The project examines two important topics in labor economics. The first concerns how annual hours of work are determined, with a special emphasis on the largely unresearched issue of paid and unpaid leave. One objective of the study is to provide a comprehensive empirical analysis of work leave. The Panel Study of Income Dynamics, the Health and Retirement Survey, and other sources are used to provide a basic set of facts about how paid weeks of leave and total weeks of leave vary with wage rates, indicators of hours constraints, weekly work hours, labor market experience, job seniority, union status, supervisory status, firm size, race, gender, and occupation and industry characteristics. The study measures what happens to paid leave when workers change jobs and determines the degree to which leave is a rigid function of firm wide policy or is something that individual employees can bargain over. The broader goal of the project is to improve understanding of the extent to which people can choose between higher compensation and shorter hours and the terms of the tradeoff between them. The analysis will inform policy discussions concerning how the labor market can be modified to better accommodate men and women who are seeking to balance career goals with family obligations. The second part of the project examines the implications of downward nominal wage rigidity for a broad set of questions in labor economics. There is considerable evidence suggesting that firms are very reluctant to cut nominal wage rates, but there is little research on how barriers to wage cuts influence the personnel decisions of firms. The heart of the study is the development and estimation of a model of the hiring, wage setting, and layoff behavior of a rational, forward looking firm when nominal wages cuts for incumbent workers are too costly to impose. When choosing a wage to fill a vacancy and when setting subsequent wages, such a firm must take account of the fact that the nominal wage chosen today sets a floor on a worker's future wages. In the presence of uncertainty about current and future productivity, paying higher wages to increase hiring rates and retention increases the risk of having to either overpay the worker in a subsequent period or incur the cost of a layoff. The model is estimated and used to revisit a number of important subjects in labor economics where the consequences of nominal wage rigidity have been ignored in previous research. These include studies of the degree to which earnings rise with labor market experience and job seniority, studies of wage dynamics within jobs and across jobs, recent research on employer learning and wage dynamics, studies of statistical discrimination on the basis of race, ethnicity, or sex, and research on the effects of inflation on the distribution of earnings. The study uses data from the Panel Study of Income Dynamics.

National Science Foundation (NSF)
Division of Social and Economic Sciences (SES)
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Daniel H. Newlon
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Northwestern University at Chicago
United States
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