wage determination

["Alan G. Isaac" <AISAAC@xxxxxxxxxxxx>]

This question is largely directed to Paul Davidson, but I welcome all
comment. It seems to me that a "general" theory of the macro economy
must include a coherent characterization of the determination of
the real and nominal wage. (Let's not get side-tracked by questions
of what "the" real wage is; Keynes clearly recognized that the
purchasing power of the nominal wage was _one_ relevant factor
in wage outcomes.) I do not find anything more than interesting
heuristics in the _General Theory_.

My first question:
Doesn't this suggest a major shortcoming in the "generality" of Keynes's
theory?

It seems to me that PKs have responed largely by dividing
into four camps: exogenous nominal wage, efficiency wage, target
wage, and Phillips curve characterizations of wage determination.
(I don't mean to imply that some of these characterizations
are not derived from the others in various models; they are.)
Now I anticipate that Paul Davidson will be tempted to respond
along the lines of, "it doesn't matter, Keynes's theory generates
involuntary unemployment in any of these cases, that's what makes
it _general_." But obviously some stories about wage determination
are not compatible with this--that's why Keynes dropped the
labor market clearing assumption in the first place. So at the
_very least_, there is considerable need for theoretical & empirical
exploration of the implications of differing labor market institutions.
If we find that different labor market institutions affect our view of
the appropriate policy response, as I believe we do, then we ought to
focus less on "generality" and more on uncovering appropriate
specificities. Don't you think? (I guess that's my second question.)

Finally, an analogy. If physicists discover their "theory of everything",
no-one expects chemists to be out of work. Like-wise, even if someday
I am persuaded that a "general" economic theory has been formulated,
I presume that useful and demanding work will remain for policy oriented
economists.

--Alan G. Isaac