I am getting behind in my responses to Daniel about calculation etc., but he has a new post up on his blog Facts and other stubborn things on new Keynesian approaches to wages and employment.
I think we do see rigidities in the labor market wrt real wages. Let me suggest this is a problem with the makeup of the labor supply due to skill mismatches, immigration policies, shifts in the composition of firm birth and death, and other structural elements. I guess what I am saying is that the wage-supply-demand model is not very generalizable and this appears as wage rigidity when in fact it is much more a case of substitutability of labor inputs and the labor demand curve changing slope rather than shifts out or in.
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