Understanding the Jobless Recovery

|Peter Boettke|

This is a classic overselling of the paper, but Will Luther and I have written a paper surveying the contribution of the Austrian school of economics to the field of labor economics.  We focus our efforts not just on textual examination, but also analytically on the Alchian-type friction-laden discussion of resource allocation, and the process of exchange and production.

Comments/criticisms most welcomed.

Comments

[Steve Horwitz]

I obviously haven't read it yet, but skimming the references I could not help but notice the absence of the one Austrian who did the best work on labor in the 20th century: W. H. Hutt.

[Rafe Champion]

Profile of Hutt and his achievement with extracts.

http://www.the-rathouse.com/Revivalist4/WHHutt.html

Note his account of apartheid in South Africa, first shots fired by striking trade unionists in the mines, rather like the carnage in the mines at present.

[Jerry O'Driscoll]

A student of Edwin Cannan, Hutt was perhaps the last classical English economist. Of course, classical economics had a great inlfuence on Austrian economics in areas such money and cycles.

[William Luther]

Glasner discusses Hutt and Alchian in a recent blog post. http://uneasymoney.com/2012/06/14/alchian-on-why-wages-adjust-slowly-and-why-it-matters/

[Richard Ebeling]

If I may add one more reference about Hutt, in 1999, I wrote a piece about him and his contributions in "The Freeman," marking what would have been his 100th birthday.

"W. H. Hutt: A Centenary Appreciation"
http://www.thefreemanonline.org/features/william-h-hutt-a-centenary-appreciation/

Among other things, I summarize his analysis of the causes for unemployment of labor and other resources that he developed in his 1939 book, "The Theory of Idle Resources," a work that Axel Leijonhufvud referred to as the "locus classicus" on the theory of unemployment.

Richard Ebeling

[Jonathan M.F. Catalán]

Hayek's 1939 monograph "Profits, Interest and Investment" also has a lot of valuable discussion on employment during the bust (it's, in fact, one of his focuses in that paper — the Ricardo effect).

[Jim Rose]

I would have thought Morgan O. Reynolds’ economics of labor would have rated a mention?

Reynolds’ book has a strong market process approach. he mentions that a big difference for the labor market is there is no arbitrage function that entrepreneurs perform elsewhere

Alchian’s writings on labor economics are a rich tapestry, including his writings on wage and price rigidity and long term-contracts. this includes the efficiency enhancing aspects of unions such as in the enforcement of property rights and contracts. Because of economies of scale in monitoring and enforcing employment contracts, unions may arise as a contract cost-reducing institution for employees with investments in specific human capital.

[McKinney]

Great intro to Austrian theory! Thanks! I like to use Garrison’s PPF to describe the business cycle, too. I add the Ricardo Effect using the PPF showing the tradeoffs between capital and labor that business people make when the interest rate changes the marginal costs of labor relative to capital. That gives business people another reason to invest in capital goods besides being fooling by changes in the money supply.

[Leonardo IHC]

Although you moderated (censured?) my last post, here's my comment on the paper http://ideashaveconsequences.org/labour-economics-of-the-austrian-kind/leo

[Steve Horwitz]

No one moderated your comment. It's not in the spam filter. Not sure what happened, but wasn't moderated.

[Jim Rose]

more attention could be paid to the search and matching fictions that are common to the job market and the marriage market.

Mises and Rothbard were keen on the notion that we could always get a job tomorrow at the market wage so all unemployment is voluntary unless there is a union or legal barrier.

In the marriage market, there is no involuntary single people. We could always go out into the street and marry the first person we meet, if they will have us!

The marriage market is close to the idealised unhampered market, but there is a hell of a lot of search and matching going on out there.

Heterogeneity implies search on both sides before there is a marital matching with a positive surplus. Is this because marriage is like a job - a long-term investment?

Are singles bars the spot market that Lucas explicitly, and Mises and Rothbard implicitly talk of as where we can always get a job instantly.

• I find Lucas and Prescott’s search-island model to be an excellent explanation of unemployment.
• Lucas and Prescott’s economy is composed of a large number of scattered islands.
• They have no precise knowledge of what wages will prevail in the economy.
• Workers either remain on their island or leave it for what they expect to be a more alluring one
• Some workers are unemployed, crossing between the islands, but they are nevertheless engaging in optimizing behaviour.

See http://perso.uclouvain.be/michel.devroey/Batyra.pdf “FROM ONE TO MANY ISLANDS: THE EMERGENCE OF SEARCH AND MATCHING MODELS” for a 100 year survey explaining how trivial fragmentation of a centralised market into decentralised markets explains resource unemployment.

[True Religion Sale]

Write nice.Oh continue to work hard. Refueling.