Labor Economics

By Freeman, Richard B. | NBER Reporter, Winter 1997 | Go to article overview

Labor Economics


Freeman, Richard B., NBER Reporter


When the NBER instituted the Labor Studies Program some 20 years ago, labor economics was merely a tributary of economics. The main battleground of economic debate was macroeconomics, and most analyses focused on time-series data. Today, many of the big issues in economics are microeconomic labor problems, and their resolution requires analyses of large datasets. The topic that has attracted the greatest attention among NBER labor researchers is the change in the U.S. earnings distribution - the decline in the economic position of low-skilled workers relative to high-skilled workers - an area in which our colleagues in trade also have worked intensively. Many other labor issues, such as the effect of the minimum wage on employment and income, the effect of government training programs on worker skills, the relation between family background and the well-being of children, the return to schooling and even crime, can be viewed as part of a broad concern for the causes and consequences of inequality.

The high level of employment in the United States also has attracted much attention. Many Western Europeans look longingly on the "U.S. model" for its success in creating jobs. By the U.S. model, they do not mean U.S. macro or financial policy, or industrial organization, or trade policy; they mean our labor market. This is a significant change in thinking about the U.S. job market. Until the mid-1980s or so, the United States had higher unemployment rates than most European Union countries; the rate of joblessness in West Germany did not rise above the American rate until the 1990s. An Australian economist once remarked that when he was a student, he thought economic models based on the competitive U.S. labor market proved how badly economists understood labor markets. After all, Australia and Western Europe had markedly better unemployment records than the United States. But this is no longer the case. We may still misunderstand labor markets, but the facts that need explaining now are quite different.

NBER researchers have been examining foreign labor markets, and economic systems more broadly, in an effort to understand differences in outcomes across countries and to cast light on the virtues and vices of the U.S. labor market. They also have analyzed the organization of firms, asking what leads them to treat workers differently, and how labor relations and personnel policy, including compensation policy, contribute to firm performance.

Finally, mirroring the more central role of labor issues in economic analysis, the NBER Labor Studies Program has produced an extraordinarily large number of research papers since my last report (307 by my rough count), which made the preparation of this article more difficult than previous reports on the Program. Because of the plethora of papers, I have picked only some of the topics covered in the Program.

Further mirroring the increased importance of labor issues, the last two John Bates Clark Award medalists - David Card and Kevin M. Murphy - come from our ranks, of which we are proud.

Inequality and Related Issues

There is probably not a nook or cranny in the analysis of the rise in inequality in earnings in the United States that NBER researchers have not explored. They have contributed to documenting the facts [5202, 5832, 6213, 5823]; to examining the effects on immigration and how immigrants have fared in the economy [4972, 4955, 4866, 5454, 5763, 5927, 5388, 5837, 6195]; considered the role of trade [5924, 5940, 5621, 6209], unionization, technology [4255, 5534, 5956, 5107, 5941, 5606, 5657, 6166], increases in the supply of women and the labor supply responses of the family [5236, 5459]; and looked at the effect of neighborhoods and ethnic capital on outcomes [6175, 6176]. Whereas in some parts of the profession, the inequality issue is posed solely in terms of the effects of trade versus technology, labor researchers have been looking at diverse institutional influences as well [4224, 4678, 4945, 5093]. …

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Labor Economics
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