The disequilibrium approach to modelling the labour market
In this chapter we will explore the application of disequilibrium modelling techniques to the UK labour market. The concept of equilibrium is obviously an important one in economics but it is not entirely unambiguous. Equilibrium is sometimes taken to mean that demand is equal to supply (in all markets if more than one market is being considered); an alternative definition is that the economic system is ‘at rest’ and so there are no forces tending to bring about change. These two definitions are not identical; we can for example consider the equilibrium position for a monopolist who fixes a market price subject to a known demand curve. The system has no tendency to move and is in equilibrium in the second sense but clearly demand does not equal supply and the first definition of equilibrium is inappropriate. This concept of an equilibrium which is defined by an absence of change is fundamental to much of the theoretical literature on disequilibrium or temporary equilibrium which has grown out of the work of Clower (1965) and Leijonhufvud (1968); a recent survey of this work may be found in Benassy (1982).
KeywordsLabour Market Labour Supply Real Wage Real Interest Rate Demand Curve
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