The Role of Wage Flexibility in Keynes's General Theory

Juan Antonio Barraza Magallanes ()
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Juan Antonio Barraza Magallanes: Universidad Autónoma de Ciudad Juárez

Lecturas de Economía, 2025, issue 103, 107-128

Abstract: The rejection that Keynes does about the second classical postulate explains the asymmetry between entrepreneurs and workers in the determination of the level of employment. This leads to the possibility of equilibrium, in goods and bonds markets, with involuntary unemployment. This is consistent with the idea that unemployment is a normal phenomenon in frictionless market economies. We assume that this opposition to the traditional theory is the essence of the message that Keynes seeks to give in the General Theory. By means of a walrasian general equilibrium model we argue that the rejection of the second postulate is not sufficient to have as a result an equilibrium with excess supply of labor. It is necessary to assume that labor and money have a different theoretical status from commodities. Such conditions imply a change in approaching wage flexibility and its relationship with economic policy. More precisely, it is broken the link between wage flexibility and laissez faire laissez passer's policy.

Keywords: Involuntary unemployment; wage; equilibrium; theory; flexibility (search for similar items in EconPapers)
JEL-codes: B22 E12 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.17533/udea.le.n103a357093

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