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Most macroeconomic theory has focused on goods and money rather than on labour, but this book goes someway to redressing this balance. It examines a wide range of labor-market issues from the perspective of modern macroeconomics. It considers policy issues, as well as theory, and criticises both Keynesian and New Classical approaches.
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WORKING IN THE MACROECONOMY From the IS-LM model of the early postwar period onwards, labor markets have received less attention in macroeconomics than goods or money markets, despite the fact that involuntary unemployment remains one of the most pressing policy issues. This book redresses this imbalance by focusing on the crucial labor-supply and labor-demand relationships in the macroeconomy. The former relies on the reservation-wage model, and the latter includes adjustment and disequilibrium costs that create optimal vacancies and “equilibrium” unemployment. Most importantly, the welfare of various participants in the labor market can be assessed at any existing wage-employment outcome and the possibility of Pareto improvements can be explored. Because the large majority of workers are “secure” in their jobs, they want high wages and are in conflict with “marginal” workers who can only get job offers with lower wages. This conflict over the desirability of “full employment” can be overcome by having the government as employer of last resort at the reservation wage of the marginal worker. Nevertheless, even the best-intentioned and “optimal” intervention becomes a victim of special-interest groups, and the most relevant conclusion is that Pareto improvements are virtually impossible to achieve. Martin Prachowny is Professor of Economics at Queen’s University at Kingston, Ontario where he has taught since 1967. He is the author of a number of journal articles on macroeconomics and six previous books, the most recent of which is The Goals of Macroeconomic Policy (1994). Routledge Studies in the Modern World Economy 1. Interest Rates and Budget Deficits A Study of the Advanced Economies Kanhaya L.Gupta and Bakhtiar Moazzami 2. World Trade after the Uruguay Round Prospects and Policy Options for the Twenty-First Century Edited by Harald Sander and András Inotai 3. The Flow Analysis of Labour Markets Edited by Ronald Schettkat 4. Inflation and Unemployment Contributions to a New Macroeconomic Approach Edited by Alvaro Cencini and Mauro Baranzini 5. Macroeconomic Dimensions of Public Finance Essays in Honour of Vito Tanzi Edited by Mario I.Blejer and Teresa M.Ter-Minassian 6. Fiscal Policy and Economic Reforms Essays in Honour of Vito Tanzi Edited by Mario I.Blejer and Teresa M.Ter-Minassian 7. Competition Policy in the Global Economy Modalities for Co-operation Edited by Leonard Waverman, William S.Comanor and Akira Goto 8. Working in the Macroeconomy A Study of the US Labor Market Martin F.J.Prachowny WORKING IN THE MACROECONOMY A Study of the US Labor Market Martin F.J.Prachowny London and New York First published 1997 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1997 Martin F.J.Prachowny All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. For permission to use copyrighted material appearing in Chs 4, 5, and 7, grateful acknowledgement is made to Cambri