The Review of Economic Studies, Ltd.

A Note on Long-Run Unemployment Author(s): M. Kalecki Reviewed work(s): Source: The Review of Economic Studies, Vol. 18, No. 1 (1950 - 1951), pp. 62-64 Published by: Oxford University Press Stable URL: http://www.jstor.org/stable/2296106 . Accessed: 23/03/2012 12:24
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A Note on Long-RunUnemployment
I. Unemployment arisingin depressionis frequently consideredas resulting in effective from demand. However, if thereis unemploymerely cyclical fluctuations mentin some phase of the businesscycleit follows that the averageunemdirectly ployment overthe cycleis also > o. This simplefactleads up to theproblem whether the depressional conditions and underwvhat unemployment is tantamount to a longin effective demand. rundeficiency we shall denoteby E actual employment, 2. In the subsequent discussion, and at a giventime. The conceptof employment has a clear-cut by Ef fullemployment meaning onlyin a " developedeconomy." In an under-developed economy the problemis complicated by widespread disguised unemployment. We shallconfine ourselves of developedeconomies here to the consideration only. In line withthis we assume ofinadequateproductive does not ariseas a result thatunemployment equipment.In we also neglectfrictional and seasonal unemployment the first approximation which demandis high. Thus, whenactual employment is rathersmall wheneffective E is less than fullemployment Ef the unemployment Ef - E is assumedto be accounted demandin the sense that withsufficiently forby inadequateeffective higheffective demandE wouldreachthe levelEf. " Ed the level of employment 3. We shall denoteby " demandedemployment whichwould be reachedat a givenlevel of demandprovidedthe supplyof labour E is below the full employment were adequate. Thus when actual employment " Ed = E. This is the case of deficiency level Ef, the " demandedemployment of demandwhichis characterised effective by the inequality Ef > Ed = E. The case of E. full employmentwill arise when: Ef _ Ed " Ed exceedsthefullemployment When" demanded levelEf, actual employment E = Ef. This willbe clearlythe case of scarcity of labourwhichis thus employment characterised by the inequality: Ed > Ef = E. " may arise,forinstance, oflabouror " over-employment 4. The case of scarcity witha givenproductivity if at fullemployment of a givenlabourforce the working of investment demandforinvestment goodsis increased.The production goodsmay and theirpriceswill rise or orders thennot be increased because of labourshortage, into willbe " stretched."Or labourwillbe drawnfrom consumption goodsindustries of investment of supplyof production goods; and this will resultin the reduction consumption goods,whichwilllead to the risein pricesofthesegoodsand to the fall in the scarcity in real wages. Thus scarcity of labourwill be reflected of investment ofthe respective or consumption goodsand in increases prices. The state of " scarcityof labour" in developedcapitalisteconomiesseems to instances.It is onlyin timesofwaror in immediate have appearedin onlyexceptional associatedwithlabourshortage have arisen. post-war periodsthat inflations bothin Ef and Ed at a givenlevel One reasonforthismaybe a certain elasticity the gap Ed - Ef. The total labourforce ofhighdemandwllichtendsto eliminate Ef or throughthe may increaseunder the pressureof demand through immigration increasein gainful of women,etc. On the otherhand, labour shortage employment will inducean increasein productivity devices. through applicationof labour-saving to satisfy the demandfora givenlevel of This will reduceemployment Ed required from to townmaytake place in thesecircumoutput. In particular migration country in agriculture. stancesaccompanied by increased productivity We shall abstractfrom the case of labour shortagethus confining ourselvesto in developedcapitalist whatseemsto be the "normal " situation economies.
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5. We are thusleftwiththe condition: Ef > Ed = E demandcausing ofeffective or ofa deficiency which thecase offullemployment covers there is this note, it is assumed that in depressions Throughout unemployment. i.e. : unemployment, Ef > Ed - E. directly: overthecycleby Ef,Ed and E itfollows averages If we denotetherespective E. >Ed= Ef is arisingin depressions the unemployment This means that on our assumptions demandon the averagein the in effective of a deficiency to the existence tantamount periodofa cycle. featuresof a developed capitalist To sum up, we postulatedthe following economy: adequate to achievefullemployment; equipment (a) Productive booms; oflabourduring (b) No shortage in depressions. (c) Unemployment is of necessity that an economysubject to such features It followed directly demand. in effective deficiency by a long-run characterised by the 6. The questionarises now how would the businesscycle be affected demand? If the average effective in effective deficiency of long-run disappearance of fullemployment, demandover a long periodwereadequate forthe maintenance ? It maybeshown eliminated wouldbe virtually fluctuations does it meanthatcyclical that thisneed not be the case. about therebeingno our assumption First,it is feasiblethat in some instances demand of labourin the boom wouldnot be thenany morevalid. Effective scarcity

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overthecyclemaybe in sucha case adequateforthemaintenance offullemployment, in depressions but nevertheless theremay be unemployment and scarcity of labour in the booms. that scarcity of labourdoes not arise forany lengthof Let us assume,however, forces whichtendto increase the supplyof labourEf timebecauseit itself engenders in paragraph and reducethe demandforlabourEd as described 4. If thisis the case, in booms and lowerin depressions labour supplyand productivity will be higher in trend. In such a case the adequacyof effective relation to the long-run demandover of unemployment in depressions. the cyclewill excludethe possibility Nevertheless, ofoutputand employment in relation to the long-run therewillbe fluctuations trend. will be characterised Depression, althoughnot involving by a lower unemployment, to long-run in relation level of outputand employment trendas shownon the chart. Such a type of businesscycle mighthave been encountered in the earlierstage of capitalism. M. KALEcKI. Lake Success,N.Y.