One of the basic tenets of Keynesian economics is that labor market institutions cause
downward nominal wage rigidity. We attempt to evaluate the evidence that relative wage
adjustments occur more quickly in higher-inflation environments. Using matched individual wage
data from consecutive years, we find that about 6-10 percent of workers experience wage rigidity
in a 10-percent inflation environment, while this proportion rises to over 15 percent when inflation
is less than 5 percent. By invoking a simple symmetry assumption, we generate counterfactual
distributions of wage changes from the distributions of actual wage changes. Using these
counterfactual distributions, we estimate that, over the sample period, a 1 percent increase in the
inflation rate reduces the fraction of workers affected by downward nominal rigidities by about
0.5 percent, and slows the rate of real wage growth by about 0.06 percent. Using state-level data,
the analysis of the effects of nominal rigidities is less conclusive. We find only a weak statistical
relationship between the rate of inflation and the pace of relative wage adjustments across local
labor markets.

We use comparable micro data sets for the U.S. and Canada to study the responses of young
workers to the extemal labor market forces that have affected the two countries over the past 25
years. We find that young workers adjust to changes in labor market opportunities through a
variety of mechanisms, including changes in living arrangements, changes in school enrollment,
and changes in work effort. In particular, we find that poor labor market conditions in Canada
explain why the fraction of youth living with their parents has increased in Canada relative to the
U.S. recently. Paradoxically, this move back home also explains why the relative position of
Canadian youth in the distribution of family income did not deteriorate as fast as in the U.S.

In July 1988 California's minimum wage rose from $3.35 to
$4.25. During the previous year, ll percent of California workers
and fully one-half of its teenage workers earned less than the new
state minimum. The state-specific nature of the California
increase provides a valuable opportunity to study the effects of
minimum wage legislation. As in a conventional non-experimental
program evaluation, labor market trends in other states can be used
to infer what would have happened in California in the absence of
the law. Drawing on published labor market statistics and
microdata samples from the Current Population Survey, I apply this
strategy to estimate the effects of the rise in the minimum wage on
various groups and industries in the state. Special attention is
paid to teenage workers and employees in retail trade. The results
are striking. The increase in the minimum raised wages of teenagers
and other low wage workers by 5-10 percent. Contrary to
conventional predictions, however, the employment rate of teenage
workers rose, while their school enrollment rate fell. Overall
employment in retail trade was similarly unaffected.

Throughout the late 1980s unemployment rates remained 2-3 percentage
points higher in Canada than the U.S. We use individual microdata from the
U.S. Current Population Survey and the Canadian Survey of Consumer Finances
to study the emerging unemployment gap between the two countries. For
women, we find that the relative rise in Canadian unemployment occurred
with relative increases in per capita weeks of work. The unemployment gap
for Canadian women was driven by a rise in the probability that nonworkers
are classified as "unemployed" as opposed to "out of the labor force". For
men, the increase in unemployment was accompanied by a relative decrease in
Canadian employment rates, and an increase in the probability that men with
no weeks of work are classified as "in the labor force". A comparison of
annual work patterns and income recipiency in the two countries suggests
that Canadians of both sexes have increasingly adjusted their labor supply
to the parameters of the Canadian Unemployment Insurance system.

This paper re-examines the connection between unions and wage
inequality, focussing on three questions: (1) How does the union wage
effect vary across the wage distribution? (2) What is the effect of
unionism on the overall variance of wages at the end of the 1980s?
(3) How much of the increase in the variance of wages over the 1970s
and 1980s can be attributed to changes in the level and distribution
of union coverage?
Cross-sectional union wage gap estimates vary over the wage
distribution, ranging from over 30 percent for lower wage workers to
-10 percent for higher wage workers. Using a longitudinal estimation
technique that accounts for misclassification errors in union status,
I find that this variation represents a combination of a truly larger
wage effect for lower-paid workers, and differential selection
biases.
The estimated effect of unions on the variance of wages in the
late 1980s is relatively modest. Nevertheless, changes in the level
and pattern of unionism -- particularly the decline of unions among
lower wage workers -- have been an important component of the growth
in wage inequality. Changes in unionization account for one-fifth of
the increase of the variance of adult male wages between 1973 and
1987.

Although schooling and earnings are highly correlated, social
scientists have argued for decades over the causal effect of education. A
convincing analysis of the causal link between education and earnings
requires an exogenous source of variation in education outcomes. This
paper explores the use of college proximity as an exogenous determinant of
schooling. An examination of the NLS Young Men Cohort reveals that men who
grew up in local labor markets with a nearby college have significantly
higher education and significantly higher earnings than other men. The
education and earnings gains are concentrated among men with poorly-
educated parents -- men who would otherwise stop schooling at relatively
low levels. When college proximity is taken as an exogenous determinant of
schooling the implied instrumental variables estimates of the return to
schooling are 25-60% higher than conventional ordinary least squares
estimates.
Since the effect of a nearby college on schooling attainment varies by
family background it is possible to test whether college proximity is a
legitimately exogenous determinant of schooling. The results affirm that
marginal returns to education among children of less-educated parents are
as high and perhaps much higher than the rates of return estimated by
conventional methods.

The Self-Sufficiency Project (SSP) is a large-scale social experiment being conducted in Canada to
evaluate the effects of an eamings supplement (or subsidy) for long-term welfare recipients who find a
full-time job and leave income assistance. The supplement is available to single parents who have
received income assistance for a year or more, and typically doubles the gross take-home pay of
recipients. An important concern is whether the availability of the supplement would lead some new
income assistance recipients to prolong their stay on welfare in order to gain eligibility. A separate
experiment was conducted with new welfare recipients to measure the magnitude of this effect. One
half of a group of new recipients were informed that would be eligible to receive SSP if they stayed on
income assistance for a year; the other half were randomly assigned to a control group. Our analysis
indicates a very modest "delayed exit" effect among the treatment group relative to the controls.