July 14, 2011

Unemployment out of nowhere {10}

Working paper at SSRN

Abstract  Unemployment is usually explained with reference to the equilibrium of supply and demand in the labor market. This approach rests on specific behavioral assumptions that are formally expressed as axioms. The standard set of axioms is replaced in the present paper by a set of structural axioms. This approach yields the objective determinants of employment. They consist of effective demand, the actual outcome of price formation, structural stress as determined by the heterogeneity within the business sector, and the income distribution. Sudden changes in employment are effected by latent relative switchers that are hard to spot empirically.