Unemployment, wage formation and the distribution of income

Peter Skott

This course looks at aspects of unemployment and wage formation. Empirically, there are important differences between the US and Europe with respect to both unemployment and income distribution, and the European experience fits badly within a traditional NAIRU framework. We shall look at various attempts to explain the empirical evidence. Theoretically, however, the primary focus will be on theories that emphasise the influence of social norms and fairness considerations.

The course is also open to students in the Master's programme but while Master's students take a standard 4 hour exam, ph.d. students get credit by writing one or two short essays. The essay(s) - which will typically draw on literature that goes beyond the attached reading list - are to be presented and discussed in class.

There will be two weekly meetings, Mon 12-14 and Wed 12-14, both meetings in room 420, building 325. Depending on their background and interests, however, ph.d. students will only have to attend some of these meetings.

Main topics

1. Phillips curves and NAIRU theory

2. Hysteresis

3. Social norms in wage formation

4. International differences with respect to income distribution and unemployment

Reading list (preliminary)

Akerlof, G.A. (1980) "A Theory of Social Custom og Which Unemployment May Be One Consequence". QJE 749-775.

Akerlof, G.A and Yellen, J. (1990) "The Fair Wage Hypothesis and Unemployment". QJE 255-283.

Ball, L. (1996) "Disinflation and the NAIRU". NBER 5520.

Bean, C. (1994) "European Unemployment: A Survey". JEL, 573-619.

Blanchard, O and Jimeno, J.F. (1995) "Structural Unemployment: Spain versus Portugal". AER 212-218.

Blanchard, O. And Katz, L.F. (1997) "What We Know and Do Not Know About the Natural Rate of Unemployment". JEP 51-72

Blanchard, O and Summers, L.H. (1987) "Hysteresis in Unemployment". EER 288-295.

Card, D. And Hyslop, D. (1996) "Does Inflation 'Grease the Wheels of the Labor Market'?" .NBER 5538.

Davis, D.R. (1998) "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade". AER 478-494.

Fehr, E. Kirchner, G and Riedl. A. (1993) "Does Fairness Prevent Market Clearing? An Experimental Investigation". QJE 437-459.

Freeman, R.B. (1995) "Are Your Wages Set in Beijing?" JEP 15-32.

Friedman, M. (1968) "The Role of Monetary Policy". AER 1-17.

Gordon, R.J. (1997) "The Time-Varying NAIRU and its Implications for Economic Policy". JEP, 11-32.

Gottschalk, P. (1997) "Inequality, Income Growth, and Mobility: The Basic Facts". JEP 21-40.

Gottschalk, P and Smeeding, T.M. (1997) "Cross-National Comparisons of Earnings and Income Inequality". JEL 633-687.

Gregg, P and Manning, A. (1997) "Skill-Biassed Change, Unemployment and Wage Inequality". EER 1173-1200.

Kahneman, D., Knetsch, J.L and Thaler, R. (1986) "Fairness as a Constraint on Profit-Seeking: Entitlements in the Market". AER 728-741.

Kalecki, M. (1943) "Political Aspects of Full Employment". In M. Kalecki, Selected Essays on the Dynamics of the Capitalist Economy, CUP.

Krugman, P. (1995) "Technology, Trade and Factor Prices". NBER 5355.

Leamer, E.E. (1996) "Wage Inequality from International Cometition and Technological Change: Theory and Country Experience". AER 309-314.

Lindbeck, A. (1995) "Hazardous Welfare-State Dynamics". AER 9-15.

Nickell, S. (1997) "Unemployment and Labor Market Rigidities: Europe versus North America". JEP 55-74.

Nickell, S. (1998) "Unemployment: Questions and Some Answers". EJ 802-816.

Nickell, S and Bell, B. (1996) "Changes in the Distribution of Wages and Unemployment in OECD Countries". AER 302-308..

OECD (1994) The OECD Jobs Study. OECD

Phelps, E.S. (1968) "Money-Wage Dynamics and Labor Market Equilibrium". JPE 678-711.

Phelps, E.S. and Zoega, G. (1998) "Natural Rate Theory and OECD Unemployment". EJ 782-801.

Phillips, A.W. (1958) "The Relation Betwen Unemployment and the Rate of Change of Money Wage Rates in the UK 1861-1957". Economica, 283-299.

Shafir, E., Diamond, P and Tversky, A. (1997) "Money Illusion". QJE 341-374.

Skott, P. (1999) "Wage Formation and the (non-) Existence of the NAIRU". Economic Issues, forthcoming.

Solow, R.M. (1990) The Labor Market as a Social Institution. Blackwell.

Wood, A. (1995) "How Trade Hurt Unskilled Workers". JEP 57-80.