A Keynesian Approach
New Directions in Modern Economics series
Chapter 2: Profits and Unemployment: Is There an Equilibrium Rate of Unemployment in the Long Run?
2. Proﬁts and unemployment: is there an equilibrium rate of unemployment in the long run? 2.1 INTRODUCTION Most of the literature on European unemployment is built on the premise that there has been an increase in the long-run equilibrium rate of unemployment, the NAIRU. This increase in the NAIRU, so the story goes, is caused by wage-push factors like an overgenerous welfare state, long and durable unemployment beneﬁts and job protection measures. In short, by labour market inﬂexibility, which translates into real wage rigidity. In this chapter we develop a Post-Keynesian growth model that explicitly treats the labour market and allows for an eﬀect of unemployment on income distribution. This will allow us to investigate the claims of the NAIRU theory. In particular we seek answers to the following questions. Is there an equilibrium rate of unemployment in the long run? If so, can it be reduced by increasing labour market ﬂexibility? Is it independent of demand? The chapter is organized as follows. In the remainder of this introduction, the core features of the NAIRU model are summarized and the diﬀerences to our own assumptions are clariﬁed. In section 2, Keynesian growth models are discussed, with a particular focus on the distinction between Robinsonian (full-capacity) models and Kaleckian (excess-capacity) models. The Marglin-Bhaduri model is the most modern formulation of the latter and forms the basis for the growth model to be developed in section 3. We add an employment function (Okun’s law) and a...
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