Disequilibrium labour market models : a democratic approach

Abstract

In this paper, a simple disequilibrium aggregate labour market model will be proposed. As in the case of most market models, more than one relationship is involved, since in a market, at least three variables, namely demand, supply and own price, may be assumed to be simultaneously determined. The presentation is intended for readers with little or no knowledge of econometrics, and for this reason, a diagrammatic approach is used. Mathematical formulations are kept to the barest minimum in the main text. In a diagrammatic representation of a model, a given relationship is usually restricted to include two variables, generally with the dependent variable on the vertical axis and one explanatory variable on the horizontal axis. Such an exposition implicitly assumes that other explanatory variables involved in the relationship remain constant. Thus, for example, the traditional price/demand diagram, assumes amongst other things, that the income of the buyers, the price of substitutes and consumer tastes remain constant. This ceteris paribus assumption may be relaxed by allowing for outward or inward shifts of the schedule.