Why Can Wages be Rigid? An Alternative Foundation for Keynes’ Premise
It goes without saying that Keynes’ wage theory possesses specific characteristics because of the distinctive nature of the supply curve for labour. Because it adheres to a fixed monetary wage, the supply curve forms a straight line parallel to the horizontal axis showing the quantity of labour, and is regarded as rising from the point of the specified volume (the point showing full employment). Certain doubts may attach to the latter half of this proposition, but I shall avoid discussing these here. In any case, it is a feature of Keynes’ wage theory that the money wage demanded (the supply price of labour) is fixed and is not reduced even by unemployment, i.e. there is no elasticity of wages. For that reason it is possible to conceive of equilibria with varying degrees of underemployment. Stagnation was often said to denote a situation near to equilibrium, but to actually understand this as equilibrium is clearly a major change in wage theory.
KeywordsLabour Supply Marginal Productivity Supply Curve Money Wage Supply Price
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