Tuesday, August 15, 2017

Voluntary vs Involuntary Unemployment

Pettinger ("helping to simplify economics") offers this definition:

Voluntary unemployment is defined as a situation where the unemployed choose not to accept a job at the going wage rate.

That's it exactly. And by choosing to define voluntary rather than involuntary unemployment, Pettinger simplifies economics. Here is Keynes:

If, indeed, it were true that the existing real wage is a minimum below which more labour than is now employed will not be forthcoming in any circumstances, involuntary unemployment, apart from frictional unemployment, would be non-existent. But to suppose that this is invariably the case would be absurd.


Moreover, the contention that the unemployment which characterises a depression is due to a refusal by labour to accept a reduction of money-wages is not clearly supported by the facts.


For, admittedly, more labour would, as a rule, be forthcoming at the existing money-wage if it were demanded.

In other words, involuntary unemployment is a situation where the unemployed are willing to accept a job at the going wage, but do not find work. This meshes perfectly with Pettinger's definition.

And then there is Scott Sumner:

We all agree that there were lots of people without jobs. We all agree that lots of them wanted to be working. We all agree that lots of them were miserable. I call that “involuntary unemployment.”

Number one, Sumner gets the definition of "involuntary" unemployment wrong. It's not about being out of work. (That's just "unemployment".)

Number two: I omitted it, but Sumner prefaces these thoughts by saying, "But what is so obvious about involuntary unemployment, as defined by Keynes?" That's Sumner's emphasis on the words "as defined by Keynes", not mine.

The first three sentences after those four words all start with the phrase "We all agree". Sumner apparently agrees with Keynes three times. But he is putting words in Keynes' mouth, as we find out in the next sentence after, where Sumner admits he has been giving us his own definition of involuntary unemployment.

But Sumner's is not a definition of involuntary unemployment. It is only a definition of unemployment: without a job, wanting work, and miserable. And it's not even a technical definition of unemployment. It's just some social chatter.

"Involuntary unemployment" is a technical term, defined by Keynes. Pettinger simplifies the concept by choosing to define voluntary employment instead: a refusal to accept work at the going wage.

Funny thing: Sumner gets that wrong, too. He says:

I think they were unemployed because of sticky wages, and that if workers collectively accepted lower wages then we would have had full employment in 1936.

The Depression drove wages down, so that the "going" wage was lower during the Depression than before. Sumner is saying workers refused to accept the going wage (in 1936) because it was lower. This refusal, by definition, makes the unemployment in Sumner's story voluntary. Sumner calls it involuntary. Sumner is wrong.

Keynes establishes the definition:

The classical school [argue] that if labour as a whole would agree to a reduction of money-wages more employment would be forthcoming. If this is the case, such unemployment, though apparently involuntary, is not strictly so ...

Pettinger simplifies it:

Voluntary unemployment is defined as a situation where the unemployed choose not to accept a job at the going wage rate.

It's not complicated. Sumner is wrong.

1 comment:

Philip said...

And here a link showing the theoretical explanation for involuntary unemployment:
The diagrammatical derivation of involuntary unemployment from Keynesian microfoundations

Published in real-world economics review