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  Contributing to Growth Theory

  By James Annable | Jul 12, 2019

   

  The most recurring theme of the GEM Blog has two parts. First, mainstream macroeconomics, rooted in market-centric general equilibrium and therefore unable to accommodate meaningful wage rigidity, cannot be stabilization-relevant. Second, the generalization of rational exchange from the marketplace to information-challenged workplaces paves the way for solving that problem. That cyclical focus, however, is not meant not to imply that GEM theory, with microfounded MWR, does not also contribute significantly to growth theory. This post introduces a larger role for the workplace venue in explicating trend macrodynamics. It will be followed by four elaborating posts.

  Analytic framework. In most applications, economic growth is most usefully measured by the trend behavior of labor productivity (X/H). By definition:

  X(t)/H(t)=(Έ(t)/H(t))(X(t)/Έ(t))=Ź(t)(X(t)/Έ(t)).

  X denotes output, H is total labor hours at work, and Έ measures cooperative labor input that is always in 1-1 technical correspondence with X. By definition, Ź(t)=Έ(t)/H(t). Labor productivity has two distinct components:

  • The technical efficiency of labor (X/Έ) is exogenous to LEV decision-rule optimization by workers and is, instead, rooted in capital intensity, input specialization, returns to scale, and broadly defined technical change. Those determinants are familiar from the growth literature that has been accumulating since before Adam Smith.
  • The behavioral efficiency of labor (Έ/H) results from large-establishment-venue (LEV) rational workplace exchange, simultaneously determined with the wage paid in the optimizing workplace exchange relation (WER) derived in Chapter 2. The Ź component of productivity has been shown to be influenced by axiomatic preferences, the structure of workplace information, the nature of jobs, and reference-wage It is the powerful wellspring of continuous-equilibrium nominal wage rigidities, involuntary job loss, and the periodic instability that is so costly in specialized economies. In contrast to its importance to practitioners, Ź is suppressed in mainstream macro modeling.

  The transformation of labor hours (H) into cooperative input (Έ) and the determinants of trend behavior of X/Έ are elemental economic activity sets that were greatly altered by the Second Industrial Revolution and...

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