Grinnell College Economics 384 Fall 1998	Bill Ferguson Carnegie 302 x 3132 Username: FERGUSO1
Office Hours: Tuesday, Thursday, 9:00 - 11:00; Tuesday, 2:00 - 3:00

This seminar will examine macroeconomic theory and policy focusing on the relations between various schools of macroeconomic thought and differing ideas about the configuration of economic institutions, those associated with labor markets in particular. The course will begin a set of questions concerning productivity growth, employment and income distribution and then turn to a review some of the recent macroeconomic debate between Keynesians, Monetarists and New Classical Economics. We will then turn to a series of policy questions concerning the relationships between economic growth, the distribution of income and employment policy with some attention to institutional structures, in particular, the design of labor market institutions.

Required:

• Baily, Martin Neil, Gary Burtless & Robert E. Litan, Growth with Equity: Economic Policymaking for the Next Century, Brookings Institution, 1993. (BBL)
  
• Snowdon, Brian, Howard Vane and Peter Wynarczyk , A Guide to Modern Macroeconomics, Edward Elgar, 1994.

• Akerlof, George and Janet Yellen, Efficiency Wage Models of the Labor Market.
• Bernstein, Michael A., Ed., Understanding American Economic Decline
• Bluestone, Barry and Irving Bluestone, Negotiating the Future
• Burtless, Gary, A Future of Lousy Jobs?
• Freeman, Richard B. and Lawrence F., Eds. Katz, Differences and Changes in Wage Structures (1995)
• Freeman, Clark and Soete, Unemployment and Technical Innovation.
• Gordon, David M., Fat and Mean
• Harrison, Bennett and Barry Bluestone, The Great U-Turn
• Kochan, Katz and McKersie, The Transformation of American Industrial Relations.
• Peterson, Wallace C. Silent Depression
• Phillips, Kevin, The Politics of Rich and Poor.
• Rapping, Leonard, International Reorganization and American Economic Policy
• Rock, James M., Ed., Debt and the Twin Deficits Debate
  

• Carlin, Wendy and David Soskice (C&S), Macroeconomics and the Wage Bargain
• Council of Economic Advisors, Economic Report of the President 1998
• Krugman, Paul, The Age of Diminished Expectations, Revised and Updated Edition (1994).
• Mishel, Lawrence and Jared Bernstein, The State of Working America 1994-95.
• Snowdon, Brian & Howard R. Vane Eds., A Macroeconomic Reader

EVALUATION AND ASSIGNMENTS: Students will be evaluated on written work, formal oral presentations and general classroom discussion.

Written assignments will include two discussion papers (two pages), two short papers (4-5 pages each), one initial research project thesis statement and outline (two pages), one "long" research project thesis and outline (3-5 pages), and a research paper (15-20 pages). Papers must be written clearly and concisely and must be drafted at least twice before turning in. Students will be evaluated on clarity of written presentation as well as on content.

Formal oral assignments will consist of panel discussions and debates on specific course readings as well as an oral presentation of your final paper.

In addition, students are expected to actively participate in class discussion. Students will receive a midterm oral evaluation as well as evaluations on some of the specific panel projects.

I. Introduction - Aug. 31; Sept. 2-4

1.	Labor market institutions, firm performance, growth and distribution; recent trends in U.S. and OECD economic data on productivity growth; employment and unemployment, wages, and inflation:

• Richard B. Freeman, "War of the models: Which labour market institutions for the 21st century?" Labour Economics, Vol. 5, No. 1, March 1998, pp. 1-24.
• Snowdon, Chapter 1.

2.	NAIRU and the Natural Rate of Unemployment.

• Blanchard and Katz, "What we Know and Do Not Know About the Natural Rate of Unemployment"
• Galbraith, "Time to Ditch the NAIRU," (first three articles in course packet).
• Krugman, Ch. 3.
• Stiglitz, "Reflections on the Natural Rate Hypothesis,"

II. The Debate in Macroeconomic Theory

A.	Classical and Keynesian Macroeconomics - Sept. 9, 14

• Snowdon, Chapters 2 and 3

*Discussion Paper Due Wed. Sept. 9*

Related Readings:

• Carlin and Soskice (C&S), Chapters 1 and 2.
• Snowdon & Vane, Part I, "Keynesian economics and the Keynesian revolution"

B.	Monetarists and New Classical Economists - Sept. 16 - 28

• Snowdon, Chapters 4-6.

*Discussion Paper Due Wed. Sept. 16*

Related Readings

• Carlin and Soskice, Chapters 3 and 4.
• Friedman, Milton (1968), "The Role of Monetary Policy," American Economic Review, 58: 1-17, in Snowdon & Vane, pp. 164-179.
• Snowdon & Vane, Part II, "The monetarist counter-revolution," remainder.
• Snowdon & Vane, Part III, The challenge of rational expectations and new classical macroeconomics"

**Paper Topic Paragraph Due Wed. Sept. 28**

C.	New Keynesians and Related Ideas Sept. 30- Oct. 12
1.	New Keynesian Economics Snowdon, Chapter 7 **First Short Paper Due Monday, Oct. 5**
2.	Efficiency wages, contested exchange, and employment

From Course Packet:

• Samuel Bowles, "What Markets Can and Cannot Do," Challenge, July/August 1991
• Samuel Bowles and Herbert Gintis, "Contested Exchange: New Microfoundations for the Political Economy of Capitalism," Politics and Society, June 1990.
• Peterson and Estenson on efficiency wage models.

Related Readings

• Akerlof, George, "The Labor Contract as Partial Gift Exchange" in Akerlof and Yellen
• Carlin and Soskice, Ch. 5, 17 and 19.
• Chamberlain and Kuhn, Collective Bargaining, Chapter 6, "Bargaining Power."
• Gordon, Robert J., "What is New-Keynesian Economics," Journal of Economic Literature, Sept. 1990, in Snowdon & Vane, pp. 478-551.
• Oswald, A. J., "The Economic Theory of Trade Unions: an Introductory Survey," Scandinavian Journal of Economics, 87, 1985.
• Snowdon & Vane, Part V, "New Keynesian Economics."
• Yellen, Janet, "Efficiency Wage Models of the Labor Market." in Akerlof and Yellen

D.	Austrians and Post-Keynesians (time permitting)

• Snowdon, Chapters 8 and 9.

*Initial Thesis Statement, Outline and Bibliography for Research Paper
Due Wed. Oct. 14

II.	Applications
A.	The changing distribution of income in the United States (Week 8)

• BBL: Chapter 3, "Inequality."
• Peter Gottschalk, " Inequality, Income Growth, and Mobility: The Basic Facts," in course packet.
• Nicole Fortin and Thomas Lemieux, "Institutional Changes and Rising Wage Inequality: Is There a Linkage?" Journal of Economic Perspectives, Spring 1997 (in course packet).
  

Related Readings:

• Galbraith, James K., "Industries, trade and wages," in Bernstein, Ed.
• David Gordon, Chapters 7, "Skills Mismatch or Globalization?"
• Howell, David, "Collapsing Wages and Rising Inequality: Has Computerization Shifted the Demand for Skills?" Challenge, Jan./Feb. 1995.
• Phillips, Kevin, Chapter 4, "Wealth and Favoritism."
• Rock, Chapter 2, "The Debt, the Deficit and Disadvantaged Children."
• Solow, Robert M, The Labor Market as a Social Institution, Basil Blackwell, 1990.
• Thaler, Richard H., "Anomalies: Interindustry Wage Differentials," Journal of Economic Perspectives, Spring 1989.

B.	The productivity slowdown, real wage stagnation (Weeks 8-9)

• BBL Ch. 2, "Slow Growth and Other Economic Ills."
• Gary Burtless, "Why Wages Aren't Growing," (in course packet).
• William Baumol, "Macroeconomics of Unbalanced Growth: the Anatomy of the Urban Crisis," American Economic Review, June, 1967 (in course packet).

Related Readings:

• Bowles, Gordon and Weisskopf, Chap. 7, "Solving the Productivity Puzzle."
• Friedman, Benjamin, Chapter 8, "Investment, Productivity and Competitiveness."
• Gordon, David, Ch. 8, "Wielding the Stick."
• Kendrick, John W., "Happiness is Productivity Growth," Challenge, May/June 1987.
• Journal of Economic Perspectives, Fall 1988, "Symposium: The Slowdown in Productivity Growth."
• Lazonik, William, "Creating and extracting value: corporate investment behavior and American economic performance," in Bernstein, Ed.
• Munnell, Alicia H., "Infrastructure, Investment and Economic Growth," Journal of Economic Perspectives, Fall, 1992.
• Nelson, Richard R. and Paul M. Romer, "Science, Economic Growth and Public Policy," Challenge, Mar./Apr. 1996.
• Peterson, Wallace C., Chapter 2, "Diagnosing the Silent Depression,"
• Snowdon & Vane, Part VI, "The renaissance of economic growth analysis"
• Wolf, Edward N., "The Magnitude and Causes of the Recent Productivity Slowdown in the United States: A Survey of Recent Studies," in William Baumol and Kenneth McLennan, Productivity Growth and U.S. Competitiveness (Oxford Univ. Press, 1985).

**Long Outline, Thesis & Bibliography Due Tuesday, Nov. 4**

C.	Policy Remedies and Ideas (Week 10)

• BBL Ch. 4, 5 and 6.
• Bowles and Gintis, "Asset Redistribution"
• Other readings to be announced

**Second Short Paper Due Monday, Nov. 16

Related Readings:

• Bluestone and Bluestone: Chapters 8-11
• Galbraith, James K. "A Two-Track Growth Program," Challenge, Jan./Feb. 1993.
• Gintis, Herbert, "New Economic Rules of the Game," Challenge, Sept./Oct. 1992.
• Krugman, Paul, Chapters 15-17
• Vickery, William, "Today's Task for Economists," Challenge, Mar./Apr. 1993.

VI.	Student Presentations of Research Papers - Nov. 18 - Dec. 7

***Draft of Research Paper Due Tues. Nov. 18***

Concluding Session,

**** FINAL PAPER DUE at Noon, FRIDAY, DEC. 11****

(You know this now and you know the end of the semester will be busy. This is true for everyone; I expect the papers on time.)