Festschrift Articles Honoring Orley Ashenfelter David Card University of California–Berkeley

Home , Joseph Altonji, Marianne Bertrand, Orley Ashenfelter, Robert Lalonde

Industrial & Labor Relations Review

Volume 58 | Number 3 Article 1

2005 Introduction: Festschrift Articles Honoring Orley Ashenfelter David Card University of California–Berkeley

Recommended Citation Card, David and Farber, Henry S. (2005) "Introduction: Festschrift Articles Honoring Orley Ashenfelter," Industrial & Labor Relations Review, Vol. 58, No. 3, article 1. Available at: http://digitalcommons.ilr.cornell.edu/ilrreview/vol58/iss3/1 Introduction: Festschrift Articles Honoring Orley Ashenfelter

Abstract Introduction to forum honoring Orley Ashenfelter.

Keywords Orley Ashenfelter

This article is available in Industrial & Labor Relations Review: http://digitalcommons.ilr.cornell.edu/ilrreview/vol58/iss3/1 ESSAYS IN HONOR OF ORLEY ASHENFELTER

INTRODUCTION

DAVID CARD and HENRY S. FARBER*

rley Ashenfelter is one of the leading in the study of unions, arguing that the Ofigures in modern labor economics. efficiency or inefficiency of union bargain- Over the past four decades his work has had ing arrangements should be evaluated em- enormous influence on the choice of topics pirically rather than a priori (Brown and in the field and the research methods that Ashenfelter 1986). His interest in labor labor economists use. On the occasion of disputes led to the development of a power- Orley’s 60th birthday, his colleagues and ful framework for modeling arbitrator be- former students held a conference in havior (Ashenfelter and Bloom 1984) and Princeton, New Jersey, to celebrate his examining the determinants of disputes achievements. The resulting collection of (Ashenfelter, Currie, Farber, and Speigel papers is published here. 1992). Like many others in the “first genera- In the 1970s labor supply emerged as a tion” of modern labor economists, Orley’s central issue in the field. Orley’s important early work focused on the quantitative analy- paper on family labor supply (Ashenfelter sis of trade unions. His seminal papers on and Heckman 1974) showed how neoclassi- strike activity (Ashenfelter and Johnson cal theory could be extended to model 1969) and trade union growth (Ashenfelter family decision-making, and derived the and Pencavel 1969) attracted immediate testable implications of what we now call attention for their forceful use of neoclassi- the “unitary model.” In a controversial cal reasoning and econometrics to analyze series of papers (including Ashenfelter traditional industrial relations topics. 1978a Ashenfelter and Ham 1979; and the Orley’s classic paper on racial discrimina- Frisch-prize-winning article Ashenfelter tion and unionism (Ashenfelter 1972) com- 1980) Orley developed a theoretical and bined a broad range of evidence to estab- econometric framework for distinguishing lish that trade unions contributed to a rise between “voluntary” and “involuntary” un- in the relative wages of African-American employment. Borrowing directly from men. Nearly two decades later, Orley re- Adam Smith, Orley developed an elegant turned to another long-standing problem model of anticipated unemployment in a compensating differentials framework (Abowd and Ashenfelter 1981). Orley also turned his attention to the income mainte- nance experiments, and showed how to use the full potential of the experimental de- *David Card is Class of 1950 Professor of Econom- sign to distinguish between the behavioral ics, University of California–Berkeley, and Henry S. Farber is Hughes-Rogers Professor of Economics, and non-behavioral responses to means- Princeton University. tested programs (Ashenfelter 1983).

331 332 INDUSTRIAL AND LABOR RELATIONS REVIEW

In 1972 Orley spent a year at the Office of his students, the reader will note sub- of Evaluation at the U.S. Department of stantial inconsistencies with this organiza- Labor and became interested in the prob- tional principle. lem of measuring the effectiveness of subsi- Given Orley’s early interest in labor dized training programs. His celebrated unions, the Festschrift starts with “Non- 1978 paper (Ashenfelter 1978b) brought union Wage Rates and the Threat of Union- the program evaluation problem to the ization,” by Henry Farber. This paper uses attention of the profession and introduced a model, presented in early work by the “difference-in-differences” method that Ashenfelter, Johnson, and Pencavel (1972), is now widely used in all areas of empirical of wage determination by nonunion em- microeconomics. In later work (Ashenfelter ployers in the presence of a threat of union and Card 1985) Orley laid out the inherent organization. Farber measures variation in difficulties in choosing between alternative the threat of union organization in several econometric estimators. ways, including (1) variation in the pre- In the 1990s education returned as a dicted probability of union membership, dominant topic in labor economics. Orley’s (2) the introduction of right-to-work laws path-breaking papers on twins (Ashenfelter in two states in the last quarter of the twen- and Krueger 1994; Ashenfelter and Rouse tieth century, and (3) deregulation of key 1998) emphasized the value of specially industries in the late 1970s and early 1980s. collected data that could address the prob- He finds little evidence that variation in the lem of measurement error and overturned predicted probability of union member- the previous consensus that there were very ship is correlated with non-union wages or small returns to differences in education the union wage gap. He does find stronger between identical twins. evidence for a threat effect on non-union While Orley’s research papers have had wages and the union wage gap in response a powerful influence on the field, he has to the introduction of right-to-work laws in had as much or even more influence as a one of the two states and in the experience teacher, advisor, and mentor. Perhaps his of deregulated industries where regulation greatest legacy is the “credibility revolu- was a central factor in union strength. tion” that sprang directly from his work on The second paper is “Employment De- training programs. The landmark papers termination in Enterprises under Commu- by Orley’s students Robert LaLonde (1986) nism and in Transition: Evidence from and Joshua Angrist (1990) challenged the Central Europe,” by Swati Basu, Saul Es- profession to focus on identification strate- trin, and Jan Svejnar. Using firm-level lon- gies that were as close as possible to the gitudinal data, this paper compares the ideal of a randomized experiment, leading employment experiences of four Central to “natural” experiments and other rigor- European economies in the transition from ous research designs that are now the main centrally planned to market economies. elements of the labor economist’s toolkit. The authors find little evidence of the la- The best empirical labor economics re- bor hoarding commonly assumed to exist search today owes a continuing debt to under communism, and they find a rapid Orley’s insistence on credible and trans- adjustment of the labor market to become parent methods. responsive to price signals. Czech and Slo- Each of the papers included in this vak firms were generally insulated from Festschrift has at least one author who was market forces prior to the transition, but a student of Orley’s, and the breadth of the they rapidly moved to a wage-sensitive la- papers highlights the range of Orley’s work. bor demand function. Hungarian and Pol- In ordering the papers in the Festschrift, ish firms started the transition “further we have tried to be consistent with the ahead” and continued their movement to- chronology of Orley’s work and interests. ward full market operation. However, because of the eclectic nature of The next paper, which relates generally Orley’s interests and the even broader range to wage determination, is “Do Wages Rise INTRODUCTION: ESSAYS HONORING ORLEY ASHENFELTER 333 with Job Seniority? A Reassessment,” by Another paper related to education is Joseph Altonji and Nicolas Williams. This “The Impact of School Resources on Stu- paper does an extremely careful job of dent Performance: A Study of Private reconciling varied earlier estimates of the Schools in the United Kingdom,” by Kathryn rate at which wages grow with job tenure. Graddy and Margaret Stevens. The earlier Altonji and Williams present a very clear literature on the effect of pupil-teacher conceptual framework for understanding ratios on student performance in state the various approaches to estimating the schools in the United Kingdom has found return to tenure as well as a new set of very little relationship, perhaps due to rela- estimates. They conclude that typical OLS tively little variation in pupil-teacher ratios estimates of the return to tenure are sub- in the state schools. In contrast, Graddy stantially upward biased. The best estimate and Stevens use data on pupil-teacher of Altonji and Williams is that the return to ratios in private (“independent”) schools, ten years of tenure is in the range from 0.09 where there is more variation in mea- to about 0.15, well below OLS estimates. sured inputs, and student performance Related both to Orley’s seminal work on on examinations. They find a statistically evaluating training programs and to his significant negative relationship between work on education is “The Impact of Com- pupil-teacher ratios and student perfor- munity College Retraining on Older Dis- mance in these schools. placed Workers: Should We Teach Old The next paper is a careful program Dogs New Tricks?” by Louis Jacobson, Rob- evaluation of the sort pioneered by Orley ert LaLonde, and Daniel Sullivan. The and his students. In “Did Expanding Med- authors use administrative data from the icaid Affect Welfare Participation?” John Washington State unemployment insurance Ham and Lara Shore-Sheppard examine system linked to community college records the effect on labor supply and welfare par- to identify post-displacement community ticipation of the expansion in the late 1980s college attendance among displaced work- of Medicaid eligibility for children in house- ers and to follow their earnings histories holds above the usual AFDC income limits. over time. While they do find a 7–10% The fact that the expansion in eligibility return, the shorter time horizons of older came at a time when the AFDC income displaced workers make it unclear whether limits did not change allows the identifica- such education is a good private or social tion of the effect of Medicaid eligibility on investment for these workers. labor supply independent of participation David Card and Alan Krueger, in “Would in AFDC. Earlier work on the effect of the the Elimination of Affirmative Action Af- Medicaid expansions concluded that there fect Highly Qualified Minority Applicants? were important positive effects on labor Evidence from California and Texas,” study supply and negative effects on participa- whether the elimination of affirmative action in AFDC. Ham and Shore-Shepard tion in these states in the late 1990s af- identify particular problems with this ear- fected application rates of highly qualified lier work and conclude that, in fact, there is minority high school students to selective no evidence of an effect of the Medicaid state universities. Card and Krueger use expansions on either labor supply or AFDC data on the schools to which minority stu- participation. dents ask that their SAT scores be sent as a Finally, there are two papers on hospital proxy for application behavior and use data labor markets. In “Cut to the Bone? Hospi- on both SAT scores and high school grades tal Takeovers and Nurse Employment Con- to identify highly qualified applicants. tracts,” Janet Currie, Mehdi Farsi, and W. Despite the fact that minority acceptance Bentley MacLeod examine how the labor rates fell dramatically at the universities market outcomes for nurses in California studied, the clear result is that application hospitals were affected by takeovers. rates among highly qualified minorities to Whereas standard models of increased these schools did not fall. employer market power imply that wages 334 INDUSTRIAL AND LABOR RELATIONS REVIEW are likely to fall, Currie, Farsi, and MacLeod compensation structure in not-for-profit use a contracting framework to demon- hospitals. In “Does Managed Care Change strate that, if effort elicitation is a factor in the Management of Nonprofit Hospitals? hospital decision-making, increased em- Evidence from the Executive Labor Mar- ployer labor market power could have little ket,” these authors find that the compensa- effect on wages but substantially increase tion of top executives in not-for-profit hos- worker effort. These predictions are sup- pitals becomes more closely related to the ported by a careful examination of the data usual profit measures when HMOs enter on hospital takeovers in California in the the market. 1990s. Taken together, these papers illustrate Marianne Bertrand, Kevin Hallock, and the range of Orley’s interests and continu- Richard Arnould present an analysis of how ing influence in labor economics and be- the penetration of HMOs into the health yond. We dedicate this collection to him care market affected the management with great affection and appreciation.

REFERENCES

Abowd, John, and Orley Ashenfelter. 1981. “Antici- tion Systems.” Econometrica, Vol. 60, No. 6 (Novem- pated Unemployment, Temporary Layoffs, and Com- ber), pp. 1407–33. pensating Wage Differentials.” In Sherwin Rosen, Ashenfelter, Orley, and John Ham. 1979. “Educa- ed., Studies in Labor Markets. Chicago: University of tion, Unemployment, and Earnings.” Journal of Chicago Press for the National Bureau of Economic Political Economy, Vol. 87 (October), pp. S99– Research, pp. 141–70. S116. Angrist, Joshua D. 1990. “Lifetime Earnings and the Ashenfelter, Orley, and James Heckman. 1974. “The Vietnam Era Draft Lottery: Evidence from Social Estimation of Income and Substitution Effects in a Security Administrative Records.” American Economic Model of Family Labor Supply.” Econometrica, Vol. Review, Vol. 80, No. 3 (June), pp. 313–36. 42, No. 1 (January), pp. 73–85. Ashenfelter, Orley. 1972. “Racial Discrimination and Ashenfelter, Orley, and George E. Johnson. 1969. Trade Unionism.” Journal of Political Economy, Vol. 8, “Bargaining Theory, Trade Unions, and Industrial No. 3 (May–June), pp. 435–64. Strike Activity.” American Economic Review, Vol. 59, ____. 1978a. “Unemployment as a Constraint on No. 1 (March), pp. 35–49. Labour Market Behavior.” In M. J. Artis and A. R. Ashenfelter, Orley, George E. Johnson, and John H. Nobay, eds., Contemporary Economic Analysis. Lon- Pencavel. 1972. “Trade Unions and the Rate of don: Croom Helm, pp. 149–81. Change of Money Wages in United States Manufac- ____. 1978b. “Estimating the Effect of Training turing Industry.” Review of Economic Studies, Vol. 39, Programs on Earnings.” Review of Economics and No. 1 (January), pp. 27–54. Statistics, Vol. 6, No. 1 (February), pp. 47–57. Ashenfelter, Orley, and Alan Krueger. 1994. “Esti- ____. 1980. “Unemployment as Disequilibrium in a mates of the Economic Return to Schooling from a Model of Aggregate Labor Supply.” Econometrica, New Sample of Twins.” American Economic Review, Vol. 48, No. 3 (April), pp. 217–45. Vol. 84, No. 5 (December), pp. 1157–73. ____. 1983. “The Withering away of a Full Employ- Ashenfelter, Orley, and John H. Pencavel. 1969. ment Goal.” Canadian Public Policy, Vol. 9 (March), “American Trade Union Growth.” Quarterly Journal pp. 114–25. of Economics, Vol. 83, No. 3 (August), pp. 434–48. Ashenfelter, Orley, and David Bloom. 1984. “Models Ashenfelter, Orley, and Cecilia Rouse. 1998. “In- of Arbitrator Behavior: Theory and Evidence.” come, Schooling, and Ability: Evidence from a New American Economic Review, Vol. 74, No. 1 (March), Sample of Identical Twins.” Quarterly Journal of pp. 111–24. Economics, Vol. 113, No. 1 (February), pp. 253–84. Ashenfelter, Orley, and David Card. 1985. “Using the Brown, James, and Orley Ashenfelter. 1986. “Testing Longitudinal Structure of Earnings to Estimate the the Efficiency of Employment Contracts.” Journal of Effect of Training Programs.” Review of Economics Political Economy, Vol. 94, No. 3, Part 2 (June), pp. and Statistics, Vol. 67, No. 4 (November), pp. 648– S40–S87. 60. LaLonde, Robert. 1986. “Evaluating the Economet- Ashenfelter, Orley, Janet Currie, Henry S. Farber, ric Evaluations of Training Programs with Experi- and Matthew Spiegel. 1992. “An Experimental mental Data.” American Economic Review, Vol. 76, Comparison of Dispute Rates in Alternative Arbitra- No. 4 (September), pp. 604–20.