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We examine whether dynastic human capital (DHC) can explain the black-white wage gap. We fit a quantity-quality model to state-level data on fertility, mortality, and schooling but, notably, not ea...

This paper produces new estimates for white and black mortality and fertility at the state level from 1800(20)–2000. It produces new estimates of black and white schooling for this same period. Using a calibrated model of black and white parents, we fit the time series of black and white fertility and schooling. We then produce estimates of the benefits of equal education opportunity for blacks over the period 1820–2000. For the better part of US history, blacks have suffered from less access to schooling for their children than whites. This paper quantifies the magnitude of this discrimination. Our estimates of the welfare cost of this discrimination prior to the Civil War range between 0.5 and 20 times black wealth, and between 0.5 and 10 times black wealth prior to 1960. Further we find that the Civil Rights era was valued by blacks in the South by between 1% to 2% of wealth. Outside of the South, we find significant costs of discrimination prior to 1960, ranging from 6% to 150% of black wealth. For these divisions from 1960–2000, blacks have attained rough parity in schooling access. The welfare magnitudes are similar to the hypothetical gains to blacks if they had white mortality rates. We show that the model’s black and white human capital series are strongly, positively correlated with state output measures, black and white permanent incomes and black and white earnings.

The choice given military personnel between an immediate cash payment of $30,000 or a more generous retirement pension permits us to estimate individuals' personal discount rates (PDRs). The resulting PDRs, about 7% for enlisted personnel and 2%–4.3% for officers, are precise and are correlated with a variety of other financial behaviors. The PDR is negatively related to educational attainment and the Armed Forces Qualification Test, but cognition seems to operate through channels other than being better informed; better-informed individuals were not always measured to be more patient. (JEL D91, D14)

I examine the effect of sectoral change on U.S. state unemployment during the Great Recession. Of the 4.1 percentage point increase in mean state unemployment between 2007 and 2009, increased structural change explains 0.6–1.18 percentage points, and increased estimated effects of structural change 0.8–2.7 percentage points. Despite the role of housing in the recession, neither construction nor any other one sector can account for the results. Although the pace and role of structural change had returned to normal levels after the Great Recession, their effects persisted, raising mean state unemployment by 0.9–2.3 percentage points in 2011.

In 2004, stretched by wartime deployments, the US Army countered declining retention by increasing re‐enlistment bonuses and implementing stop‐loss to prevent soldiers from separating at the end of their enlistment. We estimate the effects of bonuses, deployment, and stop‐loss on re‐enlistment between FY 2002 and 2006. We estimate that the baseline propensity to re‐enlist fell by 20%. However, we find that deployed soldiers are more likely to re‐enlist and that the estimated effects of re‐enlistment bonuses are similar to those estimated in peacetime. We evaluate the reasons for our findings, and calculate the cost effectiveness of re‐enlistment bonuses.

I. INTRODUCTION Educational benefits for military veterans have become a prime recruiting tool in the All-Volunteer military force (AVF). The primary education benefit for most of the AVF era has been the Montgomery GI Bill (MGIB). This version of the GI Bill began in July 1985 and bears the name of its sponsor, Alabama representative Sonny Montgomery. Under this program, eligible veterans who enroll in an education program approved by the Veterans Administration are eligible to receive up to 36 mo of benefits if they begin usage within 10 yr of separating from service. Veterans are only eligible for MGIB benefits if they contribute $100 per month during their first year of service. (1) From time to time, three of the four military branches have supplemented the basic MGIB benefit with College Fund (CF) benefits. Research has indicated that educational benefits do in fact attract enlistments of "high-quality" youth, defined by the military services to be youth who possess a high school degree and who score above the youth population average of 50 on the Armed Forces Qualification Test (AFQT). (2) Although educational benefits attract more highly qualified youth into the military, those benefits may be costly for at least two reasons. First, such youth may be more likely to separate from the military to use their benefits, thus requiring higher rates of recruitment of new enlistees to maintain the size and quality of the force. Second, higher benefits may increase the tendency of youth who separate from the military to use those benefits as well as increase the duration of usage. Of course, this would not be surprising; a growing body of research finds that college tuition subsidies raise college attendance. Interest in the potential behavioral effects of military educational benefits was recently heightened by a vigorous debate in Congress over veterans' benefits. This debate culminated in the Post-9/11 Veterans Education Assistance Act of 2008, which was passed in July 2008, becoming effective on August 1, 2009. The act provides future veterans with substantially higher educational benefits than those available through the MGIB. This paper analyzes how GI Bill benefits affect military retention and veterans' benefit usage. The analysis is useful for two reasons. First, as our review of the literature below indicates, existing studies of the retention and usage effects of military education benefits are now quite dated. Second, prior studies have all ignored issues relating to selection; as a result the estimates of retention and usage effects found in them cannot be cleanly interpreted as pure incentive effects arising from benefit changes. Our analysis accounts for the possibility that higher veterans' education benefits may attract youth who are more likely to separate and use those benefits, conditional on their observables. Over the period of our analysis, the nominal value of GI Bill benefits were set legislatively and changed unpredictably. We use the unpredictable evolution of the value of veterans' education benefits over our data period to disentangle selection effects and incentive effects of benefit changes on retention and benefit usage. Our analysis makes use of administrative data that span the period 1988-2005 and contains annual information on every individual who entered active military service from the time of entry to the time of separation or, if still in service, until the end of fiscal year (FY) 2004. As shown below, this was a period during which the real value of military educational benefits fluctuated considerably. For those who separated, details of educational benefit usage were available to us as of June 2005. If educational benefits do affect the retention behavior of military personnel or the educational decisions of military veterans, their effects should be apparent in data over this period. To highlight our key findings, we estimate that a $10,000 increase in MGIB benefits would increase the fraction of Army veterans who use them within 2 yr of separation by 5-8 percentage points. …

In fiscal year 1999, the US Air Force introduced a bonus program designed to encourage longer enlistment terms. This regime shift provides a unique opportunity to estimate the elasticity of labor supply at a new margin: the length of the employment contract. A $5000 bonus differential is estimated to increase the probability that a recruit will choose a 6‐year enlistment over a 4‐year enlistment by 30 percentage points. The program is found to be cost‐effective relative to other policies to increase man‐years.

This paper documents the existence of a negative cross-sectional correlation between the price of living space as measured by rent per room and fertility using U.S. Census data over the period 1940–2000, the effect strengthening from 1940 to 1970 and weakening thereafter. The negative correlation does not merely reflect the tendency of larger families to locate within less-expensive areas of a given metropolitan area. Our study focuses on younger households, but analysis of completed fertility among older households reinforces the findings for younger households. Estimates for 36 CMSAs using the American Housing Survey, which permit us to construct persquare-foot measures of the price of living space, indicate that our findings are not merely an artifact of larger families occupying houses with more rooms. Durbin-Wu-Hausman tests reveal little evidence of endogeneity bias.

After a rocky start to the volunteer military in the late 1970s, since 1980 the United States military services have met or exceeded their recruiting and retention goals in most years and have done so at reasonable cost. The ongoing conflict in Iraq is the U.S. military's first protracted conflict since the inception of the volunteer force and raises questions about its impacts on recruiting, retention, and cost. This article briefly examines the effects of the war on recruiting, retention, and cost and studies ways of expanding the size of the active Army force, including a return to conscription.

Between 1977 and 1997, US employment shifted dramatically in favor of industries that used skilled labor intensively. During this same period, some cities withered while others prospered. This paper examines employment growth in 39 industries across 316 cities to evaluate the importance of learning by doing, industry-specific location fundamentals, human capital externalities, and hiring cost explanations in these geographic shifts. Growth in industries that used skill intensively was particularly sensitive to the presence of local human capital. That growth was almost always negatively related to the initial size of the industry within the city implies a limited role for learning by doing and industry-specific location fundamentals stories.

After a decade of successful recruiting, the US military began experiencing recruiting difficulties in the 1990s. Cyclical factors as well as trend factors may have played a role. This paper uses monthly data by state over the period 1989-1997 to estimate models of enlistment and evaluate the various explanations for the recruiting slowdown. Estimates of the impact of economic variables - relative military pay and unemployment - and recruiting resource variables - recruiters and advertising - are similar to those in previous studies. Two trend factors, rising college attendance and declining adult veteran population (influencers), are found to be important factors explaining the decline in enlistment.

We propose that cities that start out with proportionately more knowledgeable people grow faster in the long run because (a) knowledge spillovers are geographically limited to the city and (b) much knowledge is most productive in the city within which it is acquired. We found that city-aggregates and metropolitan areas with higher average levels of human capital grew faster over the 20th century. The estimated effects of human capital were large: a standard deviation increase in human capital in 1900 was associated with a 38% increase in average annual employment growth of city-aggregates over the period 1900–86. The estimated effects for metropolitan areas were smaller but still economically significant: a standard deviation increase in 1940 human capital was associated with an increase in average annual employment growth over the period 1940–90 of about 15%. Although the rise of the automobile appears to have overwhelmed the importance of human capital in cities dominated by manufacturing early on, human capital seems to have been economically more important in manufacturing cities than in non-manufacturing cities later on. Moreover, the estimated effects of human capital persisted for very long periods of time, suggesting either that adjusting to the steady state is very lengthy, or that shocks to growth are correlated with the presence of human capital.

This article presents somewhat-more-direct evidence than has been available on the supply price of labor during the Depression. The new data comprise wages asked from situations-wanted ads for female clerical workers. Between 1929 and 1933 annual average clerical wages asked fell nominally by nearly 58 percent, markedly lower than wages of new or existing employees. Neither changes in labor quality nor self-selection explains the decline. Clerical wages asked fell by roughly the same percentage as did wages paid in agriculture. The data are strongly inconsistent with the market-clearing view of Depression-era labor markets.

I propose that cities with higher average levels of human capital should experience faster employment growth. Using data on all U.S. metropolitan areas (MSAs) over the period 1940–86, I found a positive, large, and persistent relationship between human capital and MSA growth. I also found evidence of spillovers between cities within MSAs:cityemployment growth was positively related to human capitalelsewherewithin the MSA. However, I also found that differences between cities in human capital helped explain differences in employment growth within MSAs, which suggests that the effects of human capital are at least partly localized at the city level.

The growth of cities virtually always accompanies modern economic growth. Many observers attribute the relationship to the rise of urban factories or improvements in transportation. We believe that information-based human capital, particularly as embodied in business professionals, provides a better explanation for the growth of cities. Cities grew because concentrated human capital raised productivity. In a study of English cities from 1861 to 1961 we found that cities whose work forces contained high proportions of business professionals grew more rapidly. The talk of the bourgeoisie, not the smoke of the factory, was the defining characteristic of the modern city economy.

We present a model capable of explaining 200 years of declining fertility, 200 years of rising educational achievement, and a significant baby boom for the United States and twenty other industrialized market countries. We highlight the importance of secularly declining young adult mortality risk for producing secularly declining fertility and a sudden decline in housing costs after the end of the Second World War, but ending by 1970. In addition, we introduce a new puzzle for the profession: Given the magnitude of the Baby Boom, roughly equal to fertility in 1900 for many of these countries, why did schooling of the Baby Boom cohorts not fall to the 1900 level of their predecessors? In fact, not only did it not fall, but the schooling levels of these cohorts are higher than for previous cohorts. Using a quantitative model, we are able to identify the magnitude of the reduction in costs of education necessary to explain this paradoxical increase in schooling. We produce a novel data set on historical education expenditures with over 1,500 observations. We find empirical support for these cost reductions.

The principal justification for combat compensation is to recognize military personnel who face significant combat risk. This paper demonstrates that there is only a weak relationship between the risk faced by personnel and the combat-related compensation they receive. It describes the elements of combat compensation, the most important being Hostile Fire Pay/Imminent Danger Pay (HFP/IDP) and the Combat Zone Tax Exclusion (CZTE). While HFP/IDP is $225 per month for all members, CZTE varies from individual to individual for many reasons. Eligibility for combat compensation is determined by the designation and management of combat zones. Today many areas in combat zones entail very little risk (e.g., Saudi Arabia and United Arab Emirates as well as ships in the combat zone). Since most combat compensation is the result of the CZTE, the amount individuals receive is driven by the vagaries of the tax code, which are totally unrelated to risk. One unexpected aspect of CZTE-related compensation is that high-ranking officers qualify for the Earned Income Credit (EIC), established to help low-wage earners; over 2,000 officers of rank O-4 and above receive this benefit. Possible policy changes that would more closely align combat compensation and risk are presented.

We present new data on the fertility of blacks, 1820 to 2000, and whites, 1800 to 2000, by state. We present new data on schooling by race and cohort from 1840 to 2000. We present data on mortality for whites, 1800 to 2000, and blacks, 1820 to 2000, by state. The data indicate convergence in all three indicators. The secular decline in mortality and fertility are consistent with our previous work, Murphy, Simon and Tamura (2008). However there is a substantial difference in the behavior of fertility during the Baby Boom between whites and blacks. In many states, typically southern, white fertility rose by trivial amounts during the Baby Boom. For blacks, the Baby Boom is dramatically larger, and universal throughout the US. Schooling fails to decline for either whites or blacks during the Baby Boom, as predicted by the standard quality-quantity tradeoff of Becker and Lewis (1973). Black schooling rose as much or more than whites, despite their much larger Baby Boom. We identify this increase to the Civil Rights Successes of the 1950s and 1960s. Before the Civil War we find that the welfare cost of discrimination in school access was worth between 1.7 times to 10 times black wealth! We find that the welfare cost of discrimination in the south ranges from 1.6 to 4 times black wealth prior to 1960. We find that the Civil Rights era was valued by blacks in the South by between 1 percent to 2 percent of wealth. Outside of the South we find significant costs of discrimination prior to 1960, ranging from 8 percent to 100 percent of black wealth! For these regions from 1960-2000 blacks have attained rough parity in schooling access. The welfare magnitudes are similar to the hypothetical gains to blacks if they had white mortality rates.

Congress has questioned the scope and efficacy of enlistment and reenlistment bonuses, but Army high-quality recruiting would have been lower without them; they are more cost-effective than pay but less so than recruiters as a way to gain recruits.

A portfolio model of employment predicts that cities with more diversified employment opportunities should experience lower unemployment rates than less diversired cities. Empirical analysis of the diversity-unemployment relationship using Census data support the portfolio theory for the years 1950, 1960, and 1970. During the early months of the Great Depression, however, industrially more diversired cities experienced higher, rather than lower, rates of unemployment. By combining the portfolio model of employment with the Lucas-Phelps islands model, the anomalous effect of diversity in 1931 is explained as the result of employers' diffculty of distinguishing real from nominal shocks. I. INTRODUCTION The high unemployment of the 1930s continues to engage the imaginations of economists and economic historians. Although a large and impressive literature now covers most aspects of the Great Depression, few studies discuss geographic variations.[1] Variations in unemployment across cities are, nonetheless, of interest. The cross-sectional variation in unemployment makes it possible to study the effect of industrial diversity on unemployment. Industrial diversity is the evenness with which employment is distributed across industries within a city. Suppose that a nation's employment is divided into, say, twenty industries. A city is defined to be perfectly specialized when all employment is concentrated in a single industry, and perfectly diversified when each of the twenty industries employs an equal share of the city's labor force. Recent empirical work by Simon [1988] and Diamond and Simon [1990] shows that during the late 1970s and early 1980s, cities with more diversified employment opportunities experienced lower rates of unemployment. The results from the 1970s and 1980s raised the possibility that some part of the extremely high unemployment of the 1930s could be explained by the low degree of industrial diversity in many American cities. Indeed, in the 1930s, articles by McLaughlin [1930] and Tress [1938] suggested the possibility of an inverse relationship between diversity and unemployment.2 We tested the relationship between unemployment and industrial diversity at the onset of the Great Depression in 1930 and 1931. We found, much to our surprise, that industrially more diverse cities experienced higher rates of unemployment in 1931. The surprising effect of employment diversity on unemployment in 1931 led us to speculate that the effects of diversity might differ under different macroeconomic conditions. Specifically, we hypothesize that industrial diversity has two effects. Industrial diversity normally reduces unemployment through what we call a portfolio effect. We argue that the anomalous effects of diversity on unemployment at the onset of the Depression could have resulted if diversity of employment opportunities slowed essential wage adjustments required as a result of the massive decline in aggregate demand. During normal periods, the portfolio effect dominates and diversity reduces unemployment. The magnitude of the Great Depression could have caused the wageadjustment effect to dwarf the portfolio effect, thus reversing the normally inverse relationship between diversity and unemployment. II. DIVERSITY AND UNEMPLOYMENT The Portfolio Effect The risk-reducing property of diversity is well-known to economists. Conroy [1975] first applied portfolio analysis to local labor markets. Simon [1988] developed a simple heuristic theory of the portfolio effect of industrial diversity. Imagine a multi-industry world where only real shocks affect the demand price of firms. All output is assumed to be sold in the national market. The real shocks are assumed to be equivalent to observations on a random variable with zero mean, independently and identically distributed across industries. The shocks may be temporary or permanent. Although the distribution of shocks is known, the duration of any particular shock is not. …

Firms often view job applicant referrals from current employees as more informative than direct applications or referrals through formal labor market intermediaries such as placement firms. The authors argue that old boy networks reduce employers' uncertainty about worker productivity. Using Jovanovic's job matching model, they show that workers hired through the old boy network should (1) earn higher initial salaries, (2) experience lower subsequent wage growth on the job, and (3) stay on the job longer than otherwise comparable workers hired from outside the network. They find considerable support for this theory using data from the 1972 Survey of Natural and Social Scientists and Engineers. Copyright 1992 by University of Chicago Press.

Some proponents of higher minimum wages cite reduced absenteeism as a positive side-effect. However, little evidence on the relationship between minimum wages and absenteeism exists for the United States. This paper examines the effect of minimum wages on absenteeism using data from the Merged Outgoing Rotation Groups of the Current Population Survey for the years 1979-2007 (CPSMORG). We estimate a negative relationship between minimum wages and absenteeism for men, but a positive relationship for women. We consider three possible explanations for the positive estimated effects for women: selection, wage-constrained hedonic equilibrium, and differential costs of absenteeism. The evidence is inconsistent with the selection story, and most easily reconciled with the differential cost story. JEL: J22, J32, J38

We present new data documenting the secular decline in fertility in the states of the United States, the dramatic convergence in fertility, child schooling, parental schooling, survival probabilities. In addition we document the disparate nature of the Baby Boom in the United States. There were two different regimes, a large Baby Boom and a Small Baby Boom. The large Baby Boom regions also had the smallest increase in child schooling, whereas the small Baby Boom regions had the largest increase in child schooling. We present suggestive evidence that falling mortality risk is strongly positively correlated with falling fertility, rising education levels of parents is strongly negatively related to fetility, and that population density is negatively related to fertility. Finally we show the robust negative correlation of mortality risk on child schooling attainment, and positve correlation of population density and child schooling attainment.

This paper documents the existence of a negative cross-sectional correlation between the price of living space and fertility using U.S. Census data over the period 1940-2000. This correlation is not spurious, nor does it reflect the tendency of larger families to locate within less-expensive areas of a given metropolitan area. We examine the extent to which the results reflect the sorting of married couples across metropolitan areas on desired fertility. The relationship between the unit price of living space and fertility in fact tends to be more negative for households that have moved recently. However, the probability of migration between metropolitan areas is smaller for larger families, even those originating in more expensive cities. Moreover, Durbin-Wu-Hausman tests reveal only limited evidence of endogeneity. The weaker effects of the price of living space for less mobile couples seems to be at least in part a result of their choosing to live in less-expensive portions within a given metropolitan area.

Applying a multinomial model, family income distributions are related to various family characteristics, using data from the March 1971 and 1985 Current Population Surveys. The relationships of the estimated probabilities to composite indexes and incomplete moments of the income distribution are described. Estimates of the structural relationship between family income and characteristics were markedly different in the two years, suggesting caution when using the estimates for purposes of prediction over time. Simulation results reveal little sensitivity of composite measures of income inequality to changes in the distribution of family characteristics in the cross-section.

Comparative advantage and the division of labor make geographic concentration of production within a nation profitable and cause many cities to be specialized in one or a few main industries. Specialized cities, however, suffer greater unemployment risk. The theory of compensating wage differentials predicts that individuals living in more specialized cities will be compensated in the form of higher wage rates. The authors study the effects of specialization on wages and unemployment in the United States. They find evidence of compensating wage differentials. That firms choose to locate in more specialized, higher-wage cities is indirect evidence of the gains to specialization. Copyright 1990 by University of Chicago Press.

Because consumer discrimination can reduce productivity, it is often impossible to tell whether differential productivity is the effect of discrimination or of differential ability. Detailed data for the sports labor market make it possible to separate consumer discrimination from ability. We use a unique approach to determine whether the entertainment value of baseball players is related to their race: we examine whether race directly affects the value of a player in the market for baseball cards. In contrast to studies that use salaries, there is no room for owner or coworker discrimination. Our evidence supports the hypothesis of consumer discrimination.

Using the March 1985 Current Population Survey, we predict the size distribution of family income as a function of various family characteristics. Pitting the ‘standard’ log-linear specification against a multinomial specification, we find the multinomial model reproduces more closely the actual distribution.

Since many individuals are immobile between city labor markets in the short run, the industrial structure of cities plays an important role in determining the national rate of unemployment. This paper argues that a city's frictional unemployment rate will be lower, the more industrially diversified is the city; that is, the more evenly distributed is employment across industries. The empirical work on 91 large SMSAs strongly supports the hypothesis. The difference in frictional unemployment rates between the twenty most and least diverse cities is estimated at about 2.4 percentage points.