Earnings Adjustments Research Articles

Immigrant Earnings Adjustment: The Impact of Age at Migration

Human capital theory, in conjunction with Chiswick's (1978) and Borjas’ (1998) work, implies the post‐migration path of immigrant earnings is likely to depend on the age at migration. An adaptation of Borjas’ (1998) model of immigrant wage determination is presented which predicts, for a given stock of human capital at the point of migration, lower initial earnings for younger arrivals, but faster earnings growth with time in the destination country. Empirical tests on data for Australian immigrants provide qualified support for the hypothesis that initial wages are, ceteris paribus, increasing in age at migration and the rate of wage growth is decreasing in age at migration.

Earnings Quality Assessment by a Sell-Side Financial Analyst

The paper presents an instructional case on earnings quality. The case is based on a real-life financial analyst's report on the acquisition of the U.S. publisher CCH by the Dutch publisher Wolters Kluwer. Although the analyst believed that CCH was a sound investment, he downgraded his buy recommendation on Wolters Kluwer because of the deterioration of earnings quality, caused by a seemingly unusual accounting method for restructuring costs following the acquisition. The questions for discussion address the differences between management and analysts in their preferred earnings patterns, the impact of goodwill accounting on earnings quality, the backgrounds and rationales for the earnings adjustments the analyst made, and whether cash flow accounting would solve the problem.

Product Market Volatility and the Adjustment of Earnings to Risk

This investigation of compensating wage differentials uses an instrument for the risk of unemployment, namely, the industry‐specific shipment volatility, to address some empirical anomalies found in the literature. I find that risk premiums for the risk of unemployment range from 8.5 to 19 percent when the covariance between shipment volatility and total manufacturing employment is taken into account. Covariance risk requires positive premiums that range from 1.4 to 14 percent depending on the specification.

The Earnings of Immigrant Men in Australia: Assimilation, Cohort Effects, and Macroeconomic Conditions

This paper analyzes the earnings of immigrant men in Australia using data from Income Distribution Surveys for 1982, 1986 and 1990. The paper expands on the standard approach used in the literature to evaluate immigrant earnings adjustment by considering the impact of current labour market conditions and conditions at labour market entry on current earnings. Immigrants from non‐English speaking backgrounds have significantly lower earnings on arrival in Australia compared with native‐born males, and this gap is not narrowed as years in Australia increase. However, poorer macroeconomic conditions at entry are found to have a significantly smaller negative effect on the earnings of immigrants from non‐English speaking backgrounds than native‐born males.

Is There a Double-Negative Effect on the Earnings of Immigrant Women?

This paper examines whether there is a double-negative' effect on the earnings of immigrant women arising from a possible combined negative impact of gender and birthplace on earnings. The paper finds that a double-negative effect on earnings does not appear to hold across the board for all immigrant women, but is quite marked for highly educated women; and that a conventionally estimated rate of earnings adjustment for immigrant women appears much less than that for men and is not at all statistically significant, so that any initial earnings gap relative to native-born women changes very little over the worker's career. -Authors

International Differences in GAAP and the Pricing of Earnings

AbstractThis study investigates the information content of two alternative accounting earnings measures constructed under U.K. and U.S. GAAP. The analysis is based on the 20‐F SEC filings by U.K. domiciled companies having ADRs listed in the U.S. The research design involves testing the association between U.K. stock returns and alternative accounting numbers. The evidence suggests that, for the sample examined, U.K. GAAP earnings changes have incremental information content after controlling for U.S. GAAP earnings changes, but that earnings levels measured under U.S. GAAP have some independent incremental information content after controlling for U.K. GAAP earnings. The results are consistent with GAAP adjustments having a significant transitory component. The empirical results display explanatory power which is broadly consistent with previous work and the GAAP earnings adjustments add marginally to the ability of earnings to explain returns.

How to deal with the earnings adjustment to the AMT

AbstractThe 1986 Tax Reform Act significantly altered the corporate tax structure by replacing the add‐on minimum tax with an alternative minimum tax similar to the AMT for individual taxpayers. This article (1) explains the adjustments and tax preference items used in computing alternative minimum taxable income for corporate taxpayers, (2) compares and contrasts the adjusted net book income calculation and the adjusted current earnings calculation used in determining AMT liability, (3) examines the record‐keeping requirements necessitated by the AMT, and (4) explores ways in which corporations can minimize their AMT liability by controlling the timing of tax preference items.

Irrelevance of the soft budget constraint for the shortage phenomenon

Kornai's thesis that shortage results from demand expansions bred by the soft budget constraint, derives from his implicit assumption that price regimes of input and output firms are different. Since any firm is both an input and an output firm, which discards the assumption as logically untenable, excess demand can only turn up because of lower than contracted inputs of labor and management that are not offset by an adequate downward adjustment of earnings. Expansions of demand that appear to be autonomous, are incited by uncertain deliveries of inputs, that is, by inefficiency (of output firms) as well. A by far the largest part of excess demand can be explained by state preferences for fast growth. As planners are more successful in generating investment, and the ensuing consumer, demand than in expanding production, shortage is inevitable regardless of the character of the firms' budget constraints.

Determinants of intramethod choice in the oil and gas industry

Procedural flexibility can have a substantial impact on reported costs, revenues, expenses, and balance sheet valuations. Until 1978 oil and gas companies had considerable flexibility in applying full cost and successful efforts. A unique opportunity to measure the income effect of firms' procedural choices occurred when the SEC specified the exact procedures that must be followed by oil and gas producers when they account for exploratory and development costs under both the full cost and successful efforts methods. In complying with the new rules firms were required to adjust retained earnings retroactively to reflect what it would have been if the new procedures had been in effect all along. These retained earnings adjustments provide a measure of the income effect of procedural choices. This study shows that economic incentives influence the procedural accounting choices which were made by oil and gas producers. The same economic incentives also influence the choice of full cost or successful efforts. Finally, the discriminatory ability of firms' economci incentives is most powerful when firms' reporting strategies are defined in terms of both choice of accounting methods and procedural applications within those methods.

Flexible Income Programming: Authors' Reply

In the opening paragraph of her comment on Flexible Income Programming (FIP) [1], Professor Gustavson includes the statement that . . several changes should have been made before it [FIP] was presented to the public . . . It is the understanding of the authors that one of the functions of an academic journal is to provide a forum for the exchange of ideas. The intention of the authors was to present the concept to the readers of this journal and establish a basis for further research by interested colleagues. Patently, the article serves as a first step in the process of developing a more useful tool for the programming of survivors' income needs. Gustavson perceives a problem in the relatively high amounts of life insurance needed (as calculated in the FIP model) in comparison to the current average amounts of coverage owned. Undoubtedly, buyer resistance could cause some marketing problems which should be left to the marketing people. Buyer resistance, however, presents no conceptual problem. The emphasis in our article was conceptual. FIP can be used to create awareness of the extent of unfilled coverage needs. Real income changes that follow a breadwinner's death can have a severe adverse effect on survivors. Breadwinners should be congnizant of post-death needs when making a purchase decision. Even if they choose not to provide survivors with adequate post-death resources, they should know the extent of the problem. Further, the statement cited concerning the propensity to cover post-death needs clearly refers to the extremes and is not an all or nothing proposition [1, p. 59]. The authors, however, recognize that an improvement could result from a breakdown of protection requirements by type of need, as suggested by Gustavson. Gustavson's first specific program suggestion deals with social security and its impact on FIP. As the laws governing these benefits are subject to frequent change, most of the preliminary calculations are made outside the FIP computer model. The computer program makes the final calculation in the determination of the primary insurance amount. Maximum allowable benefits, after reduction for any excess earnings (over $3,480 annually for recipients under age 65 in 1979) are used to calculate post-death benefits available to survivors. Her suggestion to include allowable earnings adjustments in the program is a good one and should be incorporated in any revision of FIP. Her second suggestion deals with the specification of retirement benefits. No attempt was made during these early development stages of FIP to handle

Hours of Work, Labor Productivity, and Environmental Conditions: A Case Study

L IVELIHOOD measures of foregone and compensating earnings are frequently used as measures of economic losses due to realized or potential damages to the health of labor inputs. Both measures as they have been used are incomplete, though for quite different reasons. The narrowness of the foregone earnings measure is widely acknowledged.' As set forth in Smith (1974), Thaler and Rosen (1976), and Viscusi (1979), the compensating earnings measure, with its emphasis upon the earnings premia workers require to be willing to be exposed to job hazards they perceive, certainly has broader analytical appeal. However, as empirically implemented, these studies too are incomplete: they deal with worker and time aggregates allowing only crude measures of differences in reward structures, mixes of complementary inputs, work-day lengths, risk aversions, worker effort, and other dissimilar factors across individuals, firms, and industries. In this paper, the productivity changes and consequent earnings adjustments that occur under differing work conditions for 17 individual citrus pickers in southern California are assessed. Interest is centered upon the acute effects of two environmental factors, ambient ozone (03) and ambient temperature, upon the daily work performances of these individuals.2 Since each individual is separately analyzed, the host of plausible confounding influences (e.g., experience, biological endowments, health histories, etc.) to which one must devote attention when dealing with the fictional representative individual are relevant here only insofar as they change within the short time periods being considered.

Wage Inflation, Regional Policy and the Regional Earnings Structure

This paper attempts an explanation of the behaviour of the regional earnings struicture through time with particular emphasis on the underlying mechanism that holds the structure together. Earnings data that relate to the British engineering industry are used as the basis for statistical tests. Earlier analysis of these data (Hart and MacKay, 1974) revealed that, for the interwar and postwar periods, the regional earnings hierarchy appears to be stable, with some tendency for regional differentials to narrow over time and no consistent relationship between local unemployment conditions and local earnings changes. Of the four hypotheses that have been advanced so far to explain the behaviour of the regional structure (see Thirlwall, 1970, for a useful summary), our emphasis is on the one that is popularly termed the earningsspread hypothesis. The simplest version of this hypothesis takes the form that earnings changes in a leading market(s) are a function of the excess demand for labour in that market, and that earnings changes in the leading market are passed on, in whole or in part, to lagging markets. It is worth observing that such an hypothesis can be interpreted in two very dissimilar fashions. Earnings adjustment can be regarded as essentially an institutional process where coercive comparisons, established relativities or some similar manifestation of inter-group wage rivalry causes employees to bargain for and obtain increases in earnings similar to those obtained by employees in other areas irrespective of differences in regional labour market conditions (Cowling and Metcalf, 1967; Thirlwall, 1970; Lerner and Marquand, 1963). Alternatively, and this argument in the neoclassical tradition has escaped undetected by the British literature, the existing structure of earnings differentials, and its adjustment through time, can be given an equilibrium interpretation. Taking this view, the existing structure of wage differentials may reflect non-pecuniary elements, regional differences in the cost of living, the cost of movement and other barriers to geographical mobility. Hence, changes in regional earnings differentials would be interlinked because of competition, real or potential, between firms operating in different labour markets (Brechling, 1973). As suggested above, the models used to test the earnings-spread hypothesis have incorporated a simple, one-way transmission mechanism in order to represent the transference of earnings increases from leading to

Salario protetto dal meccanismo di scala mobile a "punto pieno". Una postilla.

The automatic adjustment of earnings to the cost of living usually had two objectives, to protect wages in whole or in part from the effects of inflation and to avoid a spate of destabilising wage claims. Recently, however, in Italy a third aim has been added, that of reducing the differences in remuneration. The present article looks at the experience and prospects of wage indexing in Italy, limiting the analysis to the sliding-scale in industry. The author first considers how wage indexing works in Italian industry. The average effectiveness of wage indexing is then examined. Finally, the specific effectiveness of the method of indexing related to the unified value of the point is analysed.

Indicizzazione dei salari e inflazione in Italia.

The automatic adjustment of earnings to the cost of living usually had two objectives, to protect wages in whole or in part from the effects of inflation and to avoid a spate of destabilising wage claims. Recently, however, in Italy a third aim has been added, that of reducing the differences in remuneration. The present article looks at the experience and prospects of wage indexing in Italy, limiting the analysis to the sliding-scale in industry. The author first considers how wage indexing works in Italian industry. The average effectiveness of wage indexing is then examined. Finally, the specific effectiveness of the method of indexing related to the unified value of the point is analysed.

Insurance Stocks. Measuring Values and Earnings: Comment

The life insurance convention statement is so conservative that it is extremely difficult to derive a meaningful earnings estimate from its pages. Reserves are established on mortality rates and interest rates which are anticipated to be quite conservative for the future lifetime of all the policies in force on such reserve bases. Acquisition expenses are charged against income in their year of occurrence, and the effect of probable future lapses is totally ignored. As a result, a truly successful business year often results in a downward effect upon a company's earnings. A substantial increase in new insurance written, or improved persistency, will tend to understate a company's true earnings, while a decline in insurance written or worsening persistency will tend to increase a company's earnings. The above factors are compensated for, in part, by the use of adjusted earnings. However, there is a difference of opinion as to what the adjustment should represent. Mr. Manuel, in his paper in a recent issue of this Journal, adopts the approach which is in most common usage at present.1 He states that the earnings adjustment represents the long-term profitability of the business. He also states that this adjustment is better than an adjustment which recognizes the cost of putting business on the books.