Re: wage determination

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

On Sat, 5 Feb 1994 14:22:31 -0700 <GALBRAITH.JAMES@xxxxxxxxxxxxxxxxxxx> said:
>A note of agreement with Alan and Roy re the importance of a theory
>of money wages, and two questions for either or both:

Although it would certainly be nice to have a theory of money wages,
my more pressing interest is in a theory of nominal wage _dynamics_.
(I.e., I don't find treatment of the nominal wage as predetermined
but dynamically endogenous to be inherently problematic.)
I view the Phillips curve (i.e., the original _wage_ and unemployment
relationship) as a plausible formulation of the basic issues,
although there are certainly interesting problems in the treatment
of expectations and of productivity growth. One of my central
claims in this discussion is that the _GT_ needs to be supplemented
with a theory of nominal wage dynamics, especially in light
of Ch.19.

>
>1) What in your view should such a theory attempt to achieve? In other words,
>in terms of what should a theory of money wages be specified?

There are a few salient sources of dynamics in advanced capitalist
econmies. The accumulation of physical and human capital are also
important ingredients that the _GT_ treats inadequately, but the
emphasis on the short period excuses this. In contrast, wage dynamics
seem crucial even for Keynes's project. So, narrowly, I think that
interest in this project should stimulate an interest in completing
it with a (data friendly) theory of nominal wage dynamics. I think
Hugh Rose's early work is an interesting foray in this direction,
but the Phillips curve has come under many theoretical and empirical
criticisms since then.

As an aside: I think  that price dynamics also deserve more attention,
perhaps along the lines of conflicting claims models. (See my Fall 1991
JPKE paper for a model along these lines.) However, Keynes has offered
a theory of price determination, so that is a separate issue.

>
>2) My candidate for a best effort in this direction has long been Adrian
>Wood's little book A Theory of Pay, Cambridge U.P. c 1979. Comments?

I haven't read it, but I'll put it on my reading list.


Alan G. Isaac