The Keynesian nexus between the market for goods and the labour market

Abstract

In this paper, I build on the Keynesian analysis of the market for goods to draw some implications on the dynamic behaviour of some typical labour market indicators. Specifically, focusing on real magnitudes and distinguishing between the aggregate expected demand function and the aggregate expenditure function, I discuss the implied “daily” adjustments of expected and actual real wages that allow to achieve a short-run equilibrium. In addition, in order to show that the suggested picture of market for goods does not require a distinct setting to describe the transactions of labour services, I offer a rationale for equilibrium unemployment due to deficient demand grounded on the searching-and-matching theory.

Optimal growth with labor market frictions

“…In addition, the productivity index entering the production function $$(S)$$ is normalized to 1 whereas the corresponding index entering the matching function $$(B)$$ is set in order to convey an equilibrium unemployment rate equal to $$5 \% $$, a figure that is consistent with the long‐run US unemployment rate (cf. Guerrazzi, 2023, 2015). The description of the model parameters and their baseline values are collected in Table 1.…”