Is There a New Institutional Consensus in Labor Economics
We are interested in the extent of convergence between paradigms in labor economics. Proponents of both neoclassical and institutional paradigms now embrace the common premise that labor markets cannot be adequately understood in terms of the auction market described in the model of perfect competition. The persistence of phenomena such as internal labor markets and involuntary unemployment necessitate some explanation other than the neoclassical competitive model. While institutionalists have long grappled with these issues [Freeman 1988; Kerr 1988], serious attempts by neoclassicals, via efficiency-wage and insideroutsider models [Akerlof and Yellen 1986; Lindback and Snower 1988] have appeared only in the past decade. This paper focuses narrowly on whether recent work by neoclassical economists marks an acceptance of the institutional paradigm.1 We presume that existing institutional explanations of labor markets are adequate-indeed both sufficient and persuasive-and that recent empirical work does little to challenge long-held institutional tenets [Freeman 1988]. We argue that recent neoclassical models that depart from neoclassical or-