Labour Markets and Income Distribution

Abstract

This chapter asks what can be said on the determinants of wages in a non-neoclassical perspective. It starts by arguing that the previous chapters imply that the neoclassical labour demand curve is not an acceptable notion (Keynes’s arguments in its support are shown to be unconvincing); then a spontaneous tendency of markets to produce full employment cannot be assumed to exist, and one must accept the general existence of unemployment. Then a fundamental question is, why wages do not decrease in spite of the presence of excess labour supply. The chapter discusses the explanations offered by the main current theories of the working of labour markets: search theory, implicit contracts, insider–outsider theory, efficiency wages, models of trade unions, the Solow–Hahn approach. Even when not undermined by a necessary reliance on the neoclassical labour demand curve, these theories are found to underestimate the importance of conflict, and of class solidarity and collective action; a classical answer to why wages don’t decrease appears clear although not yet formalized—much work remains to be done. Anyway downward wage rigidity does not explain the level of wages, so the chapter poses this question and examines the main non-neoclassical theories of the long-run evolution of real wages: the Cambridge approach, the Kaleckian approach, the Marx–Goodwin approach, the Pivetti approach. The online Appendix explains the notions of Stahl–Rubinstein bargaining and of generalized Nash bargaining used in the chapter; then it reports further comments by De Francesco on the Solow–Hahn approach, with some additional comments of my own.