Working Paper: NBER ID: w2489
Authors: Alan S. Blinder
Abstract: It is argued that policymakers, macroeconomists and microeconomists should all take high unemployment more seriously. The shortcomings of existing theories of unemployment are discussed, and a new definition of involuntary unemployment is proposed. A model is sketched in which falling aggregate demand leads to "Keynesian" unemployment because labor is heterogeneous and relative wages matter. Microeconomic theory is criticized for assuming away unemployment and, in the process, radically changing the answers to some basic questions in trade theory and public finance. Finally, some speculative explanations are offered for the low unemployment now found in states like New Jersey and Massachusetts.
Keywords: unemployment; macroeconomics; microeconomics; policy
JEL Codes: E24; E32; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Falling aggregate demand (E00) | Keynesian unemployment (J64) |
| High unemployment (J64) | High minimum wages (J38) |
| High unemployment (J64) | Severance pay (J65) |
| Macroeconomic policies (E60) | Unemployment levels (J64) |
| State-level policies (H79) | Unemployment outcomes (J65) |
| Historical economic conditions (N11) | Current unemployment rates (J64) |