The founding of the GEM Project is a simple story, rooted in the recognition that information-challenged workplaces are an inherently unique, substantial venue of price-mediated exchange in modern, highly specialized economies. Such is the power of Akerlof’s lemons that even beginner economists know that the competitive marketplace cannot adequately price labor that is restricted by asymmetric employer-employee information, a condition that inherently characterizes large, complex firms. Wage determination in that ubiquitous context defaults to complex workplaces. In the U.S., we are talking about many tens of millions of workers, easily sufficient to significantly influence macro outcomes.
The fact that, since the Industrial Revolutions, the labor market has been unable to price a great deal of the aggregate labor force is indisputable. The critical model-building question morphs to why information-challenged workplaces have not been rigorously analyzed and merged with mainstream neoclassical market-centric theory long ago. Eliminating venality, perhaps naively, the answer must be that our leading macro theorists have concluded that modeling rational behavior in a complex environment removed from the comfort of market analysis is simply too much work. That choice forces the profession to rely on market exchange to explain mass involuntary unemployment in wake of contracting nominal demand. They are apparently satisfied that millions of job losers in periodic recessions somehow result from imperfections in the search-match processes that are always occurring in the labor market. I suspect that, deep down, they understand that is a ridiculous way to think about how modern economies work but also believe that constructing a second workplace venue of rational exchange is a difficult task way outside their market-centric comfort zone. Can the most debilitating mainstream macro problem really be rooted in laziness of our best and brightest?
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