several class presentations, and
60% on an empirical project. Class participation is required. Most
presentations should use a one-page handout.
Problem
sets: are due Wednesdays at 3:00 p.m. I will
not grade them, but records of your turning them in will be used to decide
close grading decisions. You are encouraged to work together on the homework.
Section: Students should set up a section
meeting to go over the material.
Project: The project applies the theories and
tools of this class to a situation that interests you. You are invited to work
with a classmate. The ideal length of the project is 15 to 20 double-spaced
pages plus tables and references. Projects should include a theoretical
framework and relevant data. Everyone must hand in a tentative abstract with
the question to be addressed and with references to one or more data sources
before Spring Break. The project is due without exception on May 12. More on
the assignment is in the handout.
Mailing list: If you have not already
received email from the class email alias phdba259c-1, sign up for it by
the end of the week. To do this, visit www.haas.berkeley.edu/majordomo.
Readings and messages will be emailed
to you; you are expected to read your email several times a week.
The
class web page: is at http://faculty.haas.berkeley.edu/levine/ba254c/
(I realize the class # is an anachronism.)
About
you: Please email me or bring to
the next class a page with your name, career background, phone number, where
you are from, and interests.
Lunch: I would be pleased to have lunch on
Thursdays after class with anyone who is free.
Each week there are assigned
(marked with an *) readings.
Others readings and questions
are unmarked. A single student will do each unstarred reading and answer each
question. That student will then present the reading and/or question to the
group. The notes How to Present in Class should help you
prepare brief presentations of each paper.
Each
week also has homework questions. You are encouraged to work on homework
questions in groups, and it is fine to hand in collective solutions. For
collective solutions, if a question asks for two reasons for some fact, the
collective answer should typically include more than two reasons. Please email
me answers to the questions by Wednesday at 3:00 p.m.
* The Economic Nature of the Firm: A Reader,
edited by Louis Putterman and Randall S. Kroszner, Cambridge University Press,
second edition, 1996.
Ronald
Ehrenberg and Robert Smith, Modern Labor
Economics, Eighth Edition, AddisionWesley. An advanced undergraduate labor
economics text such as this one provides crucial background reading. If you
have not taken a previous course in graduate or undergraduate labor economics,
I am assuming you are reading this or a similar textbook’s chapters for
each topic.
Paul
Milgrom and John Roberts, Economics, Organization and Management,
Prentice Hall, 1992. This is an excellent introductory text on the economics of
organizations.
Handouts:
Reading
list (this document).
Paper assignment
How to Present in Class
* Lawrence
Katz and David H. Autor, “Changes in the Wage Structure and Earnings
Inequality,” chapter 26 in vol. 3A, Handbook of Labor Economics,
1999.
* Richard
Thaler, Anomalies:
Inter-Industry Wage Differences," Journal of Economic
Perspectives, Spring 1989, pp 181-194.
*
1. What are two characteristics of a person, an establishment, and an
occupation that predict high wages? Describe two theories (in 2 sentences per
theory) of why each characteristic is a good predictor. Provide one fact or
test that would support the importance of each theory.
*
2. What two (or more) of these characteristics are more important now than 25
years ago? Why do you think these factors have risen in importance?
*
3. What are three reasons that inequality has risen in the U.S. in the last
generation? How would you test the importance of each potential explanation?
Background:
Ehrenberg and Smith, Ch. 1 and 2. Be
sure you can do ch. 1 appendix problems 1-3 (p. 14) and ch. 2 review problems
1, 6, 9, and 10 (pp. 54-55).
“It
all evens out in the end.”
*
“Compensating
Differences," handout.
* Brown,
Charles, "Equalizing Differences in Labor Markets,"
Quarterly Journal of Economics, 85,
1980. Stable URL: http://links.jstor.org/sici?sici=0033-5533%28198002%2994%3A1%3C113%3AEDITLM%3E2.0.CO%3B2-T
Background: “Compensating Wage Differentials and
Labor Markets,” ch. 8 in Ehrenberg and Smith. Make sure you can do the review problems 4
and 6 (the latter answer should use the concept of adverse selection).
*
1. Under what assumptions would safety regulation harm those in unsafe jobs?
*
2. Why might we not detect compensating differences, even if they are present?
3. What is the main advantage of longitudinal
vs. cross-sectional tests of compensating differences? What, if any, are the
problems of longitudinal data?
“You
earn what you learn”
*
“Regression,
Causality and the Returns to Education, “ handout.
http://faculty.haas.berkeley.edu/levine/ba254c/schooling%202003.html
*
Becker, Gary , Human Capital,
2nd ed., University of Chicago
Press, 1975, pp. 15-44.
David
Card, “The Causal Effect of Education on Earnings,” chapter 30 in The
Handbook of Labor Economics, volume IIIA, 1999, pp. 1801-1859. Esp.
sections 3.3 to 3.5.
Joshua
D. Angrist and Alan B. Krueger, “Instrumental Variables and the Search
for Identification: From Supply and Demand to Natural Experiments,” Journal of Economic Perspectives, Vol.
15, No. 4, Fall 2001: 69-87. Stable URL: http://links.jstor.org/sici?sici=0895-3309%28200123%2915%3A4%3C69%3AIVATSF%3E2.0.CO%3B2-3
Background:
“Investments in Human Capital: Education and Training,” ch. 9 in
Ehrenberg and Smith.
* 1. In
Becker’s theory, who pays for general human capital? What are examples in
reality?
* 2. In
Becker’s theory, who pays for firm-specific general capital? What are
examples?
3. What
conditions might lead to under-investment in general human capital?
4. What
conditions might lead to under-investment in firm-specific human capital?
“It’s
not how you feel it’s how you look, and you look marvelous.”
-- Models
when people differ in hard-to-observe ways.
*
“Adverse selection,” “Signaling,” and
“Recruiting,” in Paul Milgrom and John Roberts, Economics,
Organization and Management, Prentice Hall 1992: 149-159, 339-344.
*
Imperfect Information Problem Set ,
handout.
Spence,
Michael, "Job
Market Signaling," Quarterly Journal of Economics , August,
1973: 355-79. Stable URL: http://links.jstor.org/sici?sici=0033-5533%28197308%2987%3A3%3C355%3AJMS%3E2.0.CO%3B2-3
Henry S.
Farber and Robert Gibbons, "Learning and Wage Dynamics," Quarterly
Journal of Economics, 1996, Nov, 111,
4: 1007‑1047. Stable URL: http://links.jstor.org/sici?sici=0033-5533%28199611%29111%3A4%3C1007%3ALAWD%3E2.0.CO%3B2-U
“You
get what you sweat.”
* Roy,
Donald, "Quota Restriction and Goldbricking in a Machine Shop,"
American Journal of Sociology, 57,
March 1952: 426-442.
*
Robert Gibbons and Michael Waldman. (1999) “Careers in organizations:
theory and evidence,” in the Handbook of Labor Economics, Vol. 3B,
O. Ashenfelter and D. Card, eds. Amsterdam : Elsevier Science. See esp.
sections 2.3 to 4.3 (pp. 2384-2420).
Hideo Owan, Barton H. Hamilton and
Jack A. Nickerson, “Team Incentives and Worker Heterogeneity: An
Empirical Analysis of the Impact of Teams on Productivity and
Participation,” with Journal of Political Economy, v111, n3,
465-497, June 2003.
http://ideas.repec.org/a/ucp/jpolec/v111y2003i3p465-497.html
Lazear,
Edward, and Sherwin Rosen, "Rank-Order Tournaments as Optimum Labor
Contracts," Journal of Political Economy, 89, October 1981, pp. 841-864. Stable URL: http://links.jstor.org/sici?sici=0022-3808%28198110%2989%3A5%3C841%3ARTAOLC%3E2.0.CO%3B2-E
Dye,
Ronald A., "The Trouble with Tournaments," Economic Inquiry, 22, 1 January, 1984: 147-149.
Lazear,
Edward, "Why is there Mandatory Retirement?" Journal of Political
Economy, 87, 1979, pp.
1261-1264. Stable URL: http://links.jstor.org/sici?sici=0022-3808%28197912%2987%3A6%3C1261%3AWITMR%3E2.0.CO%3B2-C
Mars,
Gerald, Cheats at Work, George, Allen, and Unwin, London , 1982. [Each
student takes one chapter.]
*
1. What are the potential beneficial effects of piece rates on incentives and
selection?
*
2. What are four reasons employers do not always pay piece rates?
*
3. What are two problems of piece rates that tournaments might solve?
*
4. What are two new problems tournaments create?
5.
What are two common processes in organizations that work somewhat like
tournaments? Is there any evidence of the theoretical advantages and
disadvantages of tournaments?
6.
Where are two settings other than piece rates where principals must set output
targets (perhaps implicitly) but agents are better informed? Do you have any
evidence (perhaps anecdotal) that agents restrict output? If so, how do agents
enforce the agreement? If not, why not?
“You
make what you take.”
Assar
Lindbeck; Dennis J. Snower Insiders versus
Outsiders The Journal of Economic Perspectives, Vol. 15,
No. 1. (Winter, 2001), pp. 165-188. Stable URL: http://links.jstor.org/sici?sici=0895-3309%28200124%2915%3A1%3C165%3AIVO%3E2.0.CO%3B2-P
Bertrand,
Marianne, and Sendhil Mullainathan, “Is There Discretion in Wage Setting?
A Test Using Takeover Legislation,” RAND Journal of Economics, Autumn
1999 v30 i3 p535(2). Stable URL: http://links.jstor.org/sici?sici=0741-6261%28199923%2930%3A3%3C535%3AITDIWS%3E2.0.CO%3B2-C
* 1.
What are three tactics that employees can individually do to increase their
bargaining power? What are two potential employer responses?
* 2.
What are two tactics that a work group can do to increase their bargaining
power? What are two potential employer responses?
* 3.
What are two tactics that employees can do as an occupational group in a firm
to increase their bargaining power?
* 4.
What are two tactics that employees can do as a class nationally to increase
their bargaining power? What are two potential employer responses?
* 5.
What are three characteristics of employee groups (workgroups, within an
employer, or within an occupation) that increases their cohesiveness? What are two potential employer responses?
* 6.
What are three factors that might provide an employer the ability to pay
above-market wages? Which of these factors are persistent, and which erode over
time?
“Employers
get what they pay for.”
*
Katz, Larry, "Efficiency Wage Theories: A Partial Evaluation," in S.
Fischer ed., NBER Macroeconomics Annual, MIT Press, Cambridge MA , 1986.
*
Levine, David I., "What Do Wages Buy?" Administrative Science
Quarterly , 38, 3,
September, 1993, pp. 462-483. Stable URL: http://links.jstor.org/sici?sici=0001-8392%28199309%2938%3A3%3C462%3AWDWB%3E2.0.CO%3B2-D
Holzer,
Harry, "Wages, Employer Costs, and Employee Performance in the Firm,"
Industrial and Labor Relations Review, 43, 3, February 1990, pp. 146-164. Stable URL: http://links.jstor.org/sici?sici=0019-7939%28199002%2943%3A3%3C147S%3AWECAEP%3E2.0.CO%3B2-Y
*
1. What are three reasons that employers might not cut wages when there is a
queue of unemployed workers of observably similar skills who are willing to
work at a lower wage?
2.
What are two pieces of evidence that these theories might hold?
3.
What is a weakness with each form of evidence, so that employers might actually
just be paying for high skills or poor working conditions?
“You
don’t make money when you treat people funny.”
*
“Labor contracts as partial gift exchange,”
George Akerlof; [in Putterman & Kroszner ]
*
Levine, David I., "Fairness, Markets and Ability to Pay:
Evidence from Compensation Executives," American Economic Review, 83, 5, December 1993, pp. 1241-1259.
Stable URL: http://links.jstor.org/sici?sici=0002-8282%28199312%2983%3A5%3C1241%3AFMAATP%3E2.0.CO%3B2-8
*
Doeringer, Peter, and Michael Piore, Internal Labor Markets: ch. 4.
Fehr, Ernst,
and Simon Gächter. 2000. “Fairness and Retaliation: The Economics of
Reciprocity.” Journal of Economic
Perspectives 14: 159-81. Stable URL: http://links.jstor.org/sici?sici=0895-3309%28200022%2914%3A3%3C159%3AFARTEO%3E2.0.CO%3B2-3
*
1. What are two reasons most large companies administer pay with complex
structures based on job analysis and job evaluation, instead of just paying
market wages?
2.
What are three factors that influence which reference group an employee
considers relevant?
3.
What are two ways organizations might attempt to manipulate employees’
choice of salient reference group?
Overview:
At
the end of this section you should be able to answer a question such as:
What
are three theories of why wages (Y) differ by industry (X)? How might you shed
light on the relative validity of these theories? How would your answer change
for other outcomes (Y) such as safety, promotions, or job satisfaction? How
would your answer change for other X’s such as:
- Employee
characteristics such as age, education, female, black, Hispanic, southern,
rural, tenure at the company, labor market experience, tenure and
experience squared, occupation, region, marital status, test scores, and
family background.
- Establishment
characteristics such as establishment size, industry, %union, age, and
region.
- Job
characteristics such as autonomy, feedback, and whether work takes place
in groups.
- Work-group,
subordinate, and boss characteristics such as dispersion of sex, race, or
age, and whether work groups are co-located or dispersed.
How
does your answer change when you consider the endogeneity of many of these
factors?
Most
of the readings in this section are found in The Economic Nature of the Firm,
edited by Louis Putterman and Randall Krosner, Cambridge University Press, 2nd
edn, 1996.
*
Putterman, Louis and Randall Krosner, "Introduction," pages 1-34, The
Economic Nature of the Firm.
*
Alchian, Armen A. and Demsetz, Harold, "Production, Information Costs, and
Economic Organization," American Economic Review, Dec. 1972, 62:
777‑95. [inPutterman & Kroszner]
Raghuram
G. Rajan, Luigi Zingales, “Power in a Theory of the Firm,” Quarterly Journal of Economics, Vol.
113, no. 2 (May 1998): 387-432. Stable URL: http://links.jstor.org/sici?sici=0033-5533%28199805%29113%3A2%3C387%3APIATOT%3E2.0.CO%3B2-C
Hirschman,
Albert, Exit Voice, and Loyalty, Harvard University Press, Cambridge MA,
1970.
From
Coase, Ronald, "The Nature of the Firm," Economica, 4, 1937.
[in Putterman and Kroszner]
*
1. What are three reasons why firms exist?
*
2. What are two arguments why organizations usually reach (near to) efficiency?
*
3. What are two arguments why organizations often do not reach efficiency?
4.
What are two reasons capital almost always hires labor, instead of workers
renting capital?
*
Doeringer, Peter B., and Michael Piore Internal Labor Markets and Manpower
Analysis, Heath, Lexington, MA , 1971, pp. 1-63.
*
Ronald Clark, The Japanese Company, 140-179.
David
Neumark, “Changes in Job Stability and Job Security,” ch. 1 in On
the Job: Is Long-term Employment a Thing of the Past? Sage, NY, 2000.
*
1. How would you know an internal labor market if you saw one?
*
2. What are four reasons for the presence of internal labor markets?
*
3. Some claim internal labor markets are declining. What evidence should we
examine to understand whether this claim is true?