Industrial & Labor Relations Review Volume 58 | Number 3 Article 1 2005 Introduction: Festschrift Articles Honoring Orley Ashenfelter David Card University of California–Berkeley Henry S. Farber Princeton University 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). Industrial and Labor Relations Review, Vol. 58, No. 3 (April 2005). © by Cornell University. 0019-7939/00/5803 $01.00 331 332 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