Current Issues in Labour Economics.

• Author: Mijares, John C.

This book tries to capture the leading research issues in labor. The issues can be classified under these subgroups: labor supply and demand, labor contracts (with the recognized significance of information economics), the labor market and trade unions (with game-theoretic approaches), non-homogeneous labor, and of course the macroeconomic aspects of present theoretical and empirical concerns of labor economics.

Presently, the disparity of knowledge and research in favor of labor demand over labor supply is becoming a thing of the past. This is exemplified by A. Cigno where he extends Becker's labor supply/household model. He explores its implications especially on the allocation of time in multi-person households and of different responses to wage changes by persons of different sex. After Pissarides' 1985 article where he concluded that search is essentially a capital and investment theoretic problem, search theory has gotten more and more recognition as an indispensable tool. In this book, Manning assess the extent to which implicit-contract theory has proved successful in explaining the observed behavior of wages and employment. A few pages are devoted to the more recent incorporation of asymmetric information in a simple theoretical model where uncertainty promotes rigid wages and unemployment as the ex-post inefficient outcomes. However, important considerations like variable employment and concave production functions cannot be tested in this model. Also the author does not discuss the more important issue of whether these contracts actually lead to involuntary unemployment. This is dealt with instead in a theoretical discussion of the escape rate--the product of the probabilities of locating a vacancy and accepting a job offer from it and the replacement ratio. As for the latter, Nickel |2~ has divided the "disincentive" effects of benefits between younger people which are more marked than for older and long-term (generally in excess of 1 year) unemployment. That the escape rate displays negative time-dependence suggests that the effect of any downward movement of the reservation wage is swamped by other factors due to discouragement. The model however does not tackle the question of whether reduced search-intensity is a reaction to a liberal benefit system or just pure discouragement which is a clarifying conclusion. Manning does not expound on this however.

The study of labor unions is backed by a rich institutional literature...