Relative Wages and the Youth Labour Market: A Rejoinder
Wells, in his reply (Chapter 5 above) to our comment’s in Chapter 4 above, makes several interesting comments, defending his work and attacking our work with great relish. We are in agreement that a disequilibrium model best represents the youth labour market: in other words, a model where wage rates are sticky (do not adjust completely in the unit period to disequilibrium). In a non-market clearing approach, if the output market does not clear (because of sticky prices), this has repercussions on the factor markets and aggregate demand affects factor demands. Our disagreement centres on how this model should be estimated and on the interpretation of some of the econometric results. We also seem to agree on the doubtful quality of the time-series data on employment and earnings, and we are quite happy to be cautious about the quality of unemployment data as well.
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