The views expressed in this paper are those of the authors and do not necessarily represent the views or policies of the Board of Governors of the Federal Reserve System or its staff. We would like to thank our editor, Daron Acemoglu, and two anonymous referees for their insights. In addition we received help and

This paper investigates how changing the length of the school year, leaving the basic curriculum unchanged, affects learning and subsequent earnings. I use variation introduced by the West-German short school years in 1966-67, which exposed some students to a total of about two thirds of a year less of schooling while enrolled. I find that the short school years increased grade repetition in primary school, and led to fewer students attending higher secondary school tracks. On the other hand, the short school years had no adverse effect on earnings and employment later in life.

This paper uses micro data from the German Socio-Economic Panel to document that the wage structure in West Germany was remarkably stable over the period 1984–97, with little variation over time in wage or earnings inequality among and within different skill groups. The paper investigates a number of possible explana-tions for the stability of the wage structure and concludes that it is attributable to institutional factors rather than market forces. Consequently, the rigidity of relative wages despite relative shifts in labor demand that favor skilled workers has resulted in sharp declines in employment rates for unskilled workers. The micro evidence is also shown to have important implications for interpreting trends in wage shares, capital-labor ratios, and aggregate unemployment. [JEL J31, E24] The relationship between labor market institutions and overall labor market per-formance has been the subject of considerable interest among academics and policymakers in recent years. In particular, a vigorous debate has emerged on the relationship between wage inequality and employment growth. This debate has been fueled by the large disparities in employment growth and unemployment rates between the United States and the United Kingdom, on the one hand, and the major continental European economies on the other. Some authors have argued that labor market institutions that constrain changes in wage inequality despite shifts in the relative demand for different types of labor *Eswar Prasad is Chief of the China Division in the Asia and Pacific Department of the IMF. He was in the Research Department when this paper was written. The author thanks Albert Jaeger for extensive dis-cussions and an anonymous referee whose constructive comments helped sharpen the exposition in the paper. This paper has benefited greatly from the comments of Orazio Attanasio, Robert Flood, Jennifer Hunt, Andrei Kirilenko, Axel Schimmelpfennig, numerous colleagues, and participants at various seminars. have resulted in rising aggregate unemployment rates in Europe (e.g., Siebert, 1997). Other authors have contested this view and find at best weak cross-country evidence that wage inequality is correlated with employment growth (e.g., Nickell

Abstract. This survey organizes and summarizes existing theoretical work on private sector training. The theoretical models focus on investment efficiency, finance and turnover. Recent developments in the on-the-job training literature are characterized by strategic interaction between employers and employees and emphasize market imperfections.

We exploit the changes in the distribution of family income to estimate the e¤ect of parental resources on college education. Our strategy exploits the fact that families at the bottom of the income distribution were much poorer in the 1990s than they were in the 1970s, while the opposite is true for families in the top quartile of the distribution. Our estimates suggest large e¤ects of family income on enrollments. For example, we …nd that a 10 percent increase in family income is associated with a 1.4 percent increase in the probability of attending a four-year college. Paper prepared for the European Economic Association Meeting 2000, Bolzano, Italy. We thank seminar participants in the European Economic Association 2000 Conference, the MIT labor lunch, and the University of Chicago Harris School Seminar for helpful comments. Some of the work for this paper was undertaken while Pischke was visiting the Northwestern University/University of Chicago Joint Center for Poverty Research. He thanks the Center for their hospitality and …nancial support. 1 1

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Does investing in employees ’ marketable skills reduce turnover? This study uses insights from human capital theory to explain how general skill development and promotion relate to voluntary turnover. Data from 9,439 salaried employees of a large manufacturer show that participation in tuition reimbursement reduces turnover while employees are in school. Voluntary turnover increases when individuals earn graduate degrees but is significantly reduced if they are subsequently promoted. In today’s competitive and volatile global econ-omy, where job security is difficult to offer, com-panies are increasingly relying on “employability” to attract, motivate, and retain knowledge workers (Craig, Kimberly, & Bouchikhi, 2002; Lawler, 2001; Rousseau, 1997). Existing turnover theories and empirical research, however, do not resolve the question central to this employment strategy: Does investing in employees ’ marketable skills make them more likely to stay? Many firms appear to be making the assumption that it does, investing substantial amounts to de-velop employees ’ knowledge and skills. Estimates of company spending on employee development in the United States range from $16 billion to $55 billion, and the level of investment appears to be

During the last decade the concept of relationship banking has been forged in the theory of banking to reflect the sharing of private information between a bank and its clients and the benefits of a continuing relationship. A number of theoretical contributions have examined the implications of relationship banking on the banking industry market structure, but their results are sometimes contradictory. This paper constitutes an analytical survey that examines relationship banking by means of a simple basic model and studies the implications of relationship banking on the pricing of loans, as well as its e ect on the degree of competition in the banking industry.

We investigate the impact of labour market policies on labour and multifactor productivity with industry-level data. First and foremost, labour market policies can influence average measured productivity through their impact on employment. Other things equal, employment growth tends to be associated with lower average measured labour productivity growth as more low-skilled workers enter the workforce. However, policies can also have sizeable direct effects on individual productivity levels and/or growth by creating incentives for workers to invest in training, facilitating reallocation of resources to their most productive uses and generating or maintaining high-quality job matches. We find that employment protection legislation, minimum wages, parental leave and unemployment benefits influence productivity through multiple channels, over and above their impact on employment levels. GROWTH IN GDP PER CAPITA, one of the pri-mary economic policy objectives of OECD countries, can be decomposed into the growth

Abstract: In 1842, Lowell textile firms increased weaving productivity by assigning three looms per worker instead of two. This marked a turning point. Before, weavers at Lowell were temporary and mostly literate Yankee farm girls; afterwards, firms increasingly hired local residents, including illiterate and Irish workers. An important factor was on-the-job learning. Literate workers learned new technology faster, but local workers stayed longer. Human capital calculations show these changes were unprofitable before 1842 and that the advantages of literacy declined over time. Firm policy and social institutions slowly changed to permit deeper human capital investment and more productive implementation of technology.