INSTITUTIONALIST LABOR ECONOMISTS
In order to address the widening gulf between theory and reality, a new breed of "Institutionalist" labor economists arose at the end of World War II. Recognition of four major economic developments largely explained why this happened. First, the disturbing impact of the Great Depression rattled every branch of economics related to the theories of pure competition and general equilibrium. Second, the publication of John Maynard Keynes's (1883-1946) General Theory and its insightful analysis of effective demand posed intriguing questions that were difficult to reconcile with standard neoclassical theory. Third, industrial unions were being formed at an unprecedented pace. Fourth, the development of the theory of imperfect competition in the 1930s seemed better suited to account for the fact that labor and capital markets reflected very large powerful bargaining units that were fewer in number, as opposed to the very large number of small powerless markets assumed by the neoclassical theory of perfect competition.
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