ABSTRACT
The timeless quality of the comparative static framework seriously limits its usefulness. Indeed, one of the major arguments for the need to introduce a dynamic time perspective into the foregoing models is concerned with the very fact that the models themselves incorporate fixed non-wage labour costs. Given the costs associated with search, hiring and layoff, firms are unlikely to be either willing or able to respond immediately to changing the composition of their manhours in response to factor price changes or expected sales changes. Delays in factor-adjustment response in the face of transactions costs require reconstituting the arguments of Chapter 5 within a time dimension. More importantly for present purposes, attempting to incorporate adjustment lags helps not only to reinforce several important comparative static results but also to extend the usefulness of the analysis. Of particular interest in this latter respect is the fact that the dynamic setting enables strong and testable hypotheses to be advanced concerning cyclical employment and wage behaviour and it is on these aspects of the subject that the present and the next chapters respectively concentrate.
