Aggregate Demand, Employment and Equilibrium with Marginal Productivity: Keynesian Adjustment in the Craft Economy

Edward J. Nell

Chapter 11 in Keynes’s General Theory After Seventy Years, 2010, pp 197-221 from Palgrave Macmillan

Abstract: Abstract Most Post Keynesians have approached the idea that marginal productivity accounted for the demand for labor with caution and skepticism; some, like Paul Davidson and Victoria Chick, have accepted it with reservations. None of them, however, have thought that the account was illuminating or that supply and demand for labor determined employment and real wages. Ingrid Rima, for example, insists that the behavior of the labor market is chiefly determined by institutions, while Davidson and Chick have tried to accommodate Keynes’s insistence that the real wage did equal the marginal product of labor, even in less than full-employment equilibrium. All agree that Keynes’s approach recast the argument in money rather than real terms, rejecting the Classical Dichotomy. But if the market operates with money wages, how exactly does the real wage adjust to the marginal product? If the real wage adjusts in the labor market, why is full employment not established? And when there is unemployment in “equilibrium,” why is it so deep and persistent?

Keywords: Labor Market; Real Wage; Marginal Product; Aggregate Demand; Full Employment (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:intecp:978-0-230-27614-7_12

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DOI: 10.1057/9780230276147_12

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