The Labor Market, Employment And Wages

Macroeconomics for the closed economy has traditionally divided all goods in the economy into four—commodities, labor, money, and bonds. In the analyses of their markets, by far the greatest division among the classical and Keynesian paradigms has been in their approach to the functioning of the labor market, especially over chronologically short periods of time. In particular, while the classical paradigm asserts that the labor market even over short periods functions in notional equilibrium (i.e., with the equality of notional labor demand and supply), most versions of the Keynesian paradigm maintain that equilibrium is likely to evade this market over chronologically short periods—which could last as long as several years, e.g., for the USA and many European countries, for many years after 2007—not only in notional terms but also possibly in effective ones. In such a case, the labor market may have an effective equilibrium (i.e., the equality of effective demand and supply) with employment and unemployment rates differing among short terms or may not even possess effective equilibrium, in which case the labor market would be have “effective disequilibrium” (defined as the inequality of effective demand and supply)…