The paradox of toil
AbstractThis paper proposes a new paradox: the paradox of toil. Suppose everyone wakes up one day and decides they want to work more. What happens to aggregate employment? This paper shows that, under certain conditions, aggregate employment falls; that is, there is less work in the aggregate because everyone wants to work more. The conditions for the paradox to apply are that the short-term nominal interest rate is zero and there are deflationary pressures and output contraction, much as during the Great Depression in the United States and, perhaps, the 2008 financial crisis in large parts of the world. The paradox of toil is tightly connected to the Keynesian idea of the paradox of thrift. Both are examples of a fallacy of composition.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 433.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-13 (All new papers)
- NEP-CBA-2010-03-13 (Central Banking)
- NEP-HPE-2010-03-13 (History & Philosophy of Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Ridurre le ferie non farà crescere il Pil. Lultima, insensata, proposta del governo Monti
by keynesblog in Keynes Blog on 2012-07-18 07:23:49
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