A New Look at Old Issues: Keynesian Unemployment Revisited

Martin Zagler

International Review of Applied Economics, 2004, vol. 18, issue 2, 209-224

Abstract: Economists have long sensed that the failure of goods markets to clear is a prime reason for the emergence of unemployment. The novel feature of this paper is that it discovers a new theoretical basis proving this assumption. The paper claims that in a permanently growing economy, unemployment may be due to the failure of the markets to provide consumers with ever-new varieties of consumption goods. As the difference between desired and available product widens, effective demand declines, leading on the one hand to unemployment, which exhibits a decisive Keynesian flavour as it is the result of goods markets failures, and on the other hand to an increase in involuntary savings, which provide the financial basis to foster innovation and growth. As the higher growth rate increases the probability of failures in effective demand, it further increases unemployment and increases involuntary savings, resulting in a finite multiplier process.

Keywords: Keynesian unemployment; effective demand; multiplier analysis; economic growth; product innovations (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1080/0269217042000186685

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