General Workplace-Equilibrium Theory

Abstract

General workplace-equilibrium theory provides a nonspecific solution to a model of employee-employer rational choice in the circumstance of technological heterogeneities. It shares a critical characteristic with the ubiquitous friction-augmented, dynamic stochastic general market equilibrium analysis. In both, the time-paths of total output and employment, through recession, recovery, and expansion, are consistent with continuous equilibrium. The nature of the equilibrium, however, differs. The intra-firm class results from generalized rest points in the spaces of large- and small-workplace decision rules, while the DSGME class represents generalized rest points in the space of multi-market decision rules. The difference between the two classes implies that workplace equilibrium is better suited to the task of microfounding macroeconomics that features wage rigidities and involuntary job loss than is market equilibrium, which inherently requires meaningful labor-price flexibility. The workplace approach pre-serves Pareto optimality while tractably modeling markets in chronic disequilibrium, a giant step toward a policy-useful formal macroeconomics. Most fundamentally, general workplace equilibrium provides the deep structure that allows the effective integration of the division of labor, sunk capital, wage rigidities, involuntary job loss, and well-motivated employees into optimizing, continuous-equilibrium theory, permitting a powerful, long overdue, synthesis of classical, neoclassical, and Keynesian analyses.

Keywords: general equilibrium, workplace equilibrium, wages, involuntary job loss, macro microfoundations

JEL Classification: D23, D50, E10, E23, E24, E32, J20, J30, M50