What Do We Know About Worker Displacement in the U.S.?

Each year during the eighties, plant closings in the U.S. displaced roughly one-half million workers with three-plus years on the job. The recent data and empirical research reviewed here show that wage cuts lower only slightly the probability that a plant will close. Average earnings losses due to long spells of unemployment and to subsequent reduced wages are substantial. Minorities suffer an above-average rate of displacement, but their earnings losses are not unusually high. Women and older workers are no more likely than others to become displaced or to suffer greater earnings losses, but high-tenure workers lose more.     

Some characteristics of the Canadian audit industry*

Abstract. We examine some of the basic issues concerning concentration, the level of competition, and returns to scale in the Canadian audit industry. Our findings indicate that it may be more appropriate to construct the concentration indexes in terms of the “Big Seven” instead of the traditional “Big Eight” firms. The results also indicate that the industry is subject in the long run to constant returns to scale and imply fairly competitive markets for audit services.     

WILLINGNESS TO PAY FOR AMATEUR SPORT AND RECREATION PROGRAMS

A contingent valuation method (CVM) survey in Alberta, Canada, allows estimation of the household willingness to pay (WTP) for enhancements in the province's extensive sport and recreation programs. The estimated annual WTP of $18 per household for small enhancements in the programs far exceeds the estimated WTP of households in the United States to avoid the loss of major league sports teams, as determined in previous CVM studies. Those opposed to gambling, which helps to fund the Alberta programs, are more likely to favor using income taxes to finance expansions. ( JEL H41, L83)     

A Business Ethics Experiential Learning Module: the Maryland Business School Experience

In this paper we describe the principal activities of the initial implementation in May of 1996 of one of the Experiential Learning Modules (ELMs) entitled Business Ethics (UMCP 1995, p. 7) that is part of the full-time MBA program at the College of Business and Management (Maryland Business School) of the University of Maryland at College Park (UMCP). Additionally, we briefly consider the location of this Business Ethics ELM in the curriculum of the Maryland Business School's full-time MBA program. We also outline how the Business Ethics ELM was developed. Further, we provide a discussion and a short conclusion.     

Effectiveness of Weighted Majority Rules with Random Decision Power Distribution

There is a large body of research studying the conditions under which majority decisions are best. In particular, in many circumstances, the probability of a group to decide correctly is higher than that of a random subgroup. Moreover, the latter probability increases as the subgroup size grows. Here we generalize those results by showing that, in the same setup, the simple majority rule is the most effective of all weighted majority rules when weights are distributed randomly between group members. For special families of weighted majority rules, rule effectiveness increases as we get “closer” to the simple majority rule.     

IMPROVING THE ANALYTICAL AND DATA FRAMEWORK OF THE GOVERNMENT SECTOR FOR NATIONAL GOALS ACCOUNTING*

Provision of “market goods” follows the decision rules of traditional microeconomics; pricing and resource allocation for such goods tend towards Pareto optimality. The provision of “collective goods,” by contrast, depends on political (or quasi-political) collective decision processes; beneficiaries often receive a share of collective goods free of charge or well below average or marginal (private or social) costs. No inherent tendency towards optimality may be presumed and separate analysis of collective goods becomes an essential part of national goals accounting. The national-income-accounts (NIA) distinction between personal consumption expenditures (PCE) and government purchases of goods and services corresponds roughly to a division between market goods bought by the consumer and a major category of “collective goods” (i.e. “public goods” provided by government). However, a significant proportion of PCE represents “collective goods” paid for by government, business, or nonprofit organizations and provided on behalf of the consumer, whereas a part of NIA government purchases represents services paid for by the consumer (i.e. “market goods”). This article develops operationally meaningful distinctions among “market goods,”“collective goods,” and “tied aid” (a mixed category with market-good and collective-good characteristics). These distinctions are determined by the nature of the decision processes–rather than by the characteristics of the beneficiary or the supplier. This classification is related to the national income accounts and major discrepancies are pinpointed. The blurring of the distinction among market goods, collective goods and tied aid is found to be most consequential in the NIA treatment of “education” and “medical care” services. NIA data for these two services are restructured for national goals accounting purposes in order to illustrate both the quantitative importance and the empirical feasibility of classifying benefits by their respective decision processes.     

The Effect of SOX Internal Control Deficiencies on Firm Risk and Cost of Equity

The Sarbanes-Oxley Act (SOX) mandates management evaluation and independent audits of internal control effectiveness. The mandate is costly to firms but may yield benefits through lower information risk that translates into lower cost of equity. We use unaudited pre–SOX 404 disclosures and SOX 404 audit opinions to assess how changes in internal control quality affect firm risk and cost of equity. After controlling for other risk factors, we find that firms with internal control deficiencies have significantly higher idiosyncratic risk, systematic risk, and cost of equity. Our change analyses document that auditor-confirmed changes in internal control effectiveness (including remediation of previously disclosed internal control deficiencies) are followed by significant changes in the cost of equity that range from 50 to 150 basis points. Overall, our cross-sectional and intertemporal change test results are consistent with internal control reports affecting investors' risk assessments and firms' cost of equity.     

Glued to the TV: Distracted Noise Traders and Stock Market Liquidity

In this paper, we study the impact of noise traders’ limited attention on financial markets. Specifically, we exploit episodes of sensational news (exogenous to the market) that distract noise traders. We find that on “distraction days,” trading activity, liquidity, and volatility decrease, and prices reverse less among stocks owned predominantly by noise traders. These outcomes contrast sharply with those due to the inattention of informed speculators and market makers, and are consistent with noise traders mitigating adverse selection risk. We discuss the evolution of these outcomes over time and the role of technological changes.     

The Local Aggregate Effects of Minimum Wage Increases

Using variation in minimum wages across cities and controlling for differences in business-cycle factors and long-run local economic trends, we find that following minimum wage increases, both, prices and nominal spending rise modestly. These gains are larger for certain subcategories of goods such as food away from home and in locations where low-wage workers account for a larger share of employment. Further, minimum wage increases are associated with reduced total debt among households with low credit scores, higher auto debt, and increased access to credit.