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124 / MARK A. LUTZ REPLY TO MR. MIXON: Mr. Mixon objects to my conclusion that the U.S. interindustry earnings structure cannot be explained by neoclassical wage theory, protesting that in fact my findings are consistent with all but a “most naive statement of the neoclassical model.” As I understand Mixon, his rescue attempt of competitive wage theory hinges on two arguments, each of which he feels provides an alternative explanation of the evidence. First, there is the theoretical possibility that the excessively high turnover in textile mills, footwear, and sawmill plants can be accounted for by the factories serving a quasi general training function (i.e,, they teach the most basic skills of showing up for work on time, etc.). Therefore, we find sub-standard “training” jobs associated with high voluntary separation once training is completed, with the “trained” workers moving to better jobs in more lucrative factories. Second, there is a theoretical possibility that the high turnover industries pay just for what they get, namely, workers with a high propensity to quit, as well as new job entrants. The question then becomes: Do workers quit because of poor jobs or are jobs poor because workers are expected to quit soon? It’s a problem of the chicken and the egg. In both arguments, Mixon implies that my control variables do not properly adjust for quality of labor, i.e., that poor jobs are filled with low quality and untrained workers. In response, let me make the following observations: 1. Mr. Mixon’s explanations are entirely consistent with segmented labor market theory wherein the secondary market trains people voluntarily or involuntarily, successfully or unsuccessfully, for better jobs in more lucrative industries. (And I may add that my knowledge of actual high-turnover factories, although limited, strongly suggests that the “training” is neither voluntary nor helpful for career purposes.) 2. In regressions contained in earlier drafts of my study, the “age” variable per- tained to employees 16-25 years of age, a variable closely aligned with Mixon’s implied demand to control for the proportion of teenagers and new labor force entrants. Yet, empirically there was no significant effect on the observed wage premiums.’ In order to test more directly for the plausibility of Mixon’s point of view, I correlated the wage premiums shown in Table 1 with the relative percentage of 14-19 year old employees according to the 1960 and 1970 census. For 21 industries so analyzed, the correlation was -.120 with an R2 of .01. It would seem, therefore, that Mixon may be greatly overestimating the (sedating) effects of teenagers and job entrants. 3. The idea of low trainee wages is questionable when we observe the very high degree of intercorrelations in the interindustry wage structure by age brackets. In other words, older males (35-44) in sawmills, yarn, thread and fabric mills as ‘Similarly, earlier regressions specified a skill mix variable which was later deleted because of poor empirical results and questionable theoretical justification.

REPLY TO MR. MIXON

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124 / MARK A. LUTZ

REPLY TO MR. MIXON: Mr. Mixon objects to my conclusion that the U.S. interindustry earnings structure

cannot be explained by neoclassical wage theory, protesting that in fact my findings are consistent with all but a “most naive statement of the neoclassical model.”

As I understand Mixon, his rescue attempt of competitive wage theory hinges on two arguments, each of which he feels provides an alternative explanation of the evidence.

First, there is the theoretical possibility that the excessively high turnover in textile mills, footwear, and sawmill plants can be accounted for by the factories serving a quasi general training function (i.e,, they teach the most basic skills of showing up for work on time, etc.). Therefore, we find sub-standard “training” jobs associated with high voluntary separation once training is completed, with the “trained” workers moving to better jobs in more lucrative factories.

Second, there is a theoretical possibility that the high turnover industries pay just for what they get, namely, workers with a high propensity to quit, as well as new job entrants. The question then becomes: Do workers quit because of poor jobs or are jobs poor because workers are expected to quit soon? It’s a problem of the chicken and the egg.

In both arguments, Mixon implies that my control variables do not properly adjust for quality of labor, i.e., that poor jobs are filled with low quality and untrained workers. In response, let me make the following observations:

1. Mr. Mixon’s explanations are entirely consistent with segmented labor market theory wherein the secondary market trains people voluntarily or involuntarily, successfully or unsuccessfully, for better jobs in more lucrative industries. (And I may add that my knowledge of actual high-turnover factories, although limited, strongly suggests that the “training” is neither voluntary nor helpful for career purposes.)

2. In regressions contained in earlier drafts of my study, the “age” variable per- tained to employees 16-25 years of age, a variable closely aligned with Mixon’s implied demand to control for the proportion of teenagers and new labor force entrants. Yet, empirically there was no significant effect on the observed wage premiums.’

In order to test more directly for the plausibility of Mixon’s point of view, I correlated the wage premiums shown in Table 1 with the relative percentage of 14-19 year old employees according to the 1960 and 1970 census. For 21 industries so analyzed, the correlation was -.120 with an R2 of .01. It would seem, therefore, that Mixon may be greatly overestimating the (sedating) effects of teenagers and job entrants.

3. The idea of low trainee wages is questionable when we observe the very high degree of intercorrelations in the interindustry wage structure by age brackets. In other words, older males (35-44) in sawmills, yarn, thread and fabric mills as

‘Similarly, earlier regressions specified a skill mix variable which was later deleted because of poor empirical results and questionable theoretical justification.

Page 2: REPLY TO MR. MIXON

Criticism and Comment / 125

well as footwear industries, are typically at least as far behind manufacturing industry averages as their younger colleagues in the 18-29 age bracket. The same picture holds for female employees? Once again, it does not seem appropriate to blame the young and inexperienced worker for low earnings in a particular industry. 4. More importantly, we have here an interesting illustration of the well-known

(and often deplored) elusiveness of neoclassical theory. Mixon readily admits the ad hoc nature of his defense, yet still feels justified in branding apparently conflict- ing empirical evidence as arising from a “most naive” conception of the theory. One senses that most any conclusion derived from empirical work which is critical of the theory would be similarly labeled.

Scholarly dialogue would certainly benefit from empirical tests of these alterna- tive theoretical explanations for my findings. We now have longitudinal data on labor mobility which should give some insight into the quality of high turnover employees. Do their histories suggest that they quit in preference of unemployment or for other jobs perceived as better? Where in fact do these “trained” young sawmill, textile, and shoe workers go after they quit their first job? It is my contention that they do not typically find employment in those industries which hire at a rate near twice the minimum wage.

Those who argue otherwise have a challenging research opportunity as data sources improve. Unless, of course, they happily acquiesce in what Lakatos and Blaug label a purely “negative heuristic” of ever remote ad hoc theorization?

My conclusion asked for more data and for more research. Mixon cannot be expected to provide the former, but he can make a contribution to the latter by testing the more “sophisticated” version of wage theory with empirical data which are already available.

MARK A. LUTZ Associate Professor of Economics University of Maine at Orono

2See Population Census (1970), Industrial Characteristics, Table 19, where the data are listed for 32 manufacturing industries.

3See Mark Blaug, “Kuhn Versus Lakatos, or Paradigms Versus Research Programs in the History of Economics,” History of Political Economy, VII (Winter, 1977). In this context it may be noteworthy to add that similar defenses were raised when earlier versions of this paper were being considered else- where. First, it was argued that the observed real differentials in net-advantage could be transitory in nature and as such not contrary to theory. Subsequently, the argument of worker financed human capital was advanced.