I have collected, read and understood and written about most of these matters, except theoretical discussion. Initially I though theoretical session would be very brief. At the beginning, I planned to talk about just two theoretical concepts concerning unemployment, i.e., the famous and the most essential “Phillips curve”, and then the concept of NAIRU (NaturalRate of Unemployment). When discussing these two concepts, I chose five important economists; William Phillips, Paul Samuelson, Robert Solow, MiltonFriedman and Edmund Phelps. Phillips is the creator of the very famous concept “Phillips curve” in his historic but a bit short article[i], but it was not he who uses the term “Phillips curve”, but Samuelson and Solow who started naming “Phillips curve” in their influential article[ii]. It was Friedman and Phelps who repudiate “Phillips curve”. And it was Friedman who introduced a term “the Natural rate of unemployment” (Nairu). Hay, it is nothing to do with first Indian Prime Minister—the spellings are different, Prime Minister is spelled “Nehru”. Among these five giants of economics, four of them except Phillips won Nobel prizes. However, Phillips’ name became immortal in economic science and we always have to talk about his curve whenever we discuss or teach or learn economics and economies.
Paul Anthony Samuelson in 1950. LIFE magazine photo (December 1950). Image from http://www.lagunabeachbikini.com/wordpress/wp-content/images/2010/critical-thinking/paul-samuelson-1950.jpg
Robert M. Solow. Image from
Edmund S. Phelps, in 2006. Image from
Milton Friedman.
Photo Credit: Milton Glaser. Image from TIME Magazine, http://img.timeinc.net/time/magazine/archive/covers/1969/1101691219_400.jpg
Thus it would be, I thought, a short session of theoretical discussion. However, when I read, study and write about the discussion and argument of Friedman, I discovered that Keynes’ argument and theory should be briefly mentioned, and at the same time Classical theory of unemployment, as well as Say’s Law[iii], will also be necessary, at least very brief, to be discussed because these are the theoretical background on which all series of theoretical debates are based.
The simple point of Phillips curve is that there is a negative relationship between the unemployment rate and the price level. When the unemployment rate declines, the overall price level (i.e., inflation rate) rises. The fundamental principle of the classical theory is that the economy is self-regulating and is always capable of achieving the natural level of real GDP or output, which is obtained when the economy's resources are fully employed, in other words in a state of full-employment. Any unemployment in the country is assumed to be temporary or abnormal. Classical economists hold that the unemployment cannot be persisted for a long time, and there is always a tendency of full employment in the country.
Phillips curve. Source: Bureau of Labor Statistics.
Note: Inflation based on the Consumer Price Index.
However, in his immortal book ‘General Theory of Employment, Interest and Money’ Keynes (1936) strongly criticises the classical theory and argues that, opposed to Say’s law, demand creates its own supply and the economy can stabilise at an equilibrium with unemployment, because of demand deficiency, in other words, a lack of aggregate expenditure. Thus it is called demand-side economics.
Book: Keynes (1965) The General Theory of Employment Interest and Money.
Published by Houghton Mifflin Harcourt. Image from https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6jw2SnKnF_NtogV5TJcaETkGhEkz9ekx4GpWqc4tIyVLotX7MupPAL8WIK795_JL4NC3fQcCg7iDVs6_TxtBHbvNryyKfgOT2evoo7Ms3RF7vNdZHOpdvaH2vyhufO7WdywFePfivNKk/s1600/8489342.jpg
While talking about arguments of Friedman and Phelps, there was discussion about effects of wages on unemployment. Then I have to talk about, just a little bit again, wages, and then roles of unions, and labour market rigidity. If I am going to discuss about unions and its effects on unemployment, I cannot help but talk about, at least briefly again, Friedrich von Hayek who wrote, in 1981, a very influential book “1980s Unemployment and the Union”[iv].
Book: Hayek, F. A. (1981) 1980s Unemployment and the Unions.
Image from Amazon, http://ecx.images-amazon.com/images/I/41w3OefADNL._SL500_SS500_.jpg
Friedrich von Hayek.
It is Hayek who holds that unions have a much better reputation than they deserve, and “it is probably… impossible in our time for a student to be a true friend of labour and to have the reputation of being one” (Hayek, 1967: 294). By the way, Hayek is also a winner of Noble prize for economics. Hayek (1981) argues that unions benefit some workers but it was always at the expense of other workers and that as a whole, unions have made workers significantly worse off than they would otherwise have been. When discussing about the affects of union on unemployment, it is necessary to discuss nature and practices of Japanese unions, which are in constructive and productive relationships with employers, i.e., companies and their management (Fujimura, 2012). Ohhh, I also want to talk about Schumpeter's view on unemployment (Schumpeter, 1942). But I will discuss about it in later longer articles.
Joseph Alois Schumpeter. Image from
Ohh, no. Now my theoretical session become its own article. And I have been wondering about the unemployment situation of SouthAfrica where I have been staying, unplanned and unexpectedly, and studying and then gradually falling in love not only with the country but also with a certain special daughter of it.
Unemployment in Myanmar was an article I was writing, at the beginning, but now I am start drafting an article on sources of high unemployment in South Africa.
Darling, now you know why I am so quiet and do not communicate or meet with you.
REFERENCES
Fujimura, H. (2012) In Japan’s Labor Unions: Past,
Present, Future. In Japan Labor Review, vol. 9, no. 1, Winter 2012.
Hayek, F. A. (1959) Unions, Inflation and Profits. In
Studies in Philosophy, Politics and Economics. Chicago: University of Chicago
Press, 1967. pp. 280–294.
Keynes, J. M. (1936) The General Theory of Employment
Interest and Money. London: Macmillan.
Schumpeter, J. A. (1942) Capitalism, socialism and
democracy (5th Edition). London: Unwin.
Thweatt, W. O. (1978) Early formulators of Say’s law. In
Quarterly Review of Economics and Business 19 (Winter 1978). pp. 79–96.
ENDNOTES
[i] Phillips A. W. (1958) The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. In Economica, New Series, Vol. 25, No. 100 (Nov., 1958), pp. 283-299. Retrieved on March 22, 2013 from http://www.jstor.org/stable/2550759
[ii] Samuelson, P. A. & Robert M. Solow, R. M. (1960) Analytical Aspects of Anti-Inflation Policy. In The American Economic Review, Vol. 50, No. 2, Papers and Proceedings of the Seventy-second Annual Meeting of the American Economic Association (May, 1960), pp. 177-194. Retrieved on March 16, 2013 from http://www.jstor.org/stable/1815021
[iii] In fact, its full name is Say’s law of markets, which is the foundation of classical economics, and argues that general overproduction is impossible and supply creates its own demand. Thus it is called supply-side economics. This idea was already discussed by Adam Smith and later John Stuart Mill. It was because of Keynes who attributes this law to Say, instead of to Smith and Mill. It is not by Keynes, it will be the Smith-Mill law (Thweatt, 1978).
[iv] Hayek, F. A. (1981) 1980s Unemployment and the Unions: Essays on the Impotent Rice Structure of Britain and Monopoly in the Labor Market (Hobart Paper No. 87). London: Institute of Economic Affairs.
NOTE
It is about reasons for talking too long to write an article; I just cannot write anything without discussing theoretical background. What a great academic I am!!! I hope I will be able to stop writing on unemployment until it became big enough to be an academic tome, which covers comprehensive theoretical debates, history of unemployment, and current situations and problems of unemployment in countries around the world. It will be my academic project for this year or next couple of years.
(25 March 2013, Monday, 10:12 pm)
