A Post-Keynesian Approach
New Directions in Modern Economics series
Edited by Claude Gnos, Louis-Philippe Rochon and Domenica Tropeano
Chapter 7: Labor Market and Monetary Macroeconomics
7. Labour market and monetary macroeconomics Vincent Vernay INTRODUCTION When asked whether there is a labour market, most economists would answer yes. And yet it is not certain that there is a market mechanism for labour that can explain the formation of wages. Before analysing the labour market further, Section 1 sets out the standard presentation of a large majority of economists on this issue. This presentation is based on neoclassical theory in which the existence of such a market is not in doubt. In keeping with its assumptions, mainstream economic thought considers that any study of the labour market can be based on individual behaviour only: the analysis, although heralded as macroeconomic, remains grounded in microeconomics. The market, as it is understood by mainstream theorists, takes on highly specific characteristics. The actions occurring there are of the nature of transfers between two economic agents – workers and firms. Workers offer their productive services1 against an amount of money that firms make over to them. When analysed like any other goods market, the ‘neoclassical’ labour market is one component of a general equilibrium model of markets and the place where labour is bought and sold. For neoclassical economists, money is a commodity whose function is to serve as an intermediary in exchange. Considering money to be endowed with purchasing power, the neoclassical analysis views the remuneration of workers as a form of purchase. At first glance, post-Keynesian economists seem to reject the mainstream view. However, this is not a categorical rejection....
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