Excess demand for labor, unemployment, and theories of the Phillips curve |
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Authors: | James M Holmes David J Smyth |
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Institution: | SUNY at Buffalo University of Manitoba, Canada;Wayne State University, Canada |
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Abstract: | This article has two purposes. First, to examine the assumption that it is possible to map uniquely between unemployment and excess demand for labor; this assumption plays a key role in the theory of the Phillips curve. We show that as both unemployment and excess demand for labor are endogenous and simultaneously determined, in general it is not possible to obtain a unique mapping between unemployment and excess demand for labor and that the Lipsey and Barro and Grossman derivations of the Phillips curve are invalid. Secondly, the article recommends that wage, employment, and unemployment behavior be modelled using short-run supply and demand curves, that is, in a Marshall-Hicks temporary equilibrium framework. |
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