MONEY-WAGE DYNAMICS AND LABOR-MARKET EQUILIBRIUM of that inflation developed. Therefore, society cannot trade between steady unemployment and steady inflation, on this theory. Society must eventually drive (or allow) the unemployment rate toward the equilibrium level or force it to oscillate around that equilibrium level. 9 This paper is addressed primarily to these two issues. The next section offers a theory of why, given expectations, both the level of unemploymer and the rate of change of employment should be expected to explain money-wage movements. The following section presents a theory of the influence of expected wage changes upon the Phillips curve. Some econo- metric tests of the predictions of these theories are reported in a statistical I.“ Turnover”’and“ Generalized excess demand For most of this section, until I try to accommodate other factors, I shal deal only with a more or less"atomistic "labor market in which there is no collective bargaining between unions and firms. But I exclude any Wal- rasian auctioneer to clear the labor market -the labor market is never properly cleared in this model-and I do not require that commodity markets be cleared. Firms may be said to have some dynamic monopsony power in that they need to pay a higher wage the faster they wish to attract labor. other recruitment activities held constan The model postulates considerable variety in the kinds of jobs and workers and postulates imperfect information about their availabilities. 10 Firms must inc ch costs" to find round pegs to fill round holes, and unemployed workers must aiso expend money and energy to find suitable mployment. As a consequence, positive unemployment and positive job vacancies tend to persist in a growing labor market and even under stationary labor supply because of the turnover or attrition of firms' employment rolls. Total vacancies can be positive for every kind of job and total unemployment can be positive for every type of worker because On certain assumptions regarding preferences and other matters, I showed that society(or the world)would choose between an"overemployment"route down to the equilibrium employment rate(thus leaving a heritage of a high Phillips curve corre- sponding to inflationary expectations)and an"underemployment"ror to the quilibrium employment rate on the basis of time preference. "The role of time preference is illuminated by Friedman's (1966) characterization of the true trade off"(p. 59)as one between" unemployment today and unemployment at a later date", there is such an intertemporal trade-off in the model under discussion if one holds eventual inflation rates constant, in the same way that the Fisherian trade-off between consumption today and consumption tomorrow holds subs wealth or pital constant. but there remains at any moment of time a statical unemployment and inflation(with the expected infation rate a parameter), analogous to the statical trade-off between consumption and capital formation (with initial capital stock a parameter) which lies at the roots of the intertemporal trade-off. ks by Stigler(1962), by Alchian and Allen (1964, xxxi), and by Holt and David (1966)contain some economics of such labor marketsMONEY-WAGE DYNAMICS AND LABOR-MARKET EQUILIBRIUM 683 of that inflation developed. Therefore, society cannot trade between steady unemployment and steady inflation, on this theory. Society must eventually drive (or allow) the unemployment rate toward the equilibrium level or force it to oscillate around that equilibrium level.g This paper is addressed primarily to these two issues. The next section offers a theory of why, given expectations, both the level of unemployment and the rate of change of employment should be expected to explain money-wage movements. The following section presents a theory of the influence of expected wage changes upon the Phillips curve. Some econo￾metric tests of the predictions of these theories are reported in a statistical appendix. 11. "Turnover" and "Generalized Excess Demand" For most of this section, until I try to accommodate other factors, I shall deal only with a more or less "atomistic" labor market in which there is no collective bargaining between unions and firms. But I exclude any Wal￾rasian auctioneer to clear the labor market-the labor market is never properly cleared in this model-and I do not require that commodity markets be cleared. Firms may be said to have some dynamic monopsony power in that they need to pay a higher wage the faster they wish to attract labor, other recruitment activities held constant. The model postulates considerable variety in the kinds of jobs and workers and postulates imperfect information about their a~ailabilities.~~ Firms must incur "search costs" to find round pegs to fill round holes, and unemployed workers must also expend money and energy to find suitable employment. As a consequence, positive unemployment and positive job vacancies tend to persist in a growing labor market and even under stationary labor supply because of the turnover or attrition of firms' employment rolls. Total vacancies can be positive for every kind of job and total unemployment can be positive for every type of worker because O On certain assumptions regarding preferences and other matters, I showed that society (or the world) would choose between an "overemployment" route down to the equilibrium employment rate (thus leaving a heritage of a high Phillips curve corre￾sponding to inflationary expectations) and an "underemployment" route up to the equilibrium employment rate on the basis of "time preference." The role of time preference is illuminated by Friedman's (1966) characterization of "the true trade￾off" (p. 59) as one between "unemployment today and unemployment at a later date"; there is such an intertemporal trade-off in the model under discussion if one holds eventual inflation rates constant, in the same way that the Fisherian trade-off between consumption today and consumption tomorrow holds subsequent wealth or capital constant. But there remains at any moment of time a statical trade-off between unemployment and inflation (with the expected inflation rate a parameter), analogous to the statical trade-off between consumption and capital formation (with initial capital stock a parameter) which lies at the roots of the intertemporal trade-off. loWorks by Stigler (1962), by Alchian and Allen (1964, xxxi), and by Holt and David (1966) contain some economics of such labor markets