Stability Analysis of the Wage Function

Stability of wage functions is fundamentally important in economic systems. In this book, first and second order wage equations are developed and solved. Subsequent wage functions are analyzed and interpreted for stability. For first order equation, its function initially stands off equilibrium wage rate but asymptotically stabilizes towards equilibrium wage rate in the long run. Speculative parameters operating freely dictating employers’ expectations included in modeling second order equation causes both stability and instability of wage function in certain circumstances. When wage function is exponential, asymptotic stability towards equilibrium wage rate is observed. Where wage function consists of exponential and periodic factors, time path periodically fluctuates with successive smaller amplitudes until it stabilizes. Free market operations sometimes cause volatility in wage rates resulting in uncertainties in an economy. This book is important to policy makers in writing policies that may stop volatility of wage rates in free labor markets. It proposes creating a middle path where wage rate oscillates within a narrow band managed by employers in consultation with workers.