> I'm in kind of a confused state regarding economics right now. As is > obvious, I am having some theoretical problems with Marxian economics. > However, there is alot of empirical evidence I've seen that makes it > difficult for me to accept neoclassical economics, even the more > sophisticated "new keynesian" and "radical" variants.
Two comments here: First, "a lot of empirical evidence...that makes it more difficult...to accept neoclassical economics"--compared to what theoretical alternative that does a demonstrably better job of accounting for that evidence? And if your answer is "none", then maybe the real question is what discipline offers a surer basis for addressing the empirical anomalies you're concerned with. To anticipate, since Jim Devine mentioned our mutual friend and colleague Peter Dorman, I'll paraphrase the passage in his book on wage differentials to the effect that Marx pretty much copped out on the question of how working conditions affect wages--arguably a product of Marx's decision to pursue Ricardian rather Smithian value theory. Second, "neoclassical economics" is becoming a more and more nebulous concept as the mainstream analytical tent gets more and more diverse. Do you mean neoclassical in the narrow sense of Marshall,Walras, and Debreu, with utility-maximizing households, profit-maximizing firms, and equilibrating competitive markets (except in special cases of monopoly or monopsony equilibrium)? The former augmented by the conditions of classical noncooperative game theory, which maintains the assumptions of optimization and equilibrium, but allows for informational imperfections, expected utility maximization, and interactive optimization, and thus generalizes the possibility of inefficient equilibria beyond monopoly and monopsony? [I would include phenomena such as moral hazard, adverse selection, "efficiency" wages, and free-rider problems in this set]. The foregoing augmented by small-group experimental methods, evolutionary game theory, agent-based modelling, and modifications of classical game theory to allow for non-expected utility-maximizing individuals? [And this is just the micro side of the tent!] > I can not take seriously the idea that the worse and more dangerous a job > gets, the more hours and intensity of work, that workers will necessarily > get paid more. Or at least that the amount of compensation will be so > small as to not necessitate anything approaching "efficiency," even with > reasonably informed participants and competitive markets. The funny thing is, if you're willing to grant the presence of "reasonably informed participants and competitive markets," then it's hard to see how compensating wage differentials *wouldn't* arise, so long as people cared about the safety of their jobs or how intensely they work. Suppose you were reasonably informed about wages and production conditions at alternative prospective jobs, and suppose that your labor market was sufficiently competitive that you could freely choose among these alternatives. If you cared about job safety, then other things equal, why would you take a more dangerous job if it didn't offer you some offsetting benefit in the form of higher wages and benefits or the like? This suggests that telling a coherent story about the *absence* of compensating differentials requires some departure from the above conditions--some form of imperfect competition, or imperfectly informed individuals (a special case of the former), or individuals that are either irrational or don't care about things like safety, at least in the sense that they don't make marginal tradeoffs between safety and other benefits. And even then it's harder to upset the compensating differential story than you'd think. For example, you can show that even labor market monopsonies would optimally pay compensating differentials, so long as prospective employees were aware of and cared about safety differentials and had *some* alternative to working for the monopsony; and even uninformed workers might nevertheless be able to elicit firms' privately held information about their safety levels, with compensating differentials resulting. > Are there any neoclassical theories which explain this, or leave it as a > possibility? In the broader sense of "neoclassical" alluded to above, yes. More specifically, there are theories that explain why conditions that might otherwise lead to the payment of a compensating differential are swamped by offseting conditions, as when workers in "primary" labor markets enjoy both safer jobs and greater wage-setting power than their secondary-market counterparts. Does Gil Skillman and Jacobsen's book on labor economics deal > with this? Yes, in Ch. 13 ( I think--the book's at the office) on wages and working conditions. Again, since Jim mentions Peter Dorman, I'll note that the chapter builds on his important work and adds some theoretical and empirical considerations not in his excellent book _Markets and Mortality_. In particular, we go into some detail about what sorts of departures from competitive conditions would result not only in the absence of efficient compensating differentials, but would also create scope for potentially effective government interventions to promote job safety. > I own it but haven't read it yet. Well, then, you're in for a treat (snicker). The interesting thing in the context of the present thread is that much of the book's argument revolves around the significance of contracting imperfections of the sort we've been discussing with respect to Marx's labor/labor power story. Gil
