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Going from a low to a high employment equilibrium

Listed author(s):
  • Marc Lavoie
  • Eckhard Hein

This paper presents an extensive, but non-formalized, critique ofthe concept of the non-accelerating inflation rate of unemployment(NAIRU) and all similar concepts such as the steady-inflation rateof capacity utilization (SIRCU) which are used by mainstream economiststo argue that there is no alternative, and hence that labourmarkets must be made more flexible while governments must abstainfrom engaging in expansionary fiscal policies except underexceptional circumstances. This is followed by the presentation ofan alternative approach of the labour market, based on a more realisticview of the shape of the unit costs of firms, which argue s thatemployment is essentially determined by the extent of sales in thegoods market rather than by some profit-maximization constraint,and that higher real wages will normally generate a rise in domesticaggregate demand and hence a rise in employment. The paperends with a discussion of the implications of such a view for wagebargaining and macroeconomic policies. What is advocated here isa wage-led growth strategy.

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File URL: http://www.boeckler.de/pdf/p_imk_wp_144_2015.pdf
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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 144-2015.

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Length: 13 pages
Date of creation: 2015
Handle: RePEc:imk:wpaper:144-2015
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  1. Jordan Melmies, 2010. "New Keynesians versus Post Keynesians on the theory of prices," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 32(3), pages 445-466, April.
  2. Jochen Hartwig, 2014. "Testing the Bhaduri-Marglin model with OECD panel data," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(4), pages 419-435, July.
  3. Engelbert Stockhammer & Eckhard Hein & Lucas Grafl, 2011. "Globalization and the effects of changes in functional income distribution on aggregate demand in Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 1-23.
  4. Engelbert Stockhammer & Özlem Onaran & Stefan Ederer, 2009. "Functional income distribution and aggregate demand in the Euro area," Cambridge Journal of Economics, Oxford University Press, vol. 33(1), pages 139-159, January.
  5. Engelbert Stockhammer & Robert Stehrer, 2011. "Goodwin or Kalecki in Demand? Functional Income Distribution and Aggregate Demand in the Short Run," Review of Radical Political Economics, Union for Radical Political Economics, vol. 43(4), pages 506-522, December.
  6. T. D. Stanley, 2005. "Integrating the Empirical Tests of the Natural Rate Hypothesis: A Meta-Regression Analysis," Kyklos, Wiley Blackwell, vol. 58(4), pages 611-634, November.
  7. Paolo Sylos-Labini, 1979. "Prices and Income Distribution in Manufacturing Industry," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 2(1), pages 3-25, October.
  8. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.
  9. Marc Lavoie & Stockhammer Engelbert, 2013. "Wage-Led Growth: An Equitable Strategy for Economic Recovery," Post-Print hal-01343664, HAL.
  10. T. D. Stanley, 2004. "Does unemployment hysteresis falsify the natural rate hypothesis? a meta-regression analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 589-612, 09.
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