Economics 27: Labor Economics Professor Patricia M. Anderson
In-Class Discussion Articles and Questions
The syllabus regularly refers to discussion articles, numbered A1 to A7. All of the articles are available on-line, but you must be using the Dartmouth network to access them. In most cases, clicking on the number will bring you directly to the article. Since many of these are joural articles not written with a student audience in mind, I don’t expect you to grasp everything. Rather, for these academic articles you want to keep a few big questions in mind. 1) What is the basic theory we’ve discussed in class that the article is trying to test? 2) Did the authors do something clever to be able to test the theory? 3) What do the authors conclude? 4) Do you believe their conclusions (and why or why not)? For each article below, I’ve listed some specific questions to prepare you for class discussion. Some are just to help you focus on the most important parts of the article, while others are to get you to think about additional issues raised by the article.
(A1) Bruggink, Thomas H. and David R. Rose, Jr., "Financial Restraint in the Free Agent Labor Market for Major League Baseball:Players Look at Strike Three," Southern Economic Journal, April 1990, pp. 1029 - 1043. (Note: Use the top drop box to choose “Backfile” to get the 1990 issues.)
What is the key prediction of the monopsony model that the article wants to test for?
What does the model assume about winning and revenues? What about performance and winning? How does this allow MRP to be calculated?
What do the authors do to still make the proper comparison with salary, given that they estimate gross, rather than net MRP?
Based on the evidence in this article, does it appear that owners colluded in 1985-86?
Do you think baseball players are really paid for performance? What else might determine their salaries?
Current news reports have indicated that this year’s crop of free agents do not seem to be generating the kinds of big offers that recent years have seen. Do you think that owners are colluding?
(A2) Card, David and Alan B. Krueger, "Minimum Wages and Employment:A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,"American Economic Review, September 1994, pp. 772 - 793.
What would simple economic theory imply would be the effect of an increase in the minimum wage?
What approach do the authors take to evaluate the effect of an increase in NJ’s minimum wage?
What do they conclude about the observed effect of the increase on employment?
What are some possible explanations for their findings? What do you think is the explanation?
Do you think that these findings about the minimum wage could be applied to predict the effect of implementing the sorts of “living wage” ordinances (such as exists in Cambridge, MA) that are being considered by some cities?
(A3) Besharov, Douglas J., “The Past and Future of Welfare Reform,” Public Interest, Winter 2003, pp. 4 - 21.
What has happened to welfare caseloads since the passage of welfare reform in 1996?
Was welfare reform completely responsible for the changes in welfare rolls? If not, what were the other contributors? To the extent reform was responsible, what aspects of the reforms were most important?
What happened to a typical family’s budget constraint in the change from AFDC to TANF? That is, look at the description on page 8 and think about how it could be represented in a labor-leisure choice framework.
What do you think about the author’s discussion of the possibility of moving toward a “European welfare state” in terms of our social programs?
(A4) The NewsHour, “CEO Compensation: Excessive Pay or Reasonable Rewards?” December 2 – 5, 2002. (Read the transcripts or watch the streaming video of each of the 4 nights of this special report).
What do CEO pay and “Lake Wobegon” have in common? What about the market for CEOs and the market for used cars?
What effect does having other CEOs serve on the board, or having the CEO appoint the board, appear to have?
In theory, what is the purpose of granting CEOs stock options?
How would you answer the question posed by this special report – is CEO compensation excessive pay or reasonable rewards?
(A5) Bertrand, Marianne and Sendhil Mullainathan, “Are Emily and Brendan More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination,” mimeograph, 2002.
What advantages does a study such as this have over past studies in analyzing discrimination? What disadvantages?
What effect does having a better resume have on the probability of getting a callback? Does this effect differ across “white” names and “black” names?
What effect does being an Equal Opportunity Employer or a federal contractor have on the probability that there will be a racial difference in callback rates?
What did you think about this experiment? Do you think the employers are discriminatory?
(A6) Campbell, Carl and Kunal Kamlani, "The Reasons for Wage Rigidity:Evidence from a Survey of Firms," Quarterly Journal of Economics, August 1997, pp. 759-790.
Why does wage rigidity lead to unemployment?
What are some leading theories of why wages might be rigid? In general, what theories seemed most plausible to business owners?
What did firms think about the role of fairness in affecting effort and morale?
How do fairness concerns play a role in deciding to use employment changes instead of wage changes?
(A7) Burgess, Paul L.and Daniel R. Marburger, "Do Negotiated and Arbitrated Salaries Differ Under Final-Offer Arbitration," Industrial & Labor Relations Review, April 1993, pp. 548 - 559.
Why does a standard model of arbitration imply that there is a “contract zone” of potentially agreeable outcomes that are both lower than the player’s final offer and higher than management’s final offer?
Do these data from baseball player contracts seem consistent with the theory?
Why might pitchers’ arbitrated salaries be further outside the contract zone than hitters’ arbitrated salaries?
What are some of the sources of uncertainty involved in baseball arbitration?
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