Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and Assets by Edmund S. PhelpsStructural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and Assets by Edmund S. Phelps

Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and Assets

byEdmund S. Phelps

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Dissatisfied with the explanations of the business cycle provided by the Keynesian, monetarist, New Keynesian, and real business cycle schools, Edmund Phelps has developed from various existing strands-some modern and some classical--a radically different theory to account for the long periods of unemployment that have dogged the economies of the United States and Western Europe since the early 1970s. Phelps sees secular shifts and long swings of the unemployment rate as structural in nature. That is, they are typically the result of movements in the natural rate of unemployment (to which the equilibrium path is always tending) rather than of long-persisting deviations around a natural rate itself impervious to changing structure. What has been lacking is a "structuralist" theory of how the natural rate is disturbed by real demand and supply shocks, foreign and domestic, and the adjustments they set in motion.

To study the determination of the natural rate path, Phelps constructs three stylized general equilibrium models, each one built around a distinct kind of asset in which firms invest and which is important for the hiring decision. An element of these models is the modern economics of the labor market whereby firms, in seeking to dampen their employees' propensities to quit and shirk, drive wages above market-clearing levels-the phenomenon of the "incentive wage"--and so generate involuntary unemployment in labor-market equilibrium. Another element is the capital market, where interest rates are disturbed by demand and supply shocks such as shifts in profitability, thrift, productivity, and the rate of technical progress and population increase. A general-equilibrium analysis shows how various real shocks, operating through interest rates upon the demand for employees and through the propensity to quit and shirk upon the incentive wage, act upon the natural rate (and thus equilibrium path).

In an econometric and historical section, the new theory of economic activity is submitted to certain empirical tests against global postwar data. In the final section the author draws from the theory some suggestions for government policy measures that would best serve to combat structural slumps.

Edmund S. Phelps is McVickar Professor of Political Economy at Columbia University and winner of the 2006 Nobel Prize in Economics.
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Title:Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and AssetsFormat:PaperbackDimensions:440 pagesPublisher:HarvardLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0674843746

ISBN - 13:9780674843745

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Table of Contents

Preface

Introduction

Concepts and Agenda

Modern Equilibrium Theory

Contrary Postulates of the Neoclassical Schools

The Labor-Market Equilibrium Locus in Modern Models

The Product-Market Equilibrium Locus and Partial-Equilibrium Unemployment Determination

Capital-Market Equilibrium, Neoclassical and Modern, and General-Equilibrium Employment

Key Factors in the Structuralist Theory of Unemployment Fluctuation

The Closed Economy: Working Models

A Turnover-Training Model

A Customer-Market Model

A Two-Sector Fixed-Investment Model

Synthesis of the Single-Economy Theory

Small and Large Open Economies: Working Models

International Linkages through Investment in Employees

International Linkages through Investment in Customers

International Linkages through Investment in Fixed Capital

Synthesis of the Global-Economy Theory

Microtheoretic Formulations, Modern and Neoclassical

Interest and Wealth in the Microeconomics of the Incentive Wage and Equilibrium Unemployment

Structural Shifts and Economic Activity in Neoclassical Theory

Empirical Evidence

Econometric Tests of the Theory: A Postwar Cross-Country Time-Series Study

A Concise Nonmonetary History of Postwar Economic Activity

Concluding Notes

Notes on Classicism, Etc.

Economic Policies to Which the Structuralist Theory Might Lead

Notes

Glossary of Frequently Used Symbols

Index

From Our Editors

Dissatisfied with the explanations of the business cycle provided by the Keynesian, monetarist, New Keynesian, and real business cycle schools, Edmund Phelps has developed from various existing strands - some modern and some classical - a radically different theory to account for the long periods of unemployment that have dogged the economies of the United States and Western Europe since the early 1970s. Phelps sees secular shifts and long swings of the unemployment rate as structural in nature. That is, they are typically the result of movements in the natural rate of unemployment (to which the equilibrium path is always tending) rather than of long-persisting deviations around a natural rate itself impervious to changing structure. What has been lacking is a "structuralist" theory of how the natural rate is disturbed by real demand and supply shocks, foreign and domestic, and the adjustments they set in motion. To study the determination of the natural rate path, Phelps constructs three stylized general-equilibrium models, each one built around a distinct kind o

Editorial Reviews

PrefaceIntroductionConcepts and AgendaModern Equilibrium TheoryContrary Postulates of the Neoclassical SchoolsThe Labor-Market Equilibrium Locus in Modern ModelsThe Product-Market Equilibrium Locus and Partial-Equilibrium Unemployment DeterminationCapital-Market Equilibrium, Neoclassical and Modern, and General-Equilibrium EmploymentKey Factors in the Structuralist Theory of Unemployment FluctuationThe Closed Economy: Working ModelsA Turnover-Training ModelA Customer-Market ModelA Two-Sector Fixed-Investment ModelSynthesis of the Single-Economy TheorySmall and Large Open Economies: Working ModelsInternational Linkages through Investment in EmployeesInternational Linkages through Investment in CustomersInternational Linkages through Investment in Fixed CapitalSynthesis of the Global-Economy TheoryMicrotheoretic Formulations, Modern and NeoclassicalInterest and Wealth in the Microeconomics of the Incentive Wage and Equilibrium UnemploymentStructural Shifts and Economic Activity in Neoclassical TheoryEmpirical EvidenceEconometric Tests of the Theory: A Postwar Cross-Country Time-Series StudyA Concise Nonmonetary History of Postwar Economic ActivityConcluding NotesNotes on Classicism, Etc.Economic Policies to Which the Structuralist Theory Might LeadNotesGlossary of Frequently Used SymbolsIndexAn important contribution to economic knowledge-not only offers a new way of understanding long slumps, but also has striking policy implications that are generally overlooked.