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Pastimes : Austrian Economics, a lens on everyday reality -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (231)	5/11/2003 9:37:06 PM
From: gpowell	Read Replies (1) \| Respond to of 445

This is more or less correct, but when all job classes are aggregated, and unless you are willing to claim that there is an inverse pay scale for either above/below average workers or jobs, the effect is much the same. This sentence is incoherent. Let’s simplify it: This is more or less correct [average wages appear countercyclical because below average jobs are disproportionately lost], but when all job classes are aggregated, the effect is much the same. The sentence becomes: average wages appear countercyclical because below average jobs are disproportionately lost, but when all job classes are aggregated, the effect is much the same. Average wages are an aggregation. Correcting for the composition effect is not relevant since it was effectively the 'composition effect' itself that I was suggesting as a source of change in 'average wages' for the people who are interested in average wages, which I am not. Various economic models predict countercyclical or procyclical wages. The behavior of wages during business cycles becomes one measure of the applicability of these modes and is therefore part of a wider debate between keynesian, neoclassical, and other schools of economic thought. The pay for rank system would either reflect reality to some degree or it wouldn't, but neither average wages or changes in the prices of goods over time would have any significance to a system that applies to one specific job at one specific instant. You seem inconsistent with your application of the pay for rank system. You have applied it to one class of workers in one industry, to all jobs across all industries, and now to one job at one instant. If your model applies in all cases then you must test it against reality – which means you must accurately depict reality. However, assuming that it only applies to one job at one instant – then we come full circle back to a negotiation between bi-lateral monopolies. The wage paid becomes a function of the relative negotiating power between the buyer and seller, potentially only bounded by a subjective estimate of value. Do the buyer and seller both use a ranking system? Certainly to evaluate each sides alternatives. Ranking is an obvious and not to illuminating part of the negotiation process. However, this doesn’t explain the more interesting and economically important question of how the labor market clears.