Involuntary Unemployment : The Missing Piece in Keyne's General Theory

This article examines critically the insights on involuntary unemployment, offered by Keynes in his general theory. It is argued that Keynes put the issue on the right track by giving this concept a micro-founded definition but shelved the task of explaining its arising by introducing it as a postulate. Such a shelving has been made possible thanks to the ‘selfsameness assumption’, i.e. the claim that involuntary unemployment and demand-deficiency are selfsame. It allowed Keynes to believe that his result about demand-deficiency could be extended to involuntary unemployment. Whereas Keynesians have taken this claim for granted, it does not stand up against recent developments. Most present-day new Keynesian models vindicate either involuntary unemployment without demand-deficiency or demand-deficiency without involuntary unemployment.