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Can you draw a supply/demand curve illustrating a demand shortfall + flexible wages causing involuntary unemployment? I've certainly never seen such a thing. C
by yummyfajitas 11y ago
Can you draw a supply/demand curve illustrating a demand shortfall + flexible wages causing involuntary unemployment? I've certainly never seen such a thing.
Classical (not Keynesian) economics does explain how a demand shortfall causes voluntary unemployment. It also explains how helicopter drops + substitution effect can cause voluntary unemployment. Involuntary unemployment is the tricky bit.
- Gibbon1 11y agoYou haven't seen such a thing because wages aren't flexible, wages are sticky. Everyone of course knows that from direct experience. However it drives post war economists completely mad+ so they invent concepts like voluntary unemployment to explain it away. + Post-war economists are obsessed with linear equations and closed form solutions that look like the 'laws' the guys in the physics department rely on. However once you take into account that wages (and rents!) are sticky, that means changing a workers wages from $10/hr -> $11/hr is different than $11/hr -> $10/hr. And then you're nice happy linear equations go out the window and you enter the land of Chaos theory.
- yummyfajitas 11y agoWages are sticky? If only I thought of that - then I probably would have said "recessions are caused by workers refusing to accept work at a lower nominal wage and instead become unemployed" in my very first post. I'm glad we are in complete agreement (apart from mood affiliation).