Introduction For Unemployment Essay

Introduction For Unemployment Essay-72
If there occurred any unemployment it would be of a purely temporary nature.The cause of such unemployment was too high a real wage.However, it is important to note that Keynes also excluded unemployment “due to the refusal or inability of a unit of labour, as a result of legislation or social practices or of a combination for collective bargaining or of a slow response to change or of mere human obstinacy, to accept a reward corresponding to the value of the product attributable to its marginal productivity”.

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Unemployment can be divided into different types according to the reasons for its occurrence.

For example, there is frictional unemployment, which arises when a person is temporarily unemployed while moving between jobs.

Clearly, Keynes wanted to focus on a particular type of involuntary unemployment.

Don Patinkin also used the static labour supply definition in his well-known analysis of involuntary unemployment: The norm of reference to be used in defining involuntary unemployment is the supply curve for labour as long as workers are ‘on their labour supply curve’—that is, as long as they succeed in selling all the labour they want to at the prevailing real wage rate—a state of full employment will be said to exist in the economy. Pigou proposed measuring involuntary unemployment of a group of persons by the number of hours that these persons would have been willing to provide at the current rate of wages under current conditions of employment.

Within this institutional context, markets are assumed to clear and the associated level of unemployment is termed as the ‘natural’ rate of unemployment.

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In the language of Milton Friedman: “The ‘natural rate of unemployment’ is the level that would be ground out by the Walrasian system of general equilibrium equations, provided there is embedded in them the actual structural characteristics of the labour and commodity markets, including market imperfections, stochastic variability in demands and supplies, cost of gathering information and so on”.And such unemployment would disappear quickly due to fall in real wage.The intuition behind the classicists’ analysis of unemployment comes from the standard apparatus of supply and demand curves.Consequently, if the supply of labour exceeds the demand and there is a problem of unemployment, then the solution lies with a fall in the real wage as this will increase the quantity of labour demanded and close the unemployment gap.In his General Theory Keynes disputed the classical analysis of unemployment and the associated policy prescriptions.For this reason the term the non-accelerating inflation rate of unemployment (NAIRU) is often preferred to the title ‘natural’ to describe the level of unemployment.The current view is that the natural rate of unemployment is the rate towards which the dynamic system is converging for a given underlying general equilibrium stochastic structure.They have reached the conclusion that if the labour market does not equilibrate, it must be because the price, i.e., the real wage, is set at an inappropriate (and not at the market-clearing) level.The demand for labour originates from the profit-maximising decisions of firms.It takes into account the actual structural characteristics of the labour and commodity markets, including market imperfections, search and mobility costs.In simple terms, it may be regarded as that level of unemployment which nonetheless remains at full employment.

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