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In the foreword to the first edition of Out of Work, Martin Bronfenbrenner noted that “another decade or two will test the robustness and stability of the authors’ daring estimating equation for unemployment as a function of real-wage rates.” Although less than a decade has passed since that was written, we do believe that the experience of the 1990s strengthens the thesis of this book, namely that employers respond to the cost of labor in making their employment decisions, and that governmental policies have often inadvertently raised both these costs and unemployment. So in this new edition we add an afterword (chapter 16) that chronicles the experiences of the 1990s thus far. We find that the adjusted real wage explains unemployment trends in the last decade of the century as well as it did in the first nine.

We have also added a second appendix that deals with some of the issues raised either publicly or privately by colleagues in the economics profession. For researchers wishing to replicate our findings, we include some quarterly data for recent decades. We perform a number of statistical tests to deal with esoteric (to some readers) issues such as Granger causality, model specification, and heteroskedasticity. In doing this, we move somewhat away from the low-tech approach adopted in the first edition in order to increase confidence among professional economists in the power and validity of the basic theoretical framework. At the same time, we confine this material to the appendix so that the interested lay reader need not be burdened by excessive technical analysis. In the first edition, in two places we spoke briefly of geographic variations in unemployment; subsequently, we have done far more extensive work on this topic and present some of our findings here.

A plethora of studies have been produced since the first edition that relate to issues raised in this book. Although some of this research represents worthy scholarship, in our estimation nothing in it fundamentally challenges the approach used here in any convincing fashion, so we refrained from attempting to enumerate or comment comprehensively on the recent literature, although we do mention some of that work in the new material.

We thank the many persons who graciously commented favorably on the first edition and who have used the book in classrooms and elsewhere. We express our gratitude to New York University Press for its support in bringing out this new edition. Our colleagues Chulho Jung and Tony Caporale graciously assisted us on a number of technical and other issues, and their help is appreciated. Again, we wish to thank David Theroux of the Independent Institute for his entrepreneurial initiative and persistence, which led both to the initial publication of this book and to this subsequent revision.

RICHARD K. VEDDER

LOWELL E. GALLAWAY