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  About the GEM Project

  By James Annable | Aug 23, 2019

  The GEM Project is all about the crucial need to restore meaningful wage rigidity to its Early-Keynesian centrality in macroeconomics. MWR is defined by its capacity to rationally suppress wage recontracting. EK theorists made it the keystone of their stabilization-relevant modeling, putting MWR microfoundations at the top of their research agenda. Decades later, the GEM Project finally completed the EK quest. Deriving MWR from optimizing behavior organized by general decision-rule equilibrium wasn’t easy. It was necessary to construct a second venue of rational exchange that operates in tandem with markets to price and allocate resources.

  The new venue is populated by workplaces that are inherently restricted by costly, asymmetric employer-employee information. It has been long understood that such constrained information renders the labor market unable to rationally price employee time. Given that intuitive workplace venue, MWR is easily shown to be an outcome of optimization and equilibrium, preserving the fundamental tenets of economic theory.

  The Project’s generalized-exchange model has antecedents in multiple branches of the economics literature, including:

  • Early Keynesians (Franco Modigliani, Don Patinkin, Paul Samuelson, James Tobin et al.) who founded macroeconomics as a distinct branch of economic theory;
  • Middle-20^th-century mainstream labor economists led by Clark Kerr, John Dunlop, Lloyd Reynolds, Richard Lester, Frederick Harbison, Charles Myers, and others who named themselves “neoclassical revisionists” and worked to integrate large bureaucratic firms into textbook labor theory;
  • Alfred Chandler’s careful look at the consequences of the Second Industrial Revolution;
  • Arthur Okun’s Prices and Quantities, published posthumously in 1980, that helped pioneer the rigorous modeling of information-challenged workplaces; and
  • Original efficiency-wage theorists, featuring Robert Solow, George Akerlof, and me, who came very close to microfounding MWR more than three decades ago..

  Even less attention has been paid to the macro contributions made by Nobel Laureates Ronald Coase and Herbert Simon. Coase (1937) and the new-institutional theorists he inspired have made substantial contributions to GEM modeling by investigating the rational choice between market and intra-firm exchange. Simon (1951)...

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