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Inventories and the Short-Run Dynamics of Commodity Prices

  • Robert S. Pindyck

The idea that wages rise relative to alternatives as job seniority accumulates is the foundation of the theory of specific human capital, as well as other widely accepted theories of compensation. The fact that persons with longer job tenures typically earn higher wages tends to support these views, yet this evidence ignores the decisions that have brought individuals to the combination of wages, job tenure, and experience that are observed in survey data. Allowing for sources of bias generated by these decisions, this paper uses longitudinal data to estimate a lower bound on the avenge return to job seniority among adult men. I find that 10 years of current job seniority raises the wage of the typical male worker in the U.S. by over 25 percent. This is an estimate of what the typical worker would lose if his job were to end exogenously. Overall, the evidence implies that accumulation of specific capital is an important ingredient of the typical employment relationship, and of life-cycle earnings and productivity as well. Continuation of these relationships has substantial specific value for workers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3295.

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Date of creation: Mar 1990
Date of revision:
Publication status: published as The RAND Journal of Economics, vol 25, no 1, pp 141-159, Spring 1994
Handle: RePEc:nbr:nberwo:3295
Note: ME
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  1. Williams, Jeffrey, 1987. "Futures Markets: A Consequences of Risk Aversion or Transactions Costs?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1000-1023, October.
  2. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June.
  3. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, vol. 9(4), pages 321-346, December.
  4. Martin S. Eichenbaum, 1988. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," NBER Working Papers 2523, National Bureau of Economic Research, Inc.
  5. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
  6. Eichenbaum, Martin, 1983. "A rational expectations equilibrium model of inventories of finished goods and employment," Journal of Monetary Economics, Elsevier, vol. 12(2), pages 259-277.
  7. West, Kenneth D, 1986. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 374-401, April.
  8. Valerie A. Ramey & Kenneth D. West, 1997. "Inventories," NBER Working Papers 6315, National Bureau of Economic Research, Inc.
    • Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier.
  9. Ray C. Fair, 1989. "The Production Smoothing Model is Alive and Well," NBER Working Papers 2877, National Bureau of Economic Research, Inc.
  10. French, Kenneth R., 1983. "A comparison of futures and forward prices," Journal of Financial Economics, Elsevier, vol. 12(3), pages 311-342, November.
  11. Lester G. Telser, 1958. "Futures Trading and the Storage of Cotton and Wheat," Journal of Political Economy, University of Chicago Press, vol. 66, pages 233.
  12. Jeffrey A. Miron & Stephen P. Zeldes, . "Seasonality, Cost Shocks and the Production Smoothing Model of Inventories," Rodney L. White Center for Financial Research Working Papers 1-87, Wharton School Rodney L. White Center for Financial Research.
  13. Bresnahan, Timothy F & Suslow, Valerie Y, 1985. "Inventories as an Asset: The Volatility of Copper Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 409-24, June.
  14. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
  15. Blinder, Alan S, 1982. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics," American Economic Review, American Economic Association, vol. 72(3), pages 334-48, June.
  16. Blinder, Alan S, 1986. "Can the Production Smoothing Model of Inventory Behavior Be Saved?," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 431-53, August.
  17. Fama, Eugene F & French, Kenneth R, 1988. " Business Cycles and the Behavior of Metals Prices," Journal of Finance, American Finance Association, vol. 43(5), pages 1075-93, December.
  18. Eichenbaum, Martin S., 1984. "Rational expectations and the smoothing properties of inventories of finished goods," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 71-96, July.
  19. Olivier J. Blanchard & Angelo Melino, 1984. "Cyclical Behavior of Prices and Quantities in the Automobile Market," NBER Working Papers 1325, National Bureau of Economic Research, Inc.
  20. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June.
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