Underemployment equilibrium

The equilibrium with underemployment represents a macroeconomic situation within market structures in which the goods markets of an economy are cleared ( market equilibrium ), but unemployment is. Was the possibility of such a situation and is contested by the neoclassical theory. John Maynard Keynes claimed only in the year 1936 in his General Theory of Employment, Interest and Money, the possibility of existence of a designated by him as " involuntary unemployment", whose grounds he formulated fundamental critique of central classical theorems.

Previously had been considered secure that markets can move inevitably through the price mechanism. Also on the labor market should therefore in a functioning market processes markträumendes balance set - cyclical unemployment would be excluded. This is namely a surplus of labor power offered against the demand of the company; in such case leads a declining price - ie a declining wage - to the fact that settings are attractive and so unemployment will be eliminated. Due to the lower wage production costs fall, so that the additional production will also paragraph.

This logical chain interrupts Keynes, by introducing the importance of expectations formation in economics. In its macroeconomic model, the aggregate demand for shares in private consumption and private investment (and possibly government consumption ). Investment demand, however, depends not only on the cost of financing ( the interest rate), but also the anticipated income or profit from the investment.

If pessimistic expectations are prevalent in an economy, then give low or even negative aggregate earnings expectations. With the expectation of a negative income but want to invest any economic subject. The demand for capital goods remains from So. If private consumption that can not catch, can not then be deducted all products. Companies will therefore employ only so many employees are needed as the production of the deductible amount. If this number of employees under the labor supply, there is inevitably unemployment. Thus, although all goods markets are in equilibrium, there is underemployment.