Interdependencies in Labor Markets

1. Keynes -- rigid wages assumed as inherent fact over the business cycle. 1a. Market.

1b. Market plus government control

of aggregate demand.

1a. Unemployment equilibrium. No self


1b. Full employment

2. Work this out for monetarist theory and institutional labor economics.
3. Assume labor is ordinary separable

incompatible use good.

Productivity known and fixed

(Thurow p.297 or Williamson

3a. Market competition

Auction market

3b. Market with unions

3a. Rigid wage (but usual theory predicts

flexible wage, so situation poorly specified.

3b. Rigid wage

4. The production function --

Different kinds of labor are complements

with no individual MP.

Info. Cost. MVP unknown and variable.

4a. Market with SOP1 Wage contour

4b. Market with SOP2 Team incentives

4c. Worker owned, SOP3

See Pencavel & Craig

4d. Sex discrimination allowed/or not

(Thurow p.189)

4f. Comparable worth (Bergmann)

4a. Distr. X among team members

4b. Distr. Y

4c. Distr. Z

4d. Women paid less.

4f. Nurses paid as much as janitors.

5. Skills endogenously learned

(Info. Cost)

(See PPPC Ch. 6, p. 129-30; Thurow p. 198)

MC=0 when skill transference is

Joint with product manufacture.

5a. Mkt. With seniority rights

[What if combined with flexible wages

over the business cycle (bonus)

a la Japan?] Loyalty

5b. Mkt. Competition with flexible wages.

5a. Learning occurs. Training costs low.

Countries like Japan are more productive.

5b. Less learning, higher training costs.

6. Interdependent preferences.

Productivity variable and embedded

in human mind.

Fairness affects productivity?

People care about relative wages.

6. What are the structural alternatives?

Does wage flexibility considered above

as a performance variable become a

structural variable?

Social capital creation.

6. Effect on marginal product?

(Thurow p. 202 & 204.)

7. Econ. of scale (See PPPC, Ch.7, p.136)

Thurow pp. 197-8

How relate to No.4 above?

Can't pay a wage to all = MVP.

7. What rights (standard operating

procedures) control this


Customary wage contours.

7. Allocation of surplus?

i.e. wage levels for similar quality labor

Quality labor in different firms with

similar output.

8. Inherently lazy or instinct of workmanship?

Labor as a consumption good.

8a. Status vs. Incentives, Piece work, etc.

8b. Worker Coop.

Supervision and training cost.

Degree of alienation.

\810-ssp\labor-mkt.wpd November 1999