Abstract

LAVOIE, Marc. A comparative analysis of the post-keynesian theory of employment. Inv. Econ [online]. 2000, vol.60, n.232, pp.15-65. ISSN 0185-1667.

The main purpose of the paper is to present the post-Keynesian models of labour employment, with their emphasis on effective demand. To highlight the features of post-Keynesian models, neoclassical models of employment are briefly surveyed, ranging from the new classical model to the various new Keynesian models that purport to explain involuntary unemployment. It is shown that all these neoclassical models are based on a supply-side approach, and that unemployment exists because real wages are ultimately too high. Toe second part of the paper presents various post-Keynesian models. All the post-Keynesian models take effective demand into account, but some have hybrid features -they still entertain a neoclassical production function, as in Keynes's model- while others are more radical, leaving aside the hypothesis of decreasing returns. Supply-side features, such as the efficiency wage hypothesis, are considered within such demand-led models. It is shown that multiple equilibria are likely to occur: a stable equilibrium with low wage and low employment versus an unstable equilibrium with high wage and high employment. As a result, one must conclude that market forces cannot be left on their own, because they will lead to the wrong equilibrium.

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