In this paper we provide an empirical evaluation of the effect that the provision of an arbitration statute has on the wage levels of police officers. We analyze the effect of arbitration on wages by comparing wage levels across political jurisdictions and over time using a sample of states. Two complementary data sources are used: panel data on state level wages of police officers, and individual level data on police officers from Decennial Censuses. The empirical results from both data sets are remarkably consistent and provide no robust evidence that the presence of arbitration statutes has a consistent effect on overall wage levels. On average, the effect of arbitration is approximately zero, although there is substantial heterogeneity in the estimated effects across states.
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
The labor force participation behavior of married women, particularly their responses to husbands’ labor
market outcomes and the effects of fertility variables, is modeled using longitudinal data to control for
a rich dynamic structure. Simulation methods provide a feasible approach to overcome the computational
difficulties inherent in classical maximum likelihood estimation of models with non-trivial error structures.
The models are estimated using the method of maximum simulated likelihood (MSL) estimation. The
empirical results imply that women’s participation outcomes are characterised by significant structural state
dependence, unobserved heterogeneity, and serially correlated transitory latent component of error. The
results show that the effect of husbands’ permanent earnings on the participation decision is significantly
stronger than that of current earnings; however, the implied income elasticities of participation are small,
on the order of -0.10. The results also provide strong evidence that fertility variables are not exogenous
to women’s participation decisions. Although MSL estimation is biased for a ﬁnite number of simulations,
I provide Monte Carlo evidence that suggests the simulation bias in the estimators is generally not large
relative to the sampling errors, except when there is positive serial correlation and either signiﬁcant
heterogeneity or state dependence, or when the form of the unobserved heterogeneity is misspeciﬁed. In
these cases, the estimated serial correlation and state dependence effects have substantial negative and
positive bias, respectively.
This paper uses longitudinal survey data to analyse the relationship between recent increases in individual
wage inequality, and individual and family earnings inequality. The analysis compares the implications
of a model of intertemporal family labor supply, to those of a model with no behavioral content. The
results imply that the fraction of family earnings variance attributable to permanent wage differences is
about 70 percent, and remained constant as the total variance of earnings increased during the 1980's.
The parameter estimates imply the intertemporal labor supply for males is zero, and for females is about
0.4. The net contribution of behavioral responses to increasing wage inequality reduced the level of
family earnings inequality by 14 percent.