An Application of the Maximum Principle to a Heterogenous Labor Model with Retarded Controls

In a recent article, Akerlof analyzes the implications of labor heterogeneity on "structural unemployment" in a neoclassical model. His major conclusions are that (1) structural unemployment (labor scrappage) can exist, (2) increasing the skills of some workers will lower the real wages of others (while capital is held constant), and (3) increasing the amount of capital will reduce structural unemployment. These results depend critically on the production function used. PDF Version: McGuire, T. W. and S. P. Sethi, "Market Instability and Structural Unemployment in a Heterogeneous Labor Model," W.P. #47-71-2, GSIA, Carnegie-Mellon University, November 1971