Unemployment: The failed promise for jobs

George Kararach ()

Chapter 3 in Liberating Economics From Ideologies and Dystopia, 2025, pp 41-50 from Edward Elgar Publishing

Abstract: The rational expectations equilibrium model suggests that even with fully flexible wages and prices, unemployment can exist where the marginal product of employed workers exceeds the reservation wage of the unemployed. This unemployment is attributed to either workers in the process of relocating or those waiting for depressed sectors to improve. The neoliberal theory argues that unemployment arises from failures to reduce wages or from labour market imperfections that prevent perfect competition. Therefore, it emphasises the need for labour market flexibility as the solution. However, this theory rests on the flawed premise that unemployment is simply “chosen leisure” by workers. This leads to the misleading view that full employment is determined by psychological factors, rather than economic conditions. Consequently, the neoliberal approach to employment policy is limited, as it sees unemployment as a temporary issue to be resolved by market forces alone. At most, policy should focus on deregulating labour markets and constraining trade unions.

Keywords: Unemployment; Flexible wages; Neoliberalism; Labour market (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035316175
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