ABSTRACT
This chapter argues that neoclassical theory has been misrepresented in the literature on segmented economy and that tests designed to distinguish between "structural" and "neoclassical" models are inadequate for that task. It describes the neoclassical model of wage determination under pure competition when there is perfect information and when jobs and workers are heterogeneous. Neoclassical economists recognized that the presence of firm-specific human capital created a bilateral monopoly with incentives for long-term employment relations but an indeterminate wage profile over the course of that relation. In the neoclassical model, it is perfectly legitimate to express the wage equation entirely in terms of worker characteristics, entirely in terms of firm characteristics or in terms of the worker/job match as in the hedonic wage equation (HWE). In neoclassical economics, the individual is a completely formed entity from birth. The HWE represents the market relation between education and wages.
