April 28, 2016

Note on the employment multiplier

Refers to Chris Dillow On Multipliers


The multiplier discussion lacks sound theoretical foundations. The most elementary version of the correct Employment Law for the economy as a whole is given on Wikimedia AXEC62:
The multiplier is composed of the ratios ρE and ρF:#1
— An increase in the expenditure ratio ρE≡C/Y leads to higher employment.
— An increase in the factor cost ratio ρF≡W/PR leads to higher employment.

The complete Employment Law is a bit longer and contains in addition profit distribution, public deficit spending, and import/export. The Law contains only measurable variables and is testable. This should end the groping in the dark and the inconclusive wish-wash.

Egmont Kakarot-Handtke

#1 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment