tag:blogger.com,1999:blog-4979477022008569617.post5824141827526603773..comments2023-05-02T06:38:35.510-07:00Comments on Roger Farmer's Economic Window: Repeat After Me: The Quantity of Labor Demanded is Not Always Equal to the Quantity SuppliedRoger Farmerhttp://www.blogger.com/profile/05213844698773859392noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-4979477022008569617.post-21910742354856623712014-12-04T19:54:04.560-08:002014-12-04T19:54:04.560-08:00Brian
I think your comment was cut off. Can you re...Brian<br />I think your comment was cut off. Can you repost it?Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-58192668141865309872014-12-04T19:53:20.029-08:002014-12-04T19:53:20.029-08:00Thanks for your comment Peter. John and I disagree...Thanks for your comment Peter. John and I disagree on this. I'm guessing John hasn't read my book <a href="www.google.com" rel="nofollow">Expectations Employment and Prices</a> which takes a very different view from mainstream search models. Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-49950914515578018722014-12-02T04:06:56.595-08:002014-12-02T04:06:56.595-08:00Hi Roger
Can you can tell me what kind of labor i ...Hi Roger<br />Can you can tell me what kind of labor i you mentioning <br /><a href="https://brianhoshowski1.wordpress.com/2013/10/10/brian-hoshowski/" rel="nofollow"> Brain Hoshowski </a> <br />Anonymoushttps://www.blogger.com/profile/11314386873870401666noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-64730744920546340002014-11-30T20:05:44.250-08:002014-11-30T20:05:44.250-08:00Roger
You might like to look at John Quiggin'...Roger<br /><br />You might like to look at John Quiggin's take on search theory:<br /><br />http://johnquiggin.com/2014/07/10/in-search-of-search-theory/<br /><br />and<br /><br />http://johnquiggin.com/2014/08/01/job-search-yet-again/<br /><br />His conclusion: if generally-accepted numbers on the number of jobs rejected are accurate, then "the search theory of unemployment is utterly baseless". It is telling, though, that there seems to be very little empirical research into how people actually do find jobs.Peter Thttps://www.blogger.com/profile/13289172253358199028noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-3958224022625494602014-11-24T22:19:08.054-08:002014-11-24T22:19:08.054-08:00@Cathy O'Neil
Yes that's possible. And in ...@Cathy O'Neil<br />Yes that's possible. And in favor of that view is the fact that many people are working multiple jobs. <br /><br />On the other hand, in nineteenth century England, it was not uncommon for laborers to work six days a week for 10 hours or more hours a day. And in very poor countries today, the poor work long hours for low wages. I do think that there is something to the argument that, as we get richer, average hours fall because of a wealth effect on labor supply. It is important to separate the trend from business cycle effects caused by the recession.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-1170950521973399152014-11-24T13:48:15.953-08:002014-11-24T13:48:15.953-08:00Forgive the naive question, but isn't it possi...Forgive the naive question, but isn't it possible that hours dropped not because people wanted leisure but because the jobs available were not full-time?Anonymoushttps://www.blogger.com/profile/14906015200702626758noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-88819185263057080122014-11-16T21:45:02.636-08:002014-11-16T21:45:02.636-08:00Chalk one more up for UCLA!Chalk one more up for UCLA!Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-3052202649318899532014-11-16T16:20:11.406-08:002014-11-16T16:20:11.406-08:00Thanks Roger, Alchian (1969) lists three ways to a...Thanks Roger, Alchian (1969) lists three ways to adjust to unanticipated demand fluctuations:<br />• output adjustments;<br />• wage and price adjustments; and<br />• Inventories and queues (including reservations).<br /><br />Alchian (1969) suggests that there is no reason for wage and price changes to be used regardless of the relative cost of these other options:<br />• The cost of output adjustment stems from the fact that marginal costs rise with output;<br />• The cost of price adjustment arises because uncertain prices and wages induce costly search by buyers and sellers seeking the best offer; and<br />• The third method of adjustment has holding and queuing costs.<br /><br />There is a tendency for unpredicted price and wage changes to induce costly additional search. Long-term contracts including implicit contracts arise to share risks and curb opportunism over sunken investments in relationship-specific capital.<br /><br />These factors lead to queues, unemployment, spare capacity, layoffs, shortages, inventories and non-price rationing in conjunction with wage stability.<br /><br />Alchian and Woodward’s 1987 ‘Reflections on a theory of the firm’ says:<br /><br />“… the notion of a quickly equilibrating market price is baffling save in a very few markets.<br /><br />Imagine an employer and an employee. Will they renegotiate price every hour, or with every perceived change in circumstances? If the employee is a waiter in a restaurant, would the waiter’s wage be renegotiated with every new customer? Would it be renegotiated to zero when no customers are present, and then back to a high level that would extract the entire customer value when a queue appears?<br /><br />… But what is the right interval for renegotiation or change in price? The usual answer ‘as soon as demand or supply changes’ is uninformative.”<br /><br />Alchian and Woodward then go on to a long discussion of the role of protecting composite quasi-rents from dependent resources as the decider of the timing of wage and price revisions.<br /><br />Alchian and Woodward explain unemployment as a side-effect of the purpose of wage and price rigidity, which is the prevention of hold-ups over dependent assets.<br /><br />They note that unemployment cannot be understood until an adequate theory of the firm explains the type of contracts the members of a firm make with one another.<br /><br />Benjamin Klein’s theory of rigid wages in American Economic Review in 1984 is one of the few that explored rigid wages as an industrial organisation issue. Klein treated rigid wages as a response to opportunism and hold-up problems over specialised assets and are forms of exclusive dealership or take-or-pay contracts.Jim Rosehttps://www.blogger.com/profile/02233668500637892711noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-53964875522452528202014-11-16T12:49:01.064-08:002014-11-16T12:49:01.064-08:00Wow. There is a lot to respond to here. The ration...Wow. There is a lot to respond to here. The rational expectations revolution changed the way that macro economists (including yours truly) go about our business. And that change led us to look at many of the old arguments through a different lens. My principal response to your comment is the same as my response to some the previous comments on this post. Take a look at my book Expectations Employment and Prices. There, I provide a foundation to Keynesian macroeconomics that is very different from the familiar defense that Keynesian economics relies on sticky prices. It doesn't.<br /><br />As for Temin and Vines. They are simply repeating a familiar defense of Keynesian economics that stems from Samuelson's misleading, but highly successful, attempt to bastardize Keynes by squeezing his ideas into a neo-Walrasian framework.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-4336392990660008722014-11-16T12:38:41.110-08:002014-11-16T12:38:41.110-08:00Thanks Nick. Of course you are right. In my view, ...Thanks Nick. Of course you are right. In my view, search theory is the only game in town if we are looking for a coherent explanation of labor market dynamics. But there is more than one way to add search to a DSGE model. Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-21299605263914965532014-11-16T12:35:44.664-08:002014-11-16T12:35:44.664-08:00@ Jeff Yes: I agree with that. @ Jeff Yes: I agree with that. Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-59779894731367874542014-11-16T12:34:12.230-08:002014-11-16T12:34:12.230-08:00@ a jwinterpretation Yes, I may have stepped on a ...@ a jwinterpretation Yes, I may have stepped on a nerve. But the techniques introduced by Bob Lucas, Ed Prescott and the entire Minnesota school are here to stay. And that is a plus. It is possible to use the techniques of search theory to explain all of the phenomena you mention. We should not let arguments over technique obscure arguments over substance. By using ideas from search theory correctly (see my 2010 book and the papers linked in my post) we can maintain the spirit of Keynes without losing the rigor of equilibrium arguments. My beef is not with the equilibrium concept. It is with the tendency of some economists to exclusively search for models with unique equilibria in which the equilibrium is Pareto efficient.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-80376507231364772242014-11-16T12:24:37.045-08:002014-11-16T12:24:37.045-08:00Thanks for your comments Jim. I am a fan of labor ...Thanks for your comments Jim. I am a fan of labor search models and I will explain why in future posts. But there is more than one way to add search to an otherwise neo-classical model. If done correctly (see my 2010 book, Expectations Employment and Prices) search provides a microeconomic foundation to Keynes' idea of multiple steady state equilibrium unemployment rates. If done incorrectly, search dramatically fails to explain the facts (see Rob Shimer's original paper that later commentators dubbed the 'Shimer puzzle'.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-91370339150279881562014-11-16T04:39:52.165-08:002014-11-16T04:39:52.165-08:00My two cents: The labor market does not work like ...My two cents: The labor market does not work like a potato market. On the labor market, supply & demand are not independent.<br /><br />The price mechanism in the potato market doesn’t exist on a macroeconomic basis, because supply & demand are interrelated on the labor market.<br /><br />One person’s spending is another person’s income. The world as a whole cannot improve its competitiveness.<br /><br />We need to distinguish between micro and macro level. The government cannot slash spending like a private household, because its revenues are not met.<br /><br />The problem is that we cannot apply to macro level from a micro level. What works on a micro basis doesn’t work on a macro basis. The simple price mechanism fails in the labor market.<br /><br />High unemployment is considered by neoclassical school as the sign of oversupply of labor. Hence, the lack of jobs is the best evidence that the price on this market (namely the wage) is too high. Therefore the wages must be reduced in order to clear supply and demand. This is the view which is derived from the neoclassical theory. This is the policy that Europa currently trying to apply, unfortunately. <br /><br />The level of employment in the economy is not determined by the wage, but by the level of output.<br /><br />Keynes was the first to argue that involuntary unemployment represented a failure in the product market, not a failure in the labor market as Peter Temin and David Vines note in their current book “Keynes – Useful Economics for the World Economy”.<br /><br /><br />Acemaxx-Analyticshttps://www.blogger.com/profile/00845172176846300139noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-714762460393920842014-11-16T03:58:36.432-08:002014-11-16T03:58:36.432-08:00Roger. You won't be surprised if I say I agree...Roger. You won't be surprised if I say I agree!<br /><br />But one very small point: when I eyeball that participation rate curve, I think I see that participation rate does fall temporarily, *relative to trend*, during a recession. But because participation and unemployment are measured on different scales, the fluctuations in participation relative to trend look smaller, relative to fluctuations in unemployment, than they really are.<br /><br />But yes, the fluctuations in unemployment are still bigger. And the "discouraged worker" explanation says they are just different parts of the same thing: in a recession it gets harder to sell your labour for money. So more people are trying harder for longer, and more people give up.<br /><br />And if we model this in a search model with heterogenous jobs and workers, it doesn't really make much difference. The Marshallian supply and demand curves are just the limiting case. Instead of it being harder than normal to find a job it a recession, it becomes impossible instead of perfectly easy.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-56923399116289062532014-11-16T03:07:33.388-08:002014-11-16T03:07:33.388-08:00Unlike say DVDs, people do not have one set purpos...Unlike say DVDs, people do not have one set purpose/function for existing. There is not an "overstock of labor" sitting on a shelf somewhere. I work to live, I don't live to work. Or in cruder terms, I won't get off my butt just to do mindless work for someone else's profit.<br /><br />The whole model of labor seems ... Irrelevant to reality.Jeff Younghttps://www.blogger.com/profile/12680729526940989989noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-12526771505380502072014-11-15T10:18:55.401-08:002014-11-15T10:18:55.401-08:00Roger,
You have just stepped on the nerves of the...Roger,<br /><br />You have just stepped on the nerves of the framework of the economics.<br />The labor market never completely clears as long as the existance of the unemployed labors.<br /><br />I would encourage you to expand your analysis to the entire microeconomics and macroeconomics. Because the existence of inventories, markets never clear. There is no such thing as market equilibria in reality.<br /><br />I reached the same conclusion from a very different angle. Please take a look:<br /><br />Current economics is psedoscience: why are 60% current economic theories and models wrong?<br /><br />http://ssrn.com/abstract=2522492<br /><br />Popular DSGE models are probably intellectual dead ends, and the right forecasting models for macroeconomics are the IBS+ accounting models.<br /><br />http://ssrn.com/abstract=2522490<br /><br />Anonymoushttps://www.blogger.com/profile/08346875487343209199noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-81557506426556855202014-11-15T02:34:16.956-08:002014-11-15T02:34:16.956-08:00Bob, This is the way labour markets work: v(s, y, ...Bob, This is the way labour markets work: v(s, y, λ) max{λ, R(s, y) min[ λ, β ∫ v(s′, y, λ) f(s′, s)ds′]}. Ed<br /><br />Robert Lucas went on to explain in his professional memoir about this exchange in the early 1970s that:<br /><br />we had agreed on notation: s stood for the state of product demand at a particular location, y stood for the number of workers who were already at that location, R(s, y) was the marginal product of labour implied by these two numbers, and v(s, y) stood for the present value of earnings that one of these workers could obtain if he made his decision whether to stay at this location or leave optimally.<br /><br />Other features of the equation were as novel to me as they are (I imagine) to you…a single parameter—Ed’s λ—stood for two different things: the present value of earnings that all searching workers would have to expect in order to leave a location and the present value that a particular location would need to offer to receive new arrivals…If I had to pick a single day to represent what I like about a life of research, it would be this one.<br /><br />Ed’s note captures exactly why I think we value mathematical modelling: it is a method to help us get to new levels of understanding the ways things work.About these adsJim Rosehttps://www.blogger.com/profile/02233668500637892711noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-53486103270303787302014-11-15T02:27:46.377-08:002014-11-15T02:27:46.377-08:00See too From one to many islands : the emergence o...See too From one to many islands : the emergence of search and matching models at https://ideas.repec.org/p/ctl/louvir/2009005.html Jim Rosehttps://www.blogger.com/profile/02233668500637892711noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-67535000949542271132014-11-15T02:22:06.639-08:002014-11-15T02:22:06.639-08:00Seehttp://andolfatto.blogspot.co.nz/2010/07/sticky...Seehttp://andolfatto.blogspot.co.nz/2010/07/sticky-price-hypothesis-critique.html for a nice discussion of unemployment as an equilibrium phenomenaJim Rosehttps://www.blogger.com/profile/02233668500637892711noreply@blogger.com