2012년 6월 17일 일요일

[메모] Some comments on full employment and 'classical' economy

자료 1: Wikipedia, Full employment

(As of June 17, 2012)

Full employment, in macroeconomics, is the level of employment rates when there is no cyclical unemployment.[1] It is defined by the majority of mainstream economists as being an acceptable level of natural unemployment above 0%, the discrepancy from 0% being due to non-cyclical types of unemployment. Unemployment above 0% is advocated as necessary to control inflation, which has brought about the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU); the majority of mainstream economists mean NAIRU when speaking of "full" employment.

Economic concept

What most neoclassical economists mean by "full" employment is a rate somewhat less than 100% employment, considering slightly lower levels desirable. Others, such as James Tobin, vehemently disagree, considering full employment as 0% unemployment.[2]

Rates of unemployment substantially above 0% have also been attacked by John Maynard Keynes:
"The Conservative belief that there is some law of nature which prevents men from being employed, that it is 'rash' to employ men, and that it is financially 'sound' to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable - the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. The objections which are raised are mostly not the objections of experience or of practical men. They are based on highly abstract theories – venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts…Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense."
– J.M. Keynes in a pamphlet to support Lloyd George in the 1929 election.

The 20th century British economist William Beveridge stated that an unemployment rate of 3% was full employment. Other economists have provided estimates between 2% and 13%, depending on the country, time period, and the various economists' political biases.

Before Milton Friedman and Edmund Phelps, Abba Lerner (Lerner 1951, Chapter 15) developed a version of the NAIRU. Unlike the current view, he saw a range of "full employment" unemployment rates. He distinguished between "high" full employment (the lowest sustainable unemployment under incomes policies) and "low" full employment (the lowest sustainable unemployment rate without these policies).

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※ Thanks to the unknown author for his opening his writing (as of June 17, 2012): 

Neo Classical versus Keynesian LRAS curves 

Neo-classical and Keynesian are two different approaches/bodies of thinking to certain macroeconomic principles and government policy. This is your first introduction to differences in their opinion, and as you will see later, they differ in opinion with regards to much economic theory. 

Neo-classical LRAS curve 

The neo-classical LRAS curve is shown on the left below. Neo-classical economists believe that the LRAS curve is perfectly inelastic at the full employment level of output. They believe that the potential output of the economy is dependent on the quantity and quality of the factors of production and is independent of the price level. In the long run, neo-classical economists believe that economies will operate at the natural rate of unemployment (i.e. equilibrium unemployment). Keynesian LRAS curve 

The Keynesian view is that even in the long-run there can be unemployment above the natural rate. Their view of the LRAS curve is shown on the right above. 

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