According to Samuelson, "Keynes's influence on the course of the economic analysis was the most significant event of economics in the 20th century." In his seminal work, 'The General Theory of Employment, Interest and Money (1936)', we learn just by reading the title, that Keynes considers employment a key issue given the economic environment and social crisis of the 30s.
Until the 30s, the classic theories appeared as a dogma, accepted without much discussion by the rulers as part of their economic policy. It was the same in media research and teaching in universities. However, Keynes believed that 'the interest of the economy lies in the opportunities it can offer to the patricians who want to make the world a better place'.
This challenged the neoclassical analysis of including terms of employment. How does Keynes demonstrate what he calls 'internal inconsistencies of neoclassical analysis' to impose a new vision of the market analysis work?
We therefore show that Keynes explicitly rejects the second assumption, i.e. the existence of voluntary unemployment, as it does not explain in the same way the link between neoclassical level of employment and real wages, which is to implicitly deny the first premise.
Keynes wants to prove the existence of involuntary unemployment which is not absorbed by the market forces.The first assumption is used to construct the demand curve while the second postulate is used for the supply curve (the intersection between two curves defines the point of equalizing the marginal utility of production (business side) and the marginal disutility of employment (employee side).
The second postulate: "equality between marginal utility and the marginal disutility of labor" is explicitly rejected. This view suggests that unemployment may be voluntary (except in special cases: frictional unemployment).
Tags: 'The General Theory of Employment, Interest and Money (1936)', Keynes economic theories, Involuntary Employment
[...] Keynes also says (and this is what makes the subject of criticism) that any change in employment is necessarily accompanied by a short period of declining real wages to compensate for the decline in the marginal productivity of labor. "An increase in employment can not generally occur without being accompanied by a decrease in real wages”. We do not dispute that these economists have rightly declared an unassailable law. The points of difference between neoclassic and Keynes Keynes, however, differentiates himself vis-à-vis the neoclassical, because the mechanism of the realistic lower wages are different. Indeed, in the neoclassicals, given that wages should be flexible, workers agree its downward trend, thereby increasing employment. But Keynes's reasoning is quite different. [...]
[...] This is what Keynes reviews because for him, there is involuntary unemployment, first because wages are downwardly rigid. Wage rigidity to the decline Keynes believed that "the requirements of the workforce are not a real minimum wage, but a minimum of nominal wage", contrary to what people think. For example, if the nominal wage of workers is declining, they strongly protest, while if the real wage is increased through an increase in prices, there will be no reaction from them. [...]
[...] Bibliography D. Begg, S. Fischer, R. Dornbush, Macroeconomics, McGraw-Hill E. Leclercq, theories of the labor market, Ed du Seuil B. Snowdon, H. Vane, P. Wynarczyk, the modern economic thought. [...]
[...] Keynes therefore questions the neoclassical theory of labor by rejecting what he calls the classical postulates. He rejects the concept of voluntary unemployment and the consequences of such a theory, and explains the link between the level of employment and real in another way to that of the neoclassical wage. So it is seen by his contemporaries as an innovator. However, it does not call for all involved market economy since he thinks it is compatible with an interventionist policy of the state. [...]
[...] They therefore prefer to resist any reduction in wages. This Keynesian explanation of the downward rigidity of nominal wages, also helps explain why workers do not fight the same way against a rise in the general price level resulting in a decline in real wages simply because this increase was experienced by all. Second, lower wages mean a loss of income for workers, so they consume less, production and employment would fall too. But if the nominal wage is rigid to the decline, there is no conscious decision of the worker to remain at home rather than work: unemployment is involuntary (unemployment due to a lack of effective demand). [...]
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