The long-run and short-run dynamics of the supply of national output are a key to macro-economic behavior. These dynamics form the basis of the natural rate analysis of Milton Friedman and others. And the kev to the dynamics of the total supply is that of the labor supply. It would be an exaggeration to claim that capital supply and the behavior of firms is irrelevant to macroeconomics. But output can be viewed as the product of a cyclical employment variable with a more or less uniformly increasing productivity. Thus it is clear that the properties of the total supply are highly dependent upon those of the labor supply. The purpose of this paper is to explore the dynamics of the labor supply, with particular emphasis on the effect of expectations models. In the process a regression that Robert Lucas and Leonard Rapping used to explain the labor supply is replicated with more recent data. Although further analysis is done, one of the purposes of this study was to verify that their earlier 1930-65 results also hold for a more recent period (1950-70), and with improved data series.

Hence, even if the partial equilibrium analyst knows full well that the actual situation is not really a competitive one, he probably will still make a first try using the competitive model with good old-fashioned profit maximization. And if the results appear too odd, appropriate qualifications may still be able to take care of them more simply than if he had started with a cumbersome managerial model. (In saying this, I am showing my bias.) [18, p. 30]