A home for economists who believe macroeconomics can be both coherent and stabilization-policy relevant
The GEM website is a home for economists who believe that mainstream macroeconomics cannot usefully explain the costly instability that periodically rocks modern economies.
In particular, consensus thinking failed to guide policymakers' efforts to deal with the enormous welfare costs of the 2007-09 Great Recession – especially six million involuntarily lost jobs.
That failure is not surprising. Forced unemployment is beyond the reach of coherent market-centric theory that today dominates macro research.
The GEM Project offers an alternative approach that intuitively explains instability while maintaining both coherence and stabilization-relevance. In its central innovation, the Project generalizes rational exchange from the marketplace to the large-firm workplace, crucially microfounding meaningful wage rigidities – the key to policy-useful modeling.
Generalization of price-mediated exchange is offered as the next big idea in macroeconomics. We invite economists dissatisfied with the stabilization-policy limitations of mainstream theory to join us in constructing a better model.
The interactive GEM website provides a variety of ways to contribute:
When I began teaching labor economics at MIT in 1969, mainstream thinking in the field was dominated by a loosely organized school of economists who used their neoclassical training to investigate what went on inside large, specialized workplaces. Such information-challenged workplaces spread rapidly in the early 20st century. The GEM Project has named this school the Early Internal-Labor-Market theorists.
A keystone innovation of Early ILM literature is the reference wage (Wń). In the middle 20th-century, numerous on-site studies of workplace exchange found that employees prefer wages that are consistent with interpersonal and intertemporal reference standards that become ingrained (via repeated application) over time, evolving into a mainstay of workplace standards of acceptable treatment. The literary workplace analysis of Clark Kerr, John Dunlop, Richard Lester, Lloyd Reynolds, Arthur Ross, Frederick Harbison, Charles Myers, and others set the stage for the GEM Project’ generalization of rational exchange that microfounded meaningful wage rigidity (MWR) and chronic labor rent.
Original Great Idea
The great insight of the original ILM theorists is that optimizing labor-pricing decision rules, constraints, and mechanisms of exchange in highly specialized workplaces are inherently restricted by costly, asymmetric employer-employee information. They identified rational intra-firm mechanics that differ fundamentally from neoclassical behavior in the marketplace. As noted, they learned that workers resent being treated as a commodity governed by the impersonal interaction of supply and demand. They want, instead, to be taken out of the market. They also learned that workers in highly specialized establishments have sufficient on-the-job latitude to enforce that preference.
Dunlop (1994, p.380) succinctly described the separate-venue modeling by the Early ILM theorists: “The objective changes in the economy – within sectors, in the emergence of large enterprises and workplaces, and in the ideas and arrangements developed to govern and manage these workplaces – made it quite obvious to a new generation of economists in the 1940s, who were exposed in practical terms to labor markets and labor-management-government issues, that conventional (external) labor-market theory was grossly...