Going from a low to a high employment equilibrium

Marc Lavoie and Eckhard Hein

No 144-2015, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: This paper presents an extensive, but non-formalized, critique ofthe concept of the non-accelerating inflation rate of unemployment(NAIRU) and all similar concepts such as the steady-inflation rateof capacity utilization (SIRCU) which are used by mainstream economiststo argue that there is no alternative, and hence that labourmarkets must be made more flexible while governments must abstainfrom engaging in expansionary fiscal policies except underexceptional circumstances. This is followed by the presentation ofan alternative approach of the labour market, based on a more realisticview of the shape of the unit costs of firms, which argue s thatemployment is essentially determined by the extent of sales in thegoods market rather than by some profit-maximization constraint,and that higher real wages will normally generate a rise in domesticaggregate demand and hence a rise in employment. The paperends with a discussion of the implications of such a view for wagebargaining and macroeconomic policies. What is advocated here isa wage-led growth strategy.

Keywords: NAIRU; unit costs; wage-led growth (search for similar items in EconPapers)
Pages: 13 pages
Date: 2015
New Economics Papers: this item is included in nep-lab and nep-mac
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Citations: View citations in EconPapers (1)

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