Why is there unemployment?
Notice that the answers split on one thing: does the economy fix itself, and how fast?
- Mainstream
Neoclassical economics
Mostly job search taking time, or wages held above the level that clears the market by minimum wages, unions or benefits.
- Mainstream
Keynesian economics
Not enough spending. Firms don't hire because they can't sell. Cutting wages can make it worse by cutting spending further.
- Mainstream
New classical and real business cycles
Largely a choice: people work less when wages are temporarily low. Critics see this as the theory's weakest point.
- Mainstream
New Keynesian economics
Sticky prices let demand shocks hit jobs in the short run. In the long run there is a natural rate set by frictions in the labour market.
- Heterodox
Marxian economics
A “reserve army” of unemployed workers suits capitalism because it disciplines workers and holds wages down.
- Heterodox
Post-Keynesian economics
Demand-led all the way. There is no automatic return to full employment, even in the long run.
- Heterodox
Modern Monetary Theory
A policy choice. The government can always hire idle workers through a job guarantee.
- Heterodox
Austrian school
The hangover from credit-fuelled bad investment. Workers must move out of bubble sectors, and intervention slows that down.