Long Run Equilibrium and the U.K. Labour Market
ByG. H. Makepeace
Pages 30

Much macroeconomic modelling assumes that the labour market can be simply described. The “New Classical Macroeconomists” argue that the labour market is in equilibrium except for (small) random fluctuations reflecting unanticipated events, while the traditional monetarist view is that the labour market moves to its equilibrium position (very quickly) over time. These arguments contrast strongly with the Keynesian vision of a labour market dominated by sticky wages and short side trading. This cursory survey suggests three hypotheses concerning the operations of the labour market which are worth exploring. These may be defined as the “full equilibrium”, the “equilibriating” and the “full disequilibrium” hypotheses, according to whether the labour market is assumed to be continuously in equilibrium, tending towards equilibrium or in disequilibrium with no tendency to move towards equilibrium.