classical unemployment

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classical unemployment (uncountable)

  1. (economics) The component of overall unemployment caused by too high wage expectations.
    • 1987 8 December, Nobel laureate Robert M. Solow in his prize lecture[1]:
      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.
    • 1988, Robert M. Coen and Bert G. Hickman., “Is European Unemployment Classical or Keynesian?”, The American Economic Review, volume 78, page 188-193: 
      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.
    • 2006 September, Geoff Riley, Head of Economics, Eton College[2]:
      Classical unemployment is the result of real wages being above their market clearing level leading to an excess supply of labour.

Usage notes[edit]

  • According to "classical economic theory" originally developed by Adams, Ricardo, Malthus and others in late 18th century unemployment is explained simply by the real wages being higher than the market-equilibrium wage. Classical unemployment is suggested to arise e.g. as a result of a too generous minimum wage law or labor union influence.