John S. Earle
Winter, 1994-95
Department of Economics

Course Description

This course is the first in a two-part sequence on labor economics and its applications to economies in transition. The first part will be devoted to traditional labor economics topics, applying microeconomic analysis to labor markets with the objective of increasing our understanding of important social issues and public policies such as poverty, minimum wages, overtime rules, layoff restrictions, education, job safety, discrimination, migration, and income inequality. The second part will add other labor economics topics and apply the analysis to the particular problems of the restructuring of transition economies, including discussion of issues in the areas of enterprise behavior and the operation of labor markets under "socialism," privatization policies in the transition, employee ownership and other forms of corporate governance, managerial incentives and behavior, enterprise restructuring in its many dimensions, changes in wage differentials and compensation of employees (social benefits, performance pay), labor market institutions, and unemployment. An important objective in both parts is to develop the ability to understand and use economic data. The first part is a required course for all students in the M.A. program and it is a prerequisite for the second part of the sequence.

Assignments and Grades

The grade for the course will be determined by a final examination (80 percent) and a short paper (20 percent). The exam will be given at the end of the six-week period. The paper will be in the form of a report on some recent labor data; the objective of this exercise is to learn to produce a clear and coherent presentation and description of empirical information. All your written work will be evaluated with a much higher weight on quality than on quantity. The final version of the paper will then be graded on writing quality as well as substantive content.

In addition, you will receive weekly assignments of problems, most of which will be drawn from the Study Guide. These will form the chief basis for our discussion meetings on Fridays. The purpose of these problems is to increase and check your understanding of the material as well as provide some practice for the exam; your answers will be neither graded nor required to be turned in.

Schedule of topics and readings

The main text for the course is Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public Policy, fifth edition, Harpter-Collins, 1994; it is referred to below as E-S. You will be provided with this book and its accompanying Study Guide: Labor Market Problems and Applications (by George Kosicki). A mathematically somewhat more sophisticated text (but probably not superior along any other dimension) is Peter Fallon and Donald Verry, The Economics of Labor Markets, Phillip-Allan, 1988, optional readings in which are referred to below as F-V. A much more advanced treatment may be found in Orley C. Ashenfelter and Richard Layard, The Handbook of Labor Economics, Vols. I and II, North-Holland, 1986, referred to below as A-L; but it serves as a poor introduction to the subject, the quality of the chapters is variable, and some of it is already out-of-date. Both of these books are available in the library. Some supplementary readings on topics not covered by or deserving greater attention than afforded in the text are listed below; others will be provided later. Required readings are listed with an asterisk (*). In all cases, the appendices are assigned as required reading together with the corresponding chapters in E-S.

Part I

I. Introduction

Why (not) study labor markets?
Basic concepts and data in labor economics
Supply and demand analysis

*E-S, Chapters 1 and 2.

II. The Demand for Labor Services

The competitive model: short-run and long-run demand
Minimum Wages
Fixed costs
Overtime rules

*E-S, Chapters 3-5.
*Walter Y. Oi, "Labor as a Quasi-Fixed Factor," Journal of Political Economy, Vol. 70, No. 6, December 1962, pp. 538-55.
F-V, Chapters 3-4.
Daniel S. Hamermesh, "The Demand for Labor in the Long Run," in A-L, Chapter 9.
Charles Brown, "Minimum Wage Laws: Are They Overrated?" Journal of Economic Perspectives, Summer 1988, pp. 133-46.

III. The Supply of Labor Services

Labor force participation and hours of work
Allocation of time
Income maintenance and social insurance policies

*E-S, Chapters 6-7.
*Phillip Robbins, "A Comparison of the Labor Supply Findings from the Four Negative Income Tax Experiments," Journal of Human Resources, Fall 1985, pp. 567-5$3.
F-V, Chapters 1-2.
John Pencavel, "Labor Supply of Men: A Survey," in AL, Chapter 1.
Mark R. Killingsworth and James J. Heckman, "Female Labor Supply: A Survey," in AL, Chapter 2.
G. Becker, "A Theory of the Allocation of Time," Economic Journal, Vol. LXXV, September 1965.

IV. Earnings Differentials and the Choice of Job, Occupation, and Location

A. Occupational Choice
Compensating differentials
Employee benefits

*E-S, Chapter 8
Sherwin Rosen, "The Theory of Equalizing Differences" in A-L, Chapter 12.

B. Acquisition of Skills
Human capital
Educational policy

*E-S, Chapter 9, pp. 299-360.
T.W. Schultz, "Investment in Human Capital," American Economic Review, Vol. 51, No. 1, March 1961, pp. 1-17.
F-V, Chapter 5.3-5.4.
Robert J. Willis, "Wage Determinants: A Survey and Reinterpretation of Human Capital Earnings Functions" in A-L, Chapter 10.

C. Mobility and Migration

*E-S, Chapter 10.

D. Discrimination
Does unfair discrimination exist and what should be done about it?

*E-S, Chapter 12.
Glen G. Cain, "The Economic Analysis of Labor Market Discrimination: A Survey" in AL, Chapter 13.
F-V, rest of Chapter 5.

E. Inequality

*E-S, Chapter 15.

Part 2

The following is a preview of topics to be offered; a more detailed syllabus for Part 2 will be available in a few weeks.

1. Issues in the Privatization of Enterprises
2. Alternative New Owners: Managers, Workers, Outsiders, and the State
3. The Behavior of Firms and the Operation of Labor Markets in Real Socialist Economies
4. Enterprise Restructuring: Dimensions and Empirical Results So Far
5. Social Protection in Transition and the Role of Firms
6. Creating Market Institutions and Behavior
7. Labor Unions and Worker Control
8. Incentive Contracts, Managerial Behavior, and Worker Effort
9. Managerial Labor Markets
10. Evolution of Earnings Differentials and the Return to Human Capital in the Transition
11. Unemployment and Policies
12. Coping Behavior of Individuals and Households

CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: May, 1996


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