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How Labor Markets Work.

Are early methods obsolete?

How Labor Markets Work. Edited by Bruce E. Kaufman.

Lexington, MA, D. c. Heath and Co., 1988. 256 pp. $34.95.

This book is a collection of essays presented at a 1986 conference at which four distinguished economists John T. Dunlop, Clark Kerr, Richard A. Lester, and Lloyd G. Reynolds -reflect on a lifetime of the study of Labor markets. Each reviews his research efforts and how these efforts relate to the current mainstream of economic thought. The book also includes essays by Bruce E. Kaufman and Richard B. Freeman which provide sympathetic assessments of work done in Labor economics in the 1945-60 period. Kaufman's essay is a systematic overview of early concepts and methodology, including the details of the debate between Lesterand Fritz Machlup on the relevance of marginalism in Labor demand analysis. Freeman's essay shows how early findings (for example, the existence of "pure" industry and size-of-establishment wage differentials) compare with more recent studies which attempt to better account for differences in worker ability and which use more powerful statistical techniques.

Together, the essays provide a balanced and detailed overview of early developments in Labor economics. The book should prove useful to graduate students and researchers as a roadmap to the many careful and complex observations made in earlier studies. (one of the strong points of this book is that every essay provides a great number of references to the literature.)

The essays should provide ail Labor economists much to think about in terms of an intelligent choice of methods of inquiry; many of these ideas provide a challenge to some current opinions on methodology in Labor economics. For example, some current texts in Labor economics dismiss or ignore the work of Labor economists in the 1945 - 60 period because of their methods. Often, the early work in Labor economics is tacitly characterized as a collection of descriptions of particular workplaces, devoid of any connections with the mainstream of economics.

All of the essays challenge this criticism. Dunlop, Kerr, Lester, and Reynolds endeavored to distinguish their disciplinary foundations and research goals from those of John R. Commons and his students (that is, the "Institutionalists"). They argue that one of their research goals was to provide economic theorists more realistic postulates to work with, hence the concern with identifying barriers to Labor mobility such as firm attachments, and with documenting the extent of intramarket wage variation.

A reply to this defense of studying conditions and processes in the Labor market might be: given a primary interest in the ultimate outcomes of competitive forces, why should we worry about learning about the complexity of actual market processes, especially if the predictions of the simplest competitive model are consistent with market results? In his essay, Kaufman considers the "realism of assumption" issue in some detail. He suggests that Milton Friedman's writings on the importance of predictions in evaluating theories may have contributed to a decline in interest in the research

strategies of the early 1950's, but that this emphasis on predictions in subsequent work may have also led to a misapplication of Occam's Razor in Labor economics.

Kaufman suggests that researchers may have tended too much toward acceptance of simpler market models, ignoring the possibility of an alternative explanation of the data. (For example, an increase in Labor demand can increase wage rates whether monopsony or full competition prevails in a Labor market; it would take an event like unionization or an increase in the minimum wage to generate different employment effects from these two market organizations.) Because we do not have the controlled experiments to rely only on predictions to judge the truth of hypotheses, Kaufman concludes that directly studying "how Labor markets work" (conditions and processes rather than results), as was done by Dunlop, Kerr, Lester, and Reynolds, continues to be a useful research strategy in Labor economics.
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Author:Barkume, Anthony J.
Publication:Monthly Labor Review
Article Type:Book Review
Date:Dec 1, 1988
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