The Non-Existence of the Labor Demand/Supply Diagram,and other Theorems of Institutional Economics |
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| Authors: | Bruce E Kaufman |
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| Institution: | (1) Department of Economics, Georgia State University, Atlanta, GA 30303, USA |
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| Abstract: | The most famous and influential diagram in modern (neoclassical) labor economics is the model of wage determination by supply
and demand. Using concepts and ideas from institutional economics, I argue that the theory of a perfectly competitive labor
market is logically contradictory and, hence, the demand/supply diagram cannot exist on the plane of pure theory. Four other
fundamental theorems concerning labor markets are also derived, as are implications about the theoretical foundation of the
field of industrial relations and the economic evaluation of labor and employment policy.
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| Keywords: | Demand and supply Perfect competition Institutional economics Transaction cost |
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