Student Research Conference: Academic Year 1991-1992

Paul S. Davies did his honors research with Dr. Michael Seeborg on Factors Influencing Employment in the U.S. Auto Industry.

ABSTRACT: The purpose of this study is to explain the changes in employment levels in the U.S. automobile industry over the past 30 years. While employment levels were generally increasing from 1960 through 1977 (although experiencing cyclical ups and downs), employment levels have been trending downward over the past 12 years. Specifically, changes in employment levels are hypothesized to have been caused by changes in four areas: 1) international competition (primarily from Japanese auto producers); 2) union (UAW) power; 3) labor-saving and productivity-enhancing technology; and 4) outsourcing arrangements of the Big Three American automobile manufacturers. Theoretically, changes in these areas are shown to affect employment of auto workers by shifting and/or changing the slope of the demand curve for auto workers. Marshall's Laws of Derived Demand for Labor are used in making this demand-side analysis. Empirically, data from the motor and equipment industry (SIC 371) and OLS regression analysis are used to test the four hypotheses of declining employment in the automobile industry. The results suggest that increasing international competition does indeed negatively affect employment in the U.S. auto industry, while the UAW may not be as powerful in influencing employment levels as was originally expected.

Colin Fitzgerald did his independent research with Dr. Robert Leekley on Options Pricing: Is the Minority Outpricing the Majority?

ABSTRACT: Options are among the most flexible financial instruments. They can serve many functions; profit enhancement, risk management, arbitrage and hedging are but a few. For these reasons, options have also become an invaluable component of many financial portfolios. Since April of 1973, when a uniform options market was established, the options market has grown more rapidly than any other financial market.

The value of an option depends on several factors. The strike price of the option and the price of the underlying instrument are the most important. Others include the time to expire, the volatility of the underlying instrument, the risk free interest rate, and cash flows from the instrument. The exact magnitude of the effect that some of these factors have on the value of an option is still unsettled. However, traders need a model to guide them in deciding whether an option is properly valued. Many traders use some version of the Black-Scholes model. A few use more complicated models, such as the model developed by Cox, Ross and Rubenstein. Are these more complex models superior? This study attempts to find out.

Whatever models traders use, their purpose is to estimate the (unknown) intrinsic value of an option. If this value is greater than the (known) current market price, they would want to buy; if it is less than the current market price, they would want to sell. Thus, a good model is one that gives profitable buy and sell signals. This study conducts simulations using market data, buying and selling according to the signals generated by both the Black-Scholes and the Cox-Ross-Rubenstein models. The profits generated by each model are then compared. If the Cox-Ross-Bubenstein model is actually better, it should generate greater profits.

Thomas M. Smith did his independent research with Dr. Margaret Chapman on Maquiladoras and Chicago: Measuring the Effects of Transitional Business Migration on a Community.

ABSTRACT: This study focuses on a new and rapidly growing phenomenon in the United States--the movement of domestic firms to maquiladoras in Mexico. Migration from one area to another is a viable solution to production problems for many firms; moving to a new location is often one way an industry can cut production costs. As of 1965, the passage of the Border Industrialization Program by Mexico and the U.S government allowed U.S. firms to move their production facilities into a production zone within the Mexican border. As of 1991, 30 firms from the Chicago area had moved their production facilities from the Chicago Metropolitan area to Mexico. This study is concerned with the transitional migration of companies' production facilities from the Chicago area and how it affects employment, wages, value added and output in other sectors of the economy in the Chicago Metropolitan area.

It is my hypothesis that the loss of jobs in the electronics industry in Chicago has a rippling effect that causes lost jobs, wages, value added and output in other industries located within Chicago. I have chosen to focus on the electronics industry in Chicago for two reasons. First, the electronics industry was named by Governor James Thompson as a staple industry for Illinois, concentrated around Chicago and I-90, later designated as the Golden Corridor of Growth. This industry is both a major supplier and demander of products to and from other industries in the Chicago area, which makes it an ideal industry for this study. Second, ten electronics production plants have moved from the Chicago Metropolitan area to Mexico from 1980-1990, resulting in 15,391 jobs lost.

This study involves using the Input-Output model at the University of Illinois Champaign and the University of Illinois Chicago. The R.E.A.L. model places actual data concerning the Chicago Metropolitan area into an inter-industry and final demand matrix. Through mathematical and matrix manipulation, the model will be able to calculate how a change in any industry will affect other industries. This change can be measured and presented in the form of a multiplier, which measures total impact of the job loss on all linked industries and in the retail sector. This study will give employment, wage, value added and output multipliers for the electronics industry for the Chicago Metropolitan area.

Brenda Weil did her honors research with Dr. Michael Seeborg on Occupational Segregation by Gender: A Look at the Future.

ABSTRACT: This study takes a socio-economic approach to occupational segregation and studies the implications of segregation for men and women. The study centers around the "crowding hypothesis" developed by Barbara Bergmann. This hypothesis states that because women are denied access to many occupations, they are crowded into a limited number of remaining occupations.

Barriers to entry into certain occupations are identified. These barriers include statistical discrimination, overt discrimination, and education and training differences between men and women.

The continuation of occupational discrimination also depends upon the speed at which new jobs open up in traditionally male occupations and traditionally female occupations. If opportunities in male-dominated fields expand rapidly and/or jobs in female-dominated occupations expand slowly, the prospects for more rapid integration are favorable. Recent Bureau of Labor Statistics projections are used to determine whether future trends will favor integration. Finally, policy implications of the findings will be discussed.