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Involuntary Unemployment : the Elusive Quest for a Theory

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  • Michel, DE VROEY

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper addresses the issue of why Keynesian economists have had such a hard time in giving the concept of involuntary unemployment a place in economic theory. Is the gradual demise of this concept a manifestation of some inner defect in economic theory or is it due to some intrinsic weakness in the concept itself, which limits its usefulness when it comes to economic theorising? I have recently published a book which attempts to answer this question, and my aim in this paper is to present its main results. I start by characteristing Keynes’s programme as consisting of the following four elements : 1) demonstrating the existence of involuntary unemployment; 2) demonstrating that wage rigidity can be exonerated as its cause; 3) giving a general equilibrium or interdependency explanation of the phenomenon; 4) demonstrating that demand stimulation is the proper remedy for the problem. Next, I bring out four conceptual ambiguities that have plagued discussions about involuntary unemployment : the confusion between involuntary unemployment and underemployment; the confusion between involuntary unemployment in the individual disiquilibrium sense and involuntary unemployment in the frustration sense; a loose understanding of the notion of full emplyment; and, finally, a less than rigorous definition of the notion of rigidity. The paper continues by presenting my arguments on whether different types of New Keynesian modesls (implicit contracts, efficiency wages, coordination failures and imperfect competition) have succeeded in achieving Keynes’s programme. My conclusion is that they all fail on at least one of its items. In the final section of this paper, I speculate on whether it is still worthwhile for economists with a Keynesian inclination to keep fighting in defence of involuntary unemployment.

Suggested Citation

  • Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2005004
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2005-4.pdf
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    References listed on IDEAS

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    1. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
    2. Shapiro, Carl & Stiglitz, Joseph E, 1985. "Can Unemployment Be Involuntary? Reply [Equilibrium Unemployemnt as a Worker Discipline Device]," American Economic Review, American Economic Association, vol. 75(5), pages 1215-1217, December.
    3. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-874, December.
    4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    Citations

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    Cited by:

    1. Michel De Vroey, 2012. "Microfoundations: A Decisive Dividing Line between Keynesian and New Classical Macroeconomics?," Chapters,in: Microfoundations Reconsidered, chapter 5 Edward Elgar Publishing.
    2. Sawyer, Malcolm & Spencer, David, 2008. "On the definition of involuntary unemployment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(2), pages 718-735, April.
    3. Robert W. Dimand, 2014. "James Tobin and Modern Monetary Theory," Center for the History of Political Economy Working Paper Series 2014-5, Center for the History of Political Economy.
    4. De Vroey, Michel, 2011. "Lucas on the relationship between theory and ideology," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 5, pages 1-39.
    5. Olivier Favereau, 2005. "Have the Early Coordination Failures Models Achieved Keynes's Programme ?. by MichelDe Vroey," Revue d'économie politique, Dalloz, vol. 115(4), pages 437-440.
    6. De Vroey Michel R & Pensieroso Luca, 2006. "Real Business Cycle Theory and the Great Depression: The Abandonment of the Abstentionist Viewpoint," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-26, November.
    7. Luca Pensieroso, 2011. "Real business cycle models of the Great Depression," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 5(2), pages 101-119, June.
    8. Michel De Vroey, 2014. "Backhouse and Boianovsky on "disequilibrium theory". A review article of transforming modern macroeconomics. Exploring disequilibrium microfoundations, 1956-2003," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(4), pages 724-742, August.
    9. Goulven Rubin, 2014. "Disequilibrium economics: some comments about its nature, origins and fate. A review essay of "Transforming Modern Macroeconomics, The Relationship of Micro and Macroeconomics in Historical Persp," Working Papers halshs-01091765, HAL.
    10. Christophe Lavialle, 2014. "Comment Friedman a-t-il persuadé ? Du "taux d'intérêt naturel" au "taux de chômage naturel" : Portée, limites et usages d'une analogie revendiquée," Working Papers halshs-01204655, HAL.
    11. Michel de Vroey, 2005. "Have the Early Coordination Failures Models Achieved Keynes's Programme ?," Revue d'économie politique, Dalloz, vol. 115(4), pages 417-436.
    12. Mauro Boianovsky & Roger Backhouse, 2006. "Whatever Happened To Microfoundations?," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 76, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    13. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall.
    14. Rodolphe Dos Santos Ferreira, 2014. "Mr Keynes, the Classics and the new Keynesians: A suggested formalisation," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(5), pages 801-838, October.
    15. Christophe LAVIALLE, 2014. "Comment Friedman a-t-il persuadé ? Du "taux d'intérêt naturel" au "taux de chômage naturel" : Portée, limites et usages d'une analogie revendiquée," LEO Working Papers / DR LEO 1835, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    16. Michel De Vroey & Pierre Malgrange, 2012. "From The Keynesian Revolution to the Klein-Goldberger model: Klein and the dynamization of Keynesian theory," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 20(2), pages 113-136.
    17. Goulven Rubin, 2011. "Oskar Lange and the influence of Walrasian theory during the Keynesian revolution," Working Papers halshs-00817758, HAL.
    18. Michel DE VROEY, 2010. "Lucas on the Lucasian transformation of macroeconomics: an assessment," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    19. Roger Backhouse & Mauro Boianovsky, 2005. "Disequilibrium Macroeconomics: An Episode In The Transformation Of Modern Macroeconomics," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 012, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    20. Goulven Rubin, 2014. "Oskar Lange or how IS-LM came to be interpreted as a Walrasian model," Working Papers halshs-01018658, HAL.

    More about this item

    Keywords

    Keynes; Involuntary Unemployment; New keynesian Theory;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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