Three Worlds of Labor Economics

Three Worlds of Labor Economics

Three Worlds of Labor Economics

Three Worlds of Labor Economics

Excerpt

These three papers by Professors Borjas, Bowles, and Brown represent markedly different views of the determinants of the distribution of income. This is to be expected since the distribution of income and wealth is the focus of much of the attack on capitalism. Moreover, the economics of distribution is one of the least developed areas of economic theory. As one reads papers representing three views of distribution economics with virtually no intersection of ideas, one naturally wonders whether or not economics will ever produce any convergence of thought in this area. This comment will discuss each paper in turn and then review the common empirical ground on which convergence should be sought-- although it would be naive to expect such activity.

Professor Borjas' paper is a useful survey of some aspects of labor economics over the past three decades. Labor economics has certainly been one of the most "fertile" areas of economics with reintroduction of demographic behavior, spinning off of the new household economics, development of very important econometric techniques to solve problems of selection bias, presentation of an analytical framework to consider the economics of discrimination and, most importantly, development of a rich human capital model with schooling, on-the- job training, specific and general investment. Professor Borjas draws on most of these developments in his paper and makes many of the developments more accessible to economists not specializing in labor economics.

What is the essence of the surveyed material? There are two methdological guides. Agents maximize and markets equilibrate. This is certainly pure and undiluted neoclassical economics applied to individual and household behavior. Most of this analysis has been formed as an exercise in investment. Individuals choose varying amounts of schooling and on-the-job training, both of which are costly to obtain. Markets equilibrate by bringing the present value of earnings for alternative strategies into balance so that the net earnings streams from going to school or not going will be the same for a person with given characteristics. The most important caveat to the market equilibrium is the possibility that individuals . . .

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