ebook img

The Labor Market and Business Cycle Theories PDF

196 Pages·1989·4.447 MB·English
Save to my drive
Quick download
Download
Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.

Preview The Labor Market and Business Cycle Theories

Lecture Notes in Economics and Mathematical Systems For information about Vols. 1-183, please contact your bookseller or Springer-Verlag Vol. 184: R. E. Burkard and U. Derigs. Assignment and Matching Vol. 211: P. van den Heuvel, The Stability of a Macroeconomic Problems: Solution Methods with FORTRAN·Programs. VIII. 148 System with Quantity Constraints. VII, 169 pages. 1983. pages. 1980. Vol. 212:·R. Sato and T. NOno, Invariance Principles and the Vol. 185: C. C. von Weizsacker, Barriers to Entry. VI. 220 pages. 1980. Structure of Technology. V, 94 pages. 1983. Vol. 186: Ch.-L. Hwang and K. Yoon. Multiple Attribute Decision Vol. 213: Aspiration Levels in Bargaining and Economic Decision Making - Methods and Applications. A State-of·the-Art·Survey. XI. Making. Proceedings, 1982. Edited by R. Tietz. VIII, 406 pages. 1983. 59 pages. 1981. Vol. 214: M. Faber, H. Niemes und G. Step,tlan, Entropie, Umwelt· Vol. 187: W. Hock. K. Schittkowski, Test Examples for Nonlinear schutz und Rohstoffverbrauch. IX, 181 Seiten.1983. Programming Codes. V. 178 pages. 1981. Vol. 188: D. 80s, Economic Theory of Public Enterprise. VII, 142 pages. Vol. 215: Semi-Infinite P'rogramming and Applications. Proceedings, 1981. 1981. Edited by A. V. Fiacco and K.O. Kortanek. XI, 322 pages. 1983. Vol. 189: A. P. LOthi, Messung wirtschaftlicher Ungleichheit. IX, 287 Vol. 216: H. H. MUlier, Fiscal Policies in a General Equilibrium Model pages. 1981. with Persistent Unemployment. VI, 92 pages. 1983. Vol. 190: J. N. Morse, Organizations: Multiple Agents with Multiple Vol. 217: Ch. Grootaert, The Relation Between Final Demand and Criteria. Proceedings, 1980. VI, 509 pages. 1981. Income Distribution. XIV, 105 pages. 1983. Vol. 191: H. R. Sneessens, Theory and Estimation of Macroeconomic Vol. 218: P. van Loon, A Dynamic Theory of the Firm: Production, Rationing Models. VII, 138 pages. 1981. Finance and Investment VII, 191 pages. 1983. Vol. 192: H. J. Bierens: Robust Methods and Asymptotic Theory in Nonlinear Econometrics. IX, 198 pages. 1981. Vol. 219: E. van Damme, Refinements olthe Nash Equilibrium Concept. VI, 151 pages. 1983. Vol. 193: J. K. Sengupta, Optimal Decisions under Uncertainty. VII, 156 pages. 1981. Vol. 220: M. Aoki, Notes on Economic Time Series Analysis: System Theoretic Perspectives. IX, 249 pages. 1983. Vol. 194: R. W. Shephard, Cost and Production Functions. XI, 104 pages. 1981. Vol. 221: S. Nakamura, An Inter·lndustry Translog Model of Prices and Technical Change for the West German Economy. XIV, 290 Vol. 195: H. W. Ursprung, Die elementare Katastrophentheorie. Eine pages. 1984. Darstellung aus der Sicht der Okonomie. VII, 332 pages. 1982. Vol. 222: P. Meier, Energy Systems Analysis for Developing Countries. Vol. 196: M. Nermuth, Information Structures in Economics. VIII, 236 VI, 344 pages. 1984. pages. 1982. Vol. 197: Integer Programming and Related Areas. A Classified Vol. 223: W. Trockel, Market Demand. VIII, 205 pages. 1984. Bibliography. 1978 - 1981. Edited by R. von Randow. XIV, 338 Vol. 224: M. Kiy, Ein disaggregiertes Prognosesystem fUr die Bundes· pages. 1982. republik Deutschland. XVIII, 276 Seiten. 1984. Vol. 198: P. Zweifel, Ein okonomisches Modell des Arzlverhaltens. XIX, 392 Seiten. 1982. Vol. 225: T. R. von Ungern·Sternberg, Zur Analyse von Markten mit unvollstandiger Nachfragerinformation. IX, 125 Seiten. 1984 Vol. 199: Evaluating Mathematical Programming Techniques. Pro· ceedings. 1981. Edited by J.M. Mulvey. XI, 379 pages. 1982. Vol. 226: Selected Topics in Operations Research and Mathematical Vol. 200: The Resource Sector in an Open Economy. Edited by Economics. Proceedings, 1983. Edited by G. Hammer and D. H. Siebert IX, 161 pages. 1984. Pallaschke. IX, 478 pages. 1984. Vol. 201: P. M. C. de Boer, Price Effects in Input-Qutput-Relations: Vol. 227: Risk and Capital. Proceedings, 1983. Edited by G. Bam· A Theoretical and Empirical Study for the Netherlands 1949-1967. berg and K. Spremann. VII, 306 pages. 1984. X, 140 pages. 1982. Vol. 228: Nonlinear Models of Fluctuating Growth. Proceedings, 1983. Vol. 202: U. Witt, J. Perske, SMS - A Program Package for Edited by R. M. Goodwin, M. KrOger and A. Vercelli. XVII, 277 pages. Simulation and Gaming of Stochastic Market Processes and Learning 1984. Behavior. VII. 266 pages. 1982. Vol. 229: Interactive Decision Analysis. Proceedings, 1983. Edited Vol. 203: Compilation of Input·Output Tables. Proceedings, 1981. by M. Grauer and A. P. Wierzbicki. VIII, 269 pages. 1984. Edited by J. V. Skolka. VII, 307 pages. 1982. Vol. 204: K. C. Mosler, Entscheidungsregeln bei Risiko: Multivariate Vol. 230: Macro·Economic Pianning with Conflicting Goals. Proceed· stochastische Dominanz. VII, 172 Seiten. 1982. ings, 1982. Edited by M. Despontin, P. Nijkamp and J. Spronk. VI, 297 pages. 1984. Vol. 205: R. Ramanathan, Introduction to the Theory of Economic Growth. IX, 347 pages. 1982. Vol. 231: G. f Newell, The M/M/= Service System with Ranked Ser· vers in Heavy Traffic. XI, 126 pages. 1984. Vol. 206: M. H. Karwan, V. Lotli, J. Teigen, and S. Zionts, Redundancy in Mathematical Programming. VII, 286 pages. 1983. Vol. 232: L. Bauwens, Bayesian Full Information Analysis of Simultaneous Equation Models Using Integration by Monte Carlo. Vol. 207: Y. Fujimori, Modern Analysis of Value Theory. X, 165 pages. VI, 114 pages. 1984. 1982. Vol. 208: Econometric Decision Models. Proceedings, 1981. Edited Vol. 233: G. Wagenhals, The World Copper Market XI, 190 pages. by J. Gruber. VI, 364 pages. 1983. 1984. Vol. 234: B. C. Eaves, A Course in Triangulations for Solving Vol. 209: Essays and Surveys on Multiple Criteria Decision Making. Proceedings, 1982. Edited by P. Hansen. VII, 441 pages. 1983. Equations with Deformations. III, 302 pages. 1984. Vol. 210: Technology, Organization and Economic Structure. Edited Vol. 235: Stochastic Models in ReliabilityTheory. Proceedings, 1984. by R. Sato and M.J. Beckmann. VIII, 195 pages. 1983. Edited by S. Osaki and Y. Hatoyama. VII, 212 pages. 1984. continuation on page 185 Lectu re Notes in Economics and Mathematical Systems Managing Editors: M. Beckmann and W. Krelle 325 Piero Ferri Edward Greenberg The Labor Market and Business Cycle Theories Springer-Verlag Berlin Heidelberg GmbH Editorial Board H. Albach M.8eckmann (Managing Editor) P.Ohrymes G.Fandel G.Feichtinger J.Green W.Hildenbrand W.Krelle (Managing Editor) H.P.Kunzi K.Ritter R.Sato U.Schittko P.Schonfeld R.Selten Managing Editors Prof. Or. M. Beckmann Brown University Providence, RI 02912, USA Prof. Dr. W. Krelle Institut fUr Gesellschafts-und Wirtschaftswissenschaften der Universităt Bonn Adenauerallee 24-42, D-5300 Bonn, FRG Authors Prof. Or. Piero Ferri University of Bergamo Via Salvecchio 19, 1-24100 Bergamo, Italy Prof. Or. Edward Greenberg Oepartment of Economics, Washington University St. Louis, MO 63130, USA ISBN 978-3-540-50866-3 ISBN 978-3-662-00831-7 (eBook) DOI 10.1007/978-3-662-00831-7 Library of Congress Cataloging·in-Publication Data Ferri, Piero. The labor market and business cycle theories I Piero Ferri, Edward Greenberg. p. cm.-(Lecture notes in econom ies and mathematical systems; 325) Bibliography: p. 1. Business cycles-Mathematical models. 2. Labor supply-Mathematical models. 1. Greenberg, Edward, 1935-.11. Title.1I1. Series. HB3714.F47 1989 331.12'0724-dc 1989-4133 CIP This work is subject to copyright. AII rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, re-use of illustrations, recitation, broadcasting, reproduction on microfilms or in other ways, and storage in data banks. Duplication of this publication or parts thereof is only permitted under the provisions of the German Copyright Law of September 9, 1965, in its version of June 24, 1985, and a copyright fee must always be paid. Violations fali under the prosecution act of the German Copyright Law. © Springer-Verlag Berlin Heidelberg 1989 Originally published by Springer-Verlag Berlin Heidelberg New York in 1989. 2847/3140-543210 To Arthur Camilla Chiara Joan Lisa PREFACE Interest in business cycles has had its 'ups and downs'. After a period of almost steady state growth and of economic tranquility, when the business cycle seemed to be obsolete, the turbulence of the 70s and 80s has contributedto a renewed interest in the topic. Important analytical and methodological innovations have also favored the present abundance of contributions. Four innovations are of particular importance: i. microfoundations ii. nonlinearities iii. stochastic variables iv. real aspects. Both Classical macroeconomics and new-Keynesian approaches seem to share these characteristics, which apply both to endogenous and exogenous explanations of the cycle. The distance separating the newer literature from its forebears seems vast. Previously, cycle theory was characterized by a macro approach and utilized nonlinearities either through piecewise 'linear models or with the aid of Classical theorems in the field of dynamic systems. To consider and to compare the old and the new literature on business cycles is one of the goals of this book. To narrow the distance separating them is another goal of this research. We do not try to bridge it, but rather to revisit the former tradition with new tools. Finally, a particular emphasis is put on the 'ceilings and floors' type of literature. One of us has written a D. Phil. thesis with Sir John Hicks, and both have worked with H. P. Minsky. Hicks, along with Goodwin, introdu.ced the concept of ceilings and floors into business cycle analysis, and Minsky made important contributions to the area. VI These comments may help in understandinq our efforts to innovate in several directions: i. Ceilinqs and floors, interpreted primarily as physical constraints, are replaced by social and political threshold points. For our purposes, the labor market is the point of departure. The physical constraint of full employment is replaced by a waqe-price subsystem that has an impact on aqqreqate demand throuqh two channels: chanqes in income distribution and inflation rates. These do not qenerate explosive models. u. This cyclical behavior is obtained by means of a reqime switchinq model that causes the waqe-price subsystem to chanqe accordinq to the state of the labor market. In this sense, this approach can be connected with modern developments in the analysis of the properties of nonlinear models. Reqime switchinq has been recently utilized in the literature. (For instance, by Malinvaud in the context of different disequilibrium situations and in the debate on monetary policy chanqes.) Our approach, however, takes a macro point of view and considers a deterministic model in which cycles are qenerated endoqenously. From an economic policy point of view, we believe that endoqenous instability can be thwarted by the presence of institutional arranqements. Furthermore, althouqh we mainly consider real economic variables, our model can be extended to include monetary aspects. We. wish to thank H. Minsky, S. Fazzari, A. Cristini, M. Eqidi, L. Filippini, R. Leoni and A. Salanti for helpful comments and stimulatinq suqqestions. We also wish to thank the participants to the various seminars held in Berqamo, Copenhaqen, Milan, Siena and Saint Louis. We qratefully acknowledqe the support of CNR and the Italian Ministry for Education for financial support. Piero Ferri Edward Greenberq University of Berqamo Washinqton University CONTENTS PREFACE CHAPTER ONE: INTRODUCTION page 1. Scope and Objectives 1 2. The Revival of Business Cycle Theories ........................ 2 3. An Historical Outline ......................................... 3 4. Nonlinearities and Business Cycles .........•.................. 5 5. Recent Business Cycle Research ................................ 6 6. The Strategic Role of the Labor Market ................... :.... 8 7. Plan of the Book .............................................. 9 CHAPTER TWO: THE LABOR MARKET, BUSINESS CYCLES AND ECONOMIC INSTABILITY page 1. The Labor Market and Business Cycle Theory 11 2. "Stylized Patterns" in Wages and Unemployment ................. 12 3. The Dimensionality of the Wage-Price Subsystem ................ 15 4. The Wage-Price Spiral and Business Cycles ..................... 16 5. The Regime Switching Approach ................................. 17 6. The Relevance of Institutional Elements ....................... 20 7. The Impact on Cycles 21 8. Historical Paradigms 23 9. The Role of Monetary Factors .................................. 25 VIII CHAPTER THREE: THE ANALYTICAL ROLE OF THE LABOR MARKET IN LONG-AND SHORT-RUN MODELS page 1. Labor Market and Theoretical Paradigms ....................... . 27 2. A Common Background for Long-Run Models ...................... . 28 3. The Neo-Marxian Approach ..................................... . 31 4. The Neo-Keynesian Approach ................................... . 34 5. The Neo-Classical Approach ................................... . 37 6. A Synoptic View .............................................. . 40 7. Short-Run Models ............................................. . 42 8. The Peculiar Nature of the Labor Market ...................... . 43 CHAPTER FOUR: NONLINEAR DETERMINISTIC LABOR MARKET THEORIES OF BUSINESS CYCLES page 1. The Missing Equation 46 2. Nonlinearities and the Labor Market ........................... 48 3. A Nonlinear Wage Equation ..................................... 49 4. The Limit Cycle............................................... 51 5. A Classical Nonlinear Model ................................... 53 6. The Structural Instability Problem ............................ 56 7. An Extension .................................................. 58 8. A Neo-Classical Disequilibrium Approach ....................... 60 9. Concluding Remarks ............................................ 63 IX CHAPTER FIVE: THE MATHEMATICS OF NONLINEARITY . page 1. Old and New Tools of Analysis ................................. 65 2. The Econometrics of Nonlineari ties ........................... . 66 3. Piecewise Linear Analyses .................................... . 67 4. The New Nonlinear Techniques ................................. . 69 5. The Hopf Bifurcation ......................................... . 70 6. An Example .................................................... . 72 7. Chaotic Behavior ............................................. . 75 8. A Definition of Chaos ........................................ . 78 9. A Simulation Exercise 80 10. Some Final Remarks ........................................... . 83 CHAPTER SIX: THE LABOR MARKET AND STOCHASTIC THEORIES OF BUSINESS CYCLES page 1. Microfoundations and Stochastic Theories 84 2. Criteria for a Taxonomy ....................................... 85 3. Endogenous and Exogenous Explanations ......................... 89 4. Lucas' s Contribution ......................................... 91 5. The Labor Market, Market Clearing, and Rational Expectations ... 96 6. Business Cycles in Equilibrium Models ......................... 99 7. An Equilibrium Labor Market Cycle ............................. 102 8. Information, Rationality and Uncertainty ...................... 104 CHAPTER SEVEN: WAGE-PRICE SPIRALS page 1. Instability in an Intermediate-Run Approach 106 2. Real Versus Nominal Wages ..................................... 107 3. Staggered Contracts ........................................... 108 4. Blanchard' s Contribution ...................................... 109 x 5. Meade's Contribution .......................................... 115 6. Nonlinearities and Feedbacks .................................. 118 CHAPTER EIGHT: A REGIME SWITCHING MODEL page 1. A Three-Level Analysis of Wages 120 2. The Regime Switching Hypothesis 121 3. The Nature of Discontinuity ............................. : ..... 121 4. The Economics of Regime Switching ............................. 124 5. The Wage-Price Submode1 ....................................... 126 6. The Employment Subsystem ...................................... 127 7. Exogenous Real Investment and Government Expendi tures .......... 128 8. Exogeneity in Nominal Values .................................. 136 9. A Simulation Exercise ......................................... 140 CHAPTER NINE: SOME CRITICAL ASPECTS page 1. Different Strategies .......................................... 144 2. Benassy's Model ................................................ 145 3. A Limit Cycle in Wages and Employment ......................... 146 4. A Criticism ................................................... 148 5. A Nonlinear Model of Wage-Price Determination ................. 149 6. The Nonneutrali ty Hypothesi s .................................. 152 7. An Extension of the Piecewise Linear Model .................... 153 8. The Impact of Unemployment ...............................' ..... 156 9. Final Remarks ................................................. 158 CHAPTER TEN: CONCLUDING REMARKS .............................. 160 BIBLIOGRAPHY 168

See more

The list of books you might like

Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.