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I guess I don't see how Chapter 2 eliminates the labor market. It just seems to critique the "classical theory" about how that market works, and about how it determines the real wage level, as opposed to money wages.
If there were no labor market, there would be no sense in arguing that the wages of labor would be improved by increasing their bargaining power, since bargaining power is a market concept.
Keynes is very interested in studying the conditions of labor demand. But surely supply continues to play a role, no? It is not as if capitalists can simply stamp out laborers at zero cost with a 3D printing press.
as we know via MMT that "the price level is ultimately a function of prices paid by govt", it follows that 'the price of labor' is likewise dependent on govt prices paid... so the 'labor market' as it appears, is just a small oscillation of labor prices around the basic price for labor set by the govt...
This follows for "wealth" and/or the current computed value of "capital" as well.
Well, Marc Lavoie thinks that there is a fundamental difference between goods markets and labor demand.
“Ironically the major aspect of the post-Keynesian view of labour markets is that such markets do not really exist. Whereas one may admit that there is a market for peanuts or for bananas, with well-behaved supply and demand curves, the same hypothesis cannot be made in the case of labour.” (Lavoie 1992: 217).
Traditional supply curves slope upwards. Given the problem that Keynes was concerned with, i.e. very high levels of unemployment, it’s arguable that there is no slope over the area or range that Keynes was concerned with. That is, given very high unemployment, the fact of unemployment declining a little would not mean that the next skilled person hired was less good value for money than the one just hired.
However, at relatively low unemployment levels, there is a serious skills shortage amongst the unemployed. So the supply line starts to slope upwards there, I think.
Regarding the MMT view on labour demand, Bill Mitchell states it here clearly:
"If unemployment rates were the result of supply-changes (such as preferences for work, or welfare benefits etc) then this close correspondence would not occur. The fact is that unemployment is the driven by insufficient demand for labour, which, in turn, is driven by aggregate demand deficiencies." http://bilbo.economicoutlook.net/blog/?p=26758 -------------- That is certainly the Post Keynesian view, and exactly what James Galbraith is talking about.
Both MMT and Post Keynesian economics agree on very many theories. As I noted in this post, MMT is arguably another subschool of "broad tent" Post Keynesianism:
It is also interesting to observe what Lavoie and Seccarecia are teaching their undergraduate students on the issue of labor supply.
A teaching based on available statistics, not a priori theories, as stated in their microeconomics textbook.
They write that, according to many statistical studies, the response of labor supply to wage changes is in general not very strong.
However, it is possible to distinguish between two groups of workers. Low wage workers seem to work more when wages rise. The substitution effect predominates, and labor supply curves slope upwards.
High wage workers, however, do not work more when wages rise. The income effect just about offsets the substitution effect and the supply curve for such workers will be either vertical or even backward bending.
We may thus conclude that the richer people are the more leisure becomes attractive as compared to earning more money.
A very civilized conclusion, leading us to remain optimistic about the future prospects of human society.
10 comments:
I guess I don't see how Chapter 2 eliminates the labor market. It just seems to critique the "classical theory" about how that market works, and about how it determines the real wage level, as opposed to money wages.
If there were no labor market, there would be no sense in arguing that the wages of labor would be improved by increasing their bargaining power, since bargaining power is a market concept.
Keynes is very interested in studying the conditions of labor demand. But surely supply continues to play a role, no? It is not as if capitalists can simply stamp out laborers at zero cost with a 3D printing press.
How about the "MMT View":
as we know via MMT that "the price level is ultimately a function of prices paid by govt", it follows that 'the price of labor' is likewise dependent on govt prices paid... so the 'labor market' as it appears, is just a small oscillation of labor prices around the basic price for labor set by the govt...
This follows for "wealth" and/or the current computed value of "capital" as well.
rsp,
Well, Marc Lavoie thinks that there is a fundamental difference between goods markets and labor demand.
“Ironically the major aspect of the post-Keynesian view of labour markets is that such markets do not really exist. Whereas one may admit that there is a market for peanuts or for bananas, with well-behaved supply and demand curves, the same hypothesis cannot be made in the case of labour.” (Lavoie 1992: 217).
Traditional supply curves slope upwards. Given the problem that Keynes was concerned with, i.e. very high levels of unemployment, it’s arguable that there is no slope over the area or range that Keynes was concerned with. That is, given very high unemployment, the fact of unemployment declining a little would not mean that the next skilled person hired was less good value for money than the one just hired.
However, at relatively low unemployment levels, there is a serious skills shortage amongst the unemployed. So the supply line starts to slope upwards there, I think.
Saying that a market is not governed by well-behaved supply and demand curves is not the same thing as saying that market doesn't exist.
I agree with Dan K on this one, although all this might change with advances in 3D printing (c:
I agree also with Ralph's comment. That puts it in proper perspective for me...
Regarding the MMT view on labour demand, Bill Mitchell states it here clearly:
"If unemployment rates were the result of supply-changes (such as preferences for work, or welfare benefits etc) then this close correspondence would not occur. The fact is that unemployment is the driven by insufficient demand for labour, which, in turn, is driven by aggregate demand deficiencies."
http://bilbo.economicoutlook.net/blog/?p=26758
--------------
That is certainly the Post Keynesian view, and exactly what James Galbraith is talking about.
Both MMT and Post Keynesian economics agree on very many theories. As I noted in this post, MMT is arguably another subschool of "broad tent" Post Keynesianism:
http://socialdemocracy21stcentury.blogspot.com/2014/04/post-keynesian-economics-revised-diagram.html
Bill Mitchell, for example was strongly influenced by Kalecki:
http://bilbo.economicoutlook.net/blog/?p=11127
I just posted a couple of articles by Tim Bending on this.
It is also interesting to observe what Lavoie and Seccarecia are teaching their undergraduate students on the issue of labor supply.
A teaching based on available statistics, not a priori theories, as stated in their microeconomics textbook.
They write that, according to many statistical studies, the response of labor supply to wage changes is in general not very strong.
However, it is possible to distinguish between two groups of workers. Low wage workers seem to work more when wages rise. The substitution effect predominates, and labor supply curves slope upwards.
High wage workers, however, do not work more when wages rise. The income effect just about offsets the substitution effect and the supply curve for such workers will be either vertical or even backward bending.
We may thus conclude that the richer people are the more leisure becomes attractive as compared to earning more money.
A very civilized conclusion, leading us to remain optimistic about the future prospects of human society.
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