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A New Approach to Understanding Price Stickiness
Why do consumer prices and wages adjust so slowly to changes in market conditions? The rigidity or stickiness of price setting in business is central to Keynesian economic theory and a key to understanding how monetary policy works, yet economists have made little headway in determining why it occurs. Asking About Prices offers a groundbreaking empirical approach to a puzzle for which theories abound but facts are scarce. Leading economist Alan Blinder, along with co-authors Elie Canetti, David Lebow, and Jeremy B. Rudd, interviewed a national, multi-industry sample of 200 CEOs, company heads, and other corporate price setters to test the validity of twelve prominent theories of price stickiness. Using everyday language and pertinent scenarios, the carefully designed survey asked decisionmakers how prominently these theoretical concerns entered into their own attitudes and thought processes. Do businesses tend to view the costs of changing prices as prohibitive? Do they worry that lower prices will be equated with poorer quality goods? Are firms more likely to try alternate strategies to changing prices, such as warehousing excess inventory or improving their quality of service? To what extent are prices held in place by contractual agreements, or by invisible handshakes? Asking About Prices offers a gold mine of previously unavailable information. It affirms the widespread presence of price stickiness in American industry, and offers the only available guide to such business details as what fraction of goods are sold by fixed price contract, how often transactions involve repeat customers, and how and when firms review their prices. Some results are surprising: contrary to popular wisdom, prices do not increase more easily than they decrease, and firms do not appear to practice anticipatory pricing, even when they can foresee cost increases. Asking About Prices also offers a chapter-by-chapter review of the survey findings for each of the twelve theories of price stickiness. The authors determine which theories are most popular with actual price setters, how practices vary within different business sectors, across firms of different sizes, and so on. They also direct economists' attention toward a rationale for price stickiness that does not stem from conventional theory, namely a strong reluctance by firms to antagonize or inconvenience their customers. By illuminating how company executives actually think about price setting, Asking About Prices provides an elegant model of a valuable new approach to conducting economic research.
The Benefits of Spreading Asset Ownership
Over the past three decades, average household wealth in the United States has declined among all but the richest families, with a near 80 percent drop among the nation's poorest families. Although the national debate about inequality has focused on income, it is wealth—the private assets amassed and passed on within families—that provides the extra economic cushion needed to move beyond mere day-to-day survival. Assets for the Poor is the first full-scale investigation into the importance of family wealth and the need for policies to encourage asset-building among the poor.
Assets for the Poor shows how institutional mechanisms designed to encourage acquisition of capital and property favor middle-class and high-income families. For example, the aggregate value of home mortgage tax deductions far outweighs the dollar amount of the subsidies provided by Section 8 rental vouchers and public housing. Banking definitions of creditworthiness largely exclude minorities, and welfare rules have made it nearly impossible for single mothers to accumulate savings, let alone stocks or real estate. Due to persistent residential segregation, even those minority families who do own homes are often denied equal access to better schools and public services.
The research in this volume shows that the poor do make use of the assets they have. Cash gifts—although small in size—are frequent within families and often lead to such positive results as homebuying and debt reduction, while tangible assets such as tools and cars help increase employment prospects. Assets for the Poor examines policies such as Individual Development Account tax subsidies to reward financial savings among the poor, and more liberal credit rules to make borrowing easier and less costly. The contributors also offer thoughtful advice for bringing the poor into mainstream savings institutions and warn against developing asset building policies at the expense of existing safety net programs.
Asset-building for low-income families is a powerful idea that offers hope to families searching for a way out of poverty. Assets for the Poor challenges current thinking regarding poverty reduction policies and proposes a major shift in the way we think about families and how they make a better life.
A Volume in the Ford Foundation Series on Asset Building
An Extension of Social Security
In the United States, rates of divorce and out-of-wedlock childbirth are climbing so dramatically that over half of the next generation is likely to spend part of its childhood in single-mother families. As many as half of these families will live in poverty, caused in large measure by the failure of current government regulations to secure adequate child support from absent parents and to assure minimum support when parents cannot provide it. Assuring Child Support introduces the Child Support Assurance System, a remedy to this problem that is both feasible and affordable, a practical reform that is within the nation's grasp.
"An extremely well-written and provocative book." —Eastern Economic Journal
U.S. Labor Market Performance in International Perspective
Throughout the latter part of the 20th century, the U.S. labor market performed differently than the labor markets of the world's other advanced industrialized societies. In the early 1970s, the United States had higher unemployment rates than its Western European counterparts. But after two oil crises, rapid technological change, and globalization rocked the world's economies, unemployment fell in the United States, while increasing dramatically in other nations. At the same time, wage inequality widened more in the United States than in Europe. In At Home and Abroad, Cornell University economists Francine D. Blau and Lawrence M. Kahn examine the reasons for these striking dissimilarities between the United States and its economic allies.
Comparing countries, the authors find that governments and unions play a far greater role in the labor market in Europe than they do in the United States. It is much more difficult to lay off workers in Europe than in the United States, unemployment insurance is more generous in Europe, and many fewer Americans than Europeans are covered by collective bargaining agreements. Interventionist labor market institutions in Europe compress wages, thus contributing to the lower levels of wage inequality in the European Union than in the United States.
Using a unique blend of microeconomic and microeconomic analyses, the authors assess how these differences affect wage and unemployment levels. In a lucid narrative, they present ample evidence that, as upheavals shook the global economy, the flexible U.S. market let wages adjust so that jobs could be maintained, while more rigid European economies maintained wages at the cost of losing jobs.
By helping readers understand the relationship between different economic responses and outcomes, At Home and Abroad makes an invaluable contribution to the continuing debate about the role institutions can and should play in creating jobs and maintaining living standards.
Despite the rapid creation of jobs in the greater Atlanta region, poverty in the city itself remains surprisingly high, and Atlanta's economic boom has yet to play a significant role in narrowing the gap between the suburban rich and the city poor. This book investigates the key factors underlying this paradox.
The authors show that the legacy of past residential segregation as well as the more recent phenomenon of urban sprawl both work against inner city blacks. Many remain concentrated near traditional black neighborhoods south of the city center and face prohibitive commuting distances now that jobs have migrated to outlying northern suburbs.
The book also presents some promising signs. Few whites still hold overt negative stereotypes of blacks, and both whites and blacks would prefer to live in more integrated neighborhoods. The emergence of a dynamic, black middle class and the success of many black-owned businesses in the area also give the authors reason to hope that racial inequality will not remain entrenched in a city where so much else has changed.
A Volume in the Multi-City Study of Urban Inequality
Motherhood, Marriage, and Employment Among American Women
"A wonderful compendium of everything you always wanted to know about trends in women's roles—both in and out of the home. It is a balanced and data-rich assessment of how far women have come and how far they still have to go. "—Isabelle Sawhill, Urban Institute
"Based primarily on the 1990 population census, Balancing Act reports on the current situation of American women and temporal and cross-national comparisons. Meticulously and clearly presented, the information in this book highlights changing behaviors, such as the growing incidence of childbearing to older women, and unmarried women in general, and a higher ratio of women's earnings to men's. The authors' thoughtful analysis of these and other factors involved in women's fin de siècle 'balancing act' make this an indispensable reference book and valuable classroom resource." —Louise A. Tilly, Michael E. Gellert Professor of History and Sociology, The New School for Social Research
In Balancing Act, authors Daphne Spain and Suzanne Bianchi draw upon multiple census and survey sources to detail the shifting conditions under which women manage their roles as mothers, wives, and breadwinners. They chronicle the progress made in education—where female college enrollment now exceeds that of males—and the workforce, where women have entered a wider variety of occupations and are staying on the job longer, even after becoming wives and mothers. But despite progress, lower-paying service and clerical positions remain predominantly female, and although the salary gap between men and women has shrunk, women are still paid less. As women continue to establish a greater presence outside the home, many have delayed marriage and motherhood. Marked jumps in divorce and out-of-wedlock childbirth have given rise to significant numbers of female-headed households. Married women who work contribute more significantly than ever to the financial well-being of their families, yet evidence shows that they continue to perform most household chores.
Balancing Act focuses on how American women juggle the simultaneous demands of caregiving and wage earning, and compares their options to those of women in other countries. The United States is the only industrialized nation without policies to support working mothers and their families—most tellingly in the absence of subsidized childcare services. Many women are forced to work in less rewarding part-time or traditionally female jobs that allow easy exit and re-entry, and as a consequence poverty is the single greatest danger facing American women. As the authors show, the risk of poverty varies significantly by race and ethnicity, with African Americans—most of whose children live in mother-only families—the most adversely affected.
This volume contributes to the national dialogue about family policy, welfare reform, and responsibility for children by highlighting the pivotal roles women play at the intersection of family and work.
The Labor Market for Released Prisoners in Post-Industrial America
With the introduction of more aggressive policing, prosecution, and sentencing since the late 1970s, the number of Americans in prison has increased dramatically. While many have credited these “get tough” policies with lowering violent crime rates, we are only just beginning to understand the broader costs of mass incarceration. In Barriers to Reentry? experts on labor markets and the criminal justice system investigate how imprisonment affects ex-offenders’ employment prospects, and how the challenge of finding work after prison affects the likelihood that they will break the law again and return to prison. The authors examine the intersection of imprisonment and employment from many vantage points, including employer surveys, interviews with former prisoners, and state data on prison employment programs and post-incarceration employment rates. Ex-prisoners face many obstacles to re-entering the job market—from employers’ fears of negligent hiring lawsuits to the lost opportunities for acquiring work experience while incarcerated. In a study of former prisoners, Becky Pettit and Christopher Lyons find that employment among this group was actually higher immediately after their release than before they were incarcerated, but that over time their employment rate dropped to their pre-imprisonment levels. Exploring the demand side of the equation, Harry Holzer, Steven Raphael, and Michael Stoll report on their survey of employers in Los Angeles about the hiring of former criminals, in which they find strong evidence of pervasive hiring discrimination against ex-prisoners. Devah Pager finds similar evidence of employer discrimination in an experiment in which Milwaukee employers were presented with applications for otherwise comparable jobseekers, some of whom had criminal records and some of whom did not. Such findings are particularly troubling in light of research by Steven Raphael and David Weiman which shows that ex-criminals are more likely to violate parole if they are unemployed. In a concluding chapter, Bruce Western warns that prison is becoming the norm for too many inner-city minority males; by preventing access to the labor market, mass incarceration is exacerbating inequality. Western argues that, ultimately, the most successful policies are those that keep young men out of prison in the first place. Promoting social justice and reducing recidivism both demand greater efforts to reintegrate former prisoners into the workforce. Barriers to Reentry? cogently underscores one of the major social costs of incarceration, and builds a compelling case for rethinking the way our country rehabilitates criminals.
American labor unions resemble private representative democracies, complete with formally constituted conventions and officer election procedures. Like other democratic institutions, unions have repeatedly experienced highly charged conflicts over the integration of ethnic minorities and women into leadership positions. In Becoming a Mighty Voice, Daniel B. Cornfield traces the 55-year history of the United Furniture Workers of America (UFWA), describing the emergence of new social groups into union leadership and the conditions that encouraged or inhibited those changes.
This vivid case history explores leadership change during eras of union growth, stability, and decline, not simply during isolated episodes of factionalism. Cornfield demonstrates that despite the strong forces perpetuating existing union hierarchies, leadership turnover is just as likely as leadership stagnation. He also shows that factors external to the union may influence leadership change; periods of turnover in the UFWA leadership reflected employer efforts to find cheap, non-union labor, as well as union efforts to unionize workers. When unions are threatened by intensified conflict with employers and when entrenched high status groups within the union are obliged to recruit members of lower socioeconomic status, then new social groups are likely to be integrated into union leadership.
Becoming a Mighty Voice develops a theory of leadership change that will be of interest to many engaged in the labor, civil rights, and women's movements as well as to sociologists or historians of work, gender, and race, and to students of political and organizational behavior.
Ethnographies of the New Second Generation
More than half of New Yorkers under the age of 18 are the children of immigrants. This second generation shares with previous waves of immigrant youth the experience of attempting to reconcile their cultural heritage with American society. In Becoming New Yorkers, noted social scientists Philip Kasinitz, John Mollenkopf, and Mary Waters bring together in-depth ethnographies of some of New York’s largest immigrant populations to assess the experience of the new second generation and to explore the ways in which they are changing the fabric of American culture. Becoming New Yorkers looks at the experience of specific immigrant groups, with regard to education, jobs, and community life. Exploring immigrant education, Nancy López shows how teachers’ low expectations of Dominican males often translate into lower graduation rates for boys than for girls. In the labor market, Dae Young Kim finds that Koreans, young and old alike, believe the second generation should use the opportunities provided by their parents’ small business success to pursue less arduous, more rewarding work than their parents. Analyzing civic life, Amy Forester profiles how the high-ranking members of a predominantly black labor union, who came of age fighting for civil rights in the 1960s, adjust to an increasingly large Caribbean membership that sees the leaders not as pioneers but as the old-guard establishment. In a revealing look at how the second-generation views itself, Sherry Ann Butterfield and Aviva Zeltzer-Zubida point out that black West Indian and Russian Jewish immigrants often must choose whether to identify themselves alongside those with similar skin color or to differentiate themselves from both native blacks and whites based on their unique heritage. Like many other groups studied here, these two groups experience race as a fluid, situational category that matters in some contexts but is irrelevant in others. As immigrants move out of gateway cities and into the rest of the country, America will increasingly look like the multicultural society vividly described in Becoming New Yorkers. This insightful work paints a vibrant picture of the experience of second generation Americans as they adjust to American society and help to shape its future.
Behavioral economics questions the basic underpinnings of economic theory, showing that people often do not act consistently in their own self-interest when making economic decisions. While these findings have important theoretical implications, they also provide a new lens for examining public policies, such as taxation, public spending, and the provision of adequate pensions. How can people be encouraged to save adequately for retirement when evidence shows that they tend to spend their money as soon as they can? Would closer monitoring of income tax returns lead to more honest taxpayers or a more distrustful, uncooperative citizenry? Behavioral Public Finance, edited by Edward McCaffery and Joel Slemrod, applies the principles of behavioral economics to government's role in constructing economic and social policies of these kinds and suggests that programs crafted with rational participants in mind may require redesign. Behavioral Public Finance looks at several facets of economic life and asks how behavioral research can increase public welfare. Deborah A. Small, George Loewenstein, and Jeff Strnad note that public support for a tax often depends not only on who bears its burdens, but also on how the tax is framed. For example, people tend to prefer corporate taxes over sales taxes, even though the cost of both is eventually extracted from the consumer. James J. Choi, David Laibson, Brigitte C. Madrian, and Andrew Metrick assess the impact of several different features of 401(k) plans on employee savings behavior. They find that when employees are automatically enrolled in a retirement savings plan, they overwhelmingly accept the status quo and continue participating, while employees without automatic enrollment typically take over a year to join the saving plan. Behavioral Public Finance also looks at taxpayer compliance. While the classic economic model suggests that the low rate of IRS audits means far fewer people should voluntarily pay their taxes than actually do, John Cullis, Philip Jones, and Alan Lewis present new research showing that many people do not underreport their incomes even when the probability of getting caught is a mere one percent. Human beings are not always rational, utility-maximizing economic agents. Behavioral economics has shown how human behavior departs from the assumptions made by generations of economists. Now, Behavioral Public Finance brings the insights of behavioral economics to analysis of policies that affect us all.