The Economics of Earnings.

• Author: Idson, Todd L.

In The Economics of Earnings, Solomon Polachek and W. Stanley Siebert provide a thorough and comprehensive review of the theoretical structure of the human capital labor market paradigm, as well as an extensive review of the basic supporting empirical evidence. Chapters are largely organized into four parts, first, a basic statistical profile of the issue at hand, second, an exposition of the theoretical structure used to analyze the topic, third, an evaluation of key empirical findings, and fourth, a discussion of related policy issues. Throughout the text the discourse integrates not only theory, evidence, and policy within each chapter, but also elucidates how the topics covered in different chapters link together to form a coherent explanation of labor market behavior.

For each topic the core exposition is accessible to readers with little more than a command of rudimentary economic principles, yet progresses to a level of complexity that requires a knowledge of intermediate level theory, elementary calculus, and a basic knowledge of regression analysis. Since much of the formal analytical analysis is confined to appendices, the more general reader may omit this material without losing the flow of the presentation, while at the same time both advanced undergraduates and graduate students will find the technical sections quite informative.

Though the emphasis in the text is on the human capital approach to analyzing such labor market phenomena as earnings differentials, labor supply and mobility behavior, and the demand for labor by firms, topics such as the rationale for long-term contracts, tournament models, efficiency wages, and internal labor markets are also covered in a separate chapter. Transition to these topics from the first part of the text, that develops the basic human capital model, is deftly accomplished by introducing the challenges raised for labor market analysis by consideration of imperfect information--this is done quite well in the context of a clear presentation of basic search theory. It is particularly interesting how the authors integrate these developments into the human capital structure, elucidating the fashion in which they either complement the existing theory or may be seen as extensions of the basic paradigm.

Throughout the text the authors manage to create a sense of ongoing intellectual discovery, involving the reader in the subject as a participant in the unfolding of the paradigm. Chapters tend to...