The disequilibrium approach to modelling the labour market

  • Stephen Hall
  • Brian Henry


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).


Labour Market Labour Supply Real Wage Real Interest Rate Demand Curve 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Andrews, M. (1983) The aggregate labour market — an empirical investigation into market clearing. Centre for Labour Economics, London School of Economics, discussion paper 154.Google Scholar
  2. Barro, R. (1984) Macro Economics, John Wiley.Google Scholar
  3. Benassy, J. P. (1982) The Economics of market disequilibrium, Academic Press, New York.Google Scholar
  4. Clower, R. W. (1965) The Keynesian counter-revolution: a theoretical appraisal, in The Theory of Interest Rates (eds F. M. Hahn and F. P. R. Brechling) Macmillan, London.Google Scholar
  5. Fair, R. C. and Jaffee, D. (1972) Methods for Estimation for Markets in disequilibrium, Econometrica, 40, 497–514.CrossRefGoogle Scholar
  6. Gourieroux, C., Laffont, J. and Monfort, A. (1980) Disequilibrium econometrics in simultaneous equations systems, Econometrica, 48, 75–96.CrossRefGoogle Scholar
  7. Hall, S. G., Henry, S. G. B., Markandya, A. and Pemberton, M. (1986) The UK labour market: expectations and disequilibrium, National Institute of Economic and Social Research, London (mimeo).Google Scholar
  8. Leijonhufvud, A. (1968) On Keynesian Economics and the Economics of Keynes, a study in monetary theory, Oxford University Press, Oxford.Google Scholar
  9. Maddala, G. S. and Nelson, F. D. (1974) Maximum likelihood methods for models of markets in disequilibrium, Econometrica, 42, 1013–1030.CrossRefGoogle Scholar
  10. Malinvaud, E. (1977) The Theory of Unemployment Reconsidered, Basil Blackwell, Oxford.Google Scholar
  11. Minford, A. P. L., Ashton, P., Peel, M., Davies, D. and Sprague, A. (1985) Unemployment: Cause and Cure, 2nd edn, Basil Blackwell, Oxford.Google Scholar
  12. Nickell, S. and Andrews, M. (1983) Unions, real wages and employment in Britain, 1951–1979, Oxford Economic Papers, 35, 183–206.Google Scholar
  13. Quandt, R. E. (1982) Econometric disequilibrium model, Econometric Reviews, 1, No. 1.Google Scholar
  14. Rosen, H. S. and Quandt, R. E. (1978) Estimation of a disequilibrium aggregate labour market, The Review of Economics and Statistics, 60, No. 3, 341–349.CrossRefGoogle Scholar
  15. Sargent, T. (1979) Macroeconomic Theory, Academic Press, New York.Google Scholar
  16. Whitley, J. (1983) Endogenising incomes policy, Institute for Employment Research, University of Warwick, Coventry, discussion paper 23.Google Scholar

Copyright information

© Chapman and Hall Ltd 1988

Authors and Affiliations

  • Stephen Hall
  • Brian Henry

There are no affiliations available

Personalised recommendations