Meaning of classical unemployment | Babel Free

Definitions

The component of overall unemployment caused by too high wage expectations.

uncountable

Examples

“There can be "Keynesian" and "classical" unemployment. Indeed there can be both at the same time: the real wage might be too high to allow⟳ full employment with existing capital stock⟳, while at the same time aggregate demand⟳ is inadequate to take⟳ off the market what firms would wish⟳ to produce⟳. Changes in the real wage could have⟳ demand-side and supply-side effects.”

“In the standard fix-price model⟳ of price-taking competitive firms, Keynesian and classical unemployment are separate⟳ states according to whether notional product supply⟳ exceeds or falls short of market demand⟳ at the prevailing wage and price configuration, so that labor demand⟳ is either output constrained and determined by the inverted production function (Keynesian unemployment), or firms are on their notional product supply⟳ and labor demand⟳ functions but the real wage exceeds the Walrasian full-employment level (classical unemployment). Thus labor demand⟳ is independent of the real wage in the Keynesian state and depends only on the real wage in the classical state.”

“Classical unemployment is the result⟳ of real wages being above their market clearing level leading to an excess supply⟳ of labour.”

CEFR level