The Political Economy of Wages and Unemployment

The Political Economy of Wages and Unemployment

A Neoclassical Exploration

William Oliver Coleman

In this tightly argued work William Coleman explores the macroeconomic implications of politically based restraints on competition in labour markets.

Chapter 6: How Foresight May (and may not) Defeat the Floor

William Oliver Coleman

Subjects: economics and finance, labour economics

Extract

The analysis of earlier chapters has been wholly short run; wholly within the framework of a single period. Such a framework amounts to supposing that the future is completely neglected by the workforce. This chapter seeks to correct that plainly inadequate assumption. It investigates how foresight would shape the future consequences of the maximization of current wage income, and to what extent allowing for the foresight of these future consequences would recommend to the workforce revision of a strategy of current wage bill maximization. We conclude that in some circumstances the tenet of wage bill maximization will require revision. And yet in other certain circumstances the suitability of the tenet survives the allowance for the foresight. The chapter amounts, then, to a modest rebuttal of any readiness to dispose of wage bill maximization by a pat reference to the ‘long run’; and a defence of wage rigidity against the (admittedly) plausible suggestion that foresight will undermine the floor and its rigidity. The analysis proceeds by recognizing that the linkage between foresight and the longer-run consequences of wage bill maximization is provided by saving. Foresight will shape how much is saved, and consequently how much capital will grow, and as a result how much employment will grow in the future. The chapter identifies what wage bill maximization would spell for the future path of employment once we allow for saving made in the light of that future. It is especially concerned to see whether saving made in the light of that...

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