Wage Flexibility and Unemployment : the Keynesian Perspective Revisited - Sciences Po Access content directly
Preprints, Working Papers, ... Year :

Wage Flexibility and Unemployment : the Keynesian Perspective Revisited


Keynes' main concern in the General Theory is about the capacity of an economy to return to a full employment equilibrium when subject to a (negative) demand shock. He maintains that money wages cuts may not help reabsorb unemployment, as they do not necessarily imply a fall in real wages. On the contrary, wage rigidity maybe necessary for avoiding that a cumulative process propels the economy far away the full employment equilibrium. The consideration of co-ordination failures in the investment-saving market is behind this conclusion. However, the analysis is carried out within a static equilibrium framework. This paper is an attempt to focus on the problems of intertemporal co-ordination arising within the context of a sequential economy. Our analysis of the out-of-equilibrium process of adjustment stirred by a shock of whatever nature allows to generalize the original Keynesian intuition. It shows in fact that unemployment emerges as the result of a lack of co-ordination due to irreversibly constrained choices, and that not only nominal but also real wage flexibility does not necessarily help to restore equilibrium. As a matter of fact, it may even be harmful, by triggering processes that make the economy diverge from equilibrium. The analysis carried out has important analytical implications as regards the role of market imperfections and the interpretation of the effects of monetary policy.
Fichier principal
Vignette du fichier
wp2001-02.pdf (292.37 Ko) Télécharger le fichier
Origin : Files produced by the author(s)

Dates and versions

hal-01064972 , version 1 (17-09-2014)


  • HAL Id : hal-01064972 , version 1
  • SCIENCESPO : 2441/6763


Mario Amendola, Jean-Luc Gaffard, Francesco Saraceno. Wage Flexibility and Unemployment : the Keynesian Perspective Revisited. 2001. ⟨hal-01064972⟩
108 View
4361 Download


Gmail Facebook Twitter LinkedIn More