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Showing papers by "Robert M. Solow published in 1985"


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TL;DR: This paper argued that economic theory learns nothing from economic history, and economic history is as much corrupted as enriched by economic theory, and that the attempt to construct economics as an axiomatically based hard science is doomed to fail.
Abstract: I have in the back of my mind a picture of the sort of discipline economics ought to be -or at least the sort of discipline I wish it were. If economics were practiced in that way there would be nothing problematical about its reciprocal relationship with economic history. It would be pretty clear what it is that economic theory offers to economic history and what economic history offers to economic theory. I will try to describe what I mean below. For better or worse, however, economics has gone down a different path, not the one I have in mind. One consequence, not the most important one, but the one that matters for this discussion, is that economic theory learns nothing from economic history, and economic history is as much corrupted as enriched by economic theory. I will come to that, too, later on. You will notice that I am using strong language. I am prepared to admit right away that I may be dead wrong in my judgements. But there is no point in pussyfooting. Bluntness may lead to an interesting discussion. After all, no one would remember the old German Historical School if it were not for the famous Methodenstreit. Actually, no one remembers them anyway. (There must be a lesson in that.) To get right down to it, I suspect that the attempt to construct economics as an axiomatically based hard science is doomed to fail. There are many partially overlapping reasons for believing this; but since that is not the topic under discussion today, I do not have to lay them out in an orderly way. I hope the following hodgepodge will convey what I mean. A modern economy is a very complicated system. Since we cannot conduct controlled experiments on its smaller parts, or even observe them in isolation, the classical hardscience devices for discriminating between competing hypotheses are closed to us. The main alternative device is the statistical analysis of historical time-series. But then another difficulty arises. The competing hypotheses are themselves complex and subtle. We know before we start that all of them, or at least many of them, are capable of fitting the data in a gross sort of way. Then, in order to make more refined distinctions, we need long time-series observed under stationary conditions. Unfortunately, however, economics is a social science. It is subject to Damon Runyon's Law that nothing between human beings is more than three to one. To express the point more formally, much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away, and the noise level gets correspondingly high. Under these circumstances, a little cleverness and persistence can get you almost any result you want. I think that is why so few econometricians have ever been forced by the facts to abandon a firmly held belief. Indeed, some of Fortune's favorites have been known to write scores of empirical articles without once feeling obliged to report a result that contradicts their prior prejudices. If I am anywhere near right about this, the interests of scientific economics would be better served by a more modest approach. There is enough for us to do without pretending to a degree of completeness and *Department of Economics, Massachusetts Institute of Technology, Cambridge, MA 02139.

209 citations


Book ChapterDOI
TL;DR: In this paper, a firm starts with a group of insiders or seasoned workers, and there is also a large pool of outsiders who are initially less productive, but are transformed into insiders after one period of employment.
Abstract: A firm starts with a group of insiders or seasoned workers. There is also a large pool of outsiders who are initially less productive, but are transformed into insiders after one period of employment. The firm gains from having a large pool of insiders, some of whom may be laid off in bad years. Insiders gain from keeping their numbers small. If the insiders set their wage unilaterally, they will choose a path that—in this extreme case—prevents employment of outsiders even if future employment prospects are good. If the wage path is set by bilateral bargaining, the extra advantage to the firm permits employment of some outsiders in some situations.

161 citations


Journal ArticleDOI
01 Jan 1985
TL;DR: This paper found that between 1970 and 1984, the dispersion of wages among manufacturing industries in the United States increased by about a third, reflecting primarily an increase in relative wages in high-wage industries.
Abstract: OVER THE PAST FIFTEEN YEARS there has been an extraordinary increlase in the dispersion of wages among manufacturing industries in the United States. While there were moderate cyclical swings in the coefficient of variation of hourly wages between 1955 and 1970, there was no obvious trend in this indicator of dispersion.' Yet between 1970 and 1984, it increased by about a third,2 reflecting primarily an increase in relative wages in high-wage industries. In a sample of average hourly earnings in fifty-seven manufacturing industries (at the three-digit SIC level), the

161 citations


Journal ArticleDOI
TL;DR: This paper analyzed the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a "competitive" secondary sector and found that either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and, under reasonable specifications of key parameters, to cause greater fluctuations of primary-sector employment than secondary sector employment.
Abstract: This paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a "competitive" secondary sector. Either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and, under reasonable specifications of key parameters, to cause greater fluctuations of primary-sector employment than secondary-sector employment. This pattern agrees with the stylized facts of the U. S. economy.

140 citations



Book ChapterDOI
TL;DR: In this paper, the authors highlight the contribution of Leif Johansen to the theory of production, planning, and multi-sectoral growth and highlight the role of the economic analysis of production in the case of the single producing enterprise.
Abstract: Publisher Summary This chapter highlights the contribution of Leif Johansen to the theory of production, planning, and multi-sectoral growth It is particularly important in the context of Leif Johansen's work that the theory and practice of economic planning requires some representation of current technological possibilities In addition, the planner or student of planning needs some idea of changes in technology, whether they occur exogenously or as a result of decisions that are a part of the plan Qualitatively, the role for the economic analysis of production is not so different from the case of the single producing enterprise Johansen's work on planning models made much use of the input-output description of production possibilities, often with interesting variations The refinement of the capacity-distribution method may have been stimulated by the likelihood that the smoother production function approach could prove to be optimistically misleading in the context of planning