January 1, 2015

It's all in the structural employment equation

Comment on 'The low-wage-fallacy'


When one switches from the obsolete subjective-behavioral approach to the correct objective-structural paradigm then one gets this employment equation for the business sector as a whole under the condition of product market clearing.

The equation says that employment L increases with
• investment expenditures I
• an increasing expenditure ratio rhoE  (i.e., average propensity to consume),
• an increasing wage rate W,
if price P and productivity R in the consumption and investment industry as well as distributed profit remain unaltered in the period under consideration. A falling wage rate for the business sector as a whole increases unemployment.

The testable structural employment equation (2014, eq. (22)) is general; it includes the working of the wage-price mechanism and contains Keynes's argument as a special case. And it holds under inflationary and deflationary conditions.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL