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The Review of Economic Studies, Ltd.

A Note on Long-Run UnemploymentAuthor(s): M. KaleckiReviewed work(s):Source: The Review of Economic Studies, Vol. 18, No. 1 (1950 - 1951), pp. 62-64

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A Note on Long-RunUnemploymentI. Unemploymentrising n depression s frequently onsidered s resultingmerely romyclical luctuationsn effectiveemand.However,fthere s unemploy-ment n somephase ofthebusiness ycle t follows irectlyhat theaverageunem-ployment ver he cycle s also > o. This simple act eads up to the problemwhether

and underwvhatonditionshedepressional nemployments tantamount o a long-rundeficiencyneffectiveemand.2. In the subsequent iscussion,we shall denoteby E actual employment,ndby Ef full mploymentt a given ime. The concept femploymentas a clear-cutmeaning nly n a " developed conomy." n an under-developedconomy he prob-lem s complicated y widespread isguised nemployment. e shall confine urselveshereto the considerationfdeveloped conomies nly. In linewiththiswe assumethatunemploymentoesnot ariseas a result f nadequateproductive quipment. nthefirst pproximation e also neglect rictionalnd seasonalunemployment hichis rather mall wheneffective emand s high. Thus,whenactual employment isless thanfull mploymentf theunemploymentf - E is assumed o be accountedforby inadequate ffectiveemand n the sensethat with ufficientlyigheffectivedemandE wouldreach he evelEf.3. We shall denoteby " demanded mployment Ed the level of employmentwhichwould be reachedat a given evel of demandprovided he supplyof labourwere adequate. Thus when actual employment is below the full employmentlevel Ef, the " demanded mployment Ed = E. This is the case of deficiency feffectiveemandwhich s characterisedythe nequality f > Ed = E. The case offullemploymentwill arisewhen: Ef _ Ed E.When" demanded mployment Ed exceeds he full mploymentevelEf, actualemployment = Ef. Thiswillbe clearly he case ofscarcity f abourwhich s thuscharacterisedythe nequality: Ed > Ef = E.

4. The case ofscarcity f abouror " over-employmentmayarise,for nstance,if at full mploymentf a given abour forceworking itha givenproductivityhedemandfor nvestment oods s increased.The productionf nvestment oods maythennot be increased ecauseof abourshortage,nd theirpriceswill rise or orderswillbe " stretched."Or abourwillbe drawn romonsumptionoods ndustriesntoproductionfinvestment oods; and this will result n the reduction fsupplyofconsumptionoods,whichwill ead to therise nprices fthesegoodsand to the fallin realwages. Thusscarcity f abourwillbe reflectedn thescarcity f nvestmentorconsumptionoodsand inincreases f therespective rices.The state of " scarcity f labour" in developedcapitalist conomies eemstohaveappearednonly xceptionalnstances. t is only ntimes fwaror n mmediatepost-war eriods hat nflationsssociatedwith abour hortage ave arisen.One reasonfor hismaybe a certain lasticity oth nEf andEd at a given evelofhighdemandwllich ends o eliminatehegap Ed - Ef. The total abourforce fmay increaseunderthe pressure f demandthrough mmigrationr through heincreasen gainful mploymentf women, tc. On the otherhand, abour shortagewill nduce n increase n productivityhrough pplication f abour-savingevices.This willreduce mploymentd required o satisfy hedemandfor given evel ofoutput.In particularmigrationromountryo townmay take place inthese ircum-stances ccompanied y increased roductivitynagriculture.We shall abstractfrom he case of labourshortage husconfiningurselves owhat seems o be the"normal" situationndeveloped apitalist conomies.62

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A NOTE ON LONG-RUN UNEMPLOYMENT 635. We arethus eftwith he condition:Ef > Ed = Ewhich overs hecase offull mploymentrof deficiencyfeffectiveemand ausingunemployment. hroughouthis note, it is assumedthat in depressionshere sunemployment,.e.

Ef > Ed - E.If wedenote herespectiveverages ver hecyclebyEf,Ed and E itfollows irectly:Ef >Ed= E.This means that on our assumptions he unemploymentrising n depressionsstantamounto the existence f a deficiencyn effectiveemand nthe average ntheperiod fa cycle.To sum up, we postulatedthe following eaturesof a developedcapitalisteconomy:(a) Productivequipmentdequateto achievefull mployment;(b) No shortage f abourduring ooms;(c) Unemploymentn depressions.It followed irectly hat an economy ubjectto such featuress of necessitycharacterisedya long-runeficiencyn effectiveemand.6. The question arisesnow how wouldthe businesscyclebe affected y thedisappearance f long-run eficiencyn effectiveemand? If the averageeffectivedemandovera longperiodwere adequateforthemaintenanceffullemployment,does tmeanthat cyclical luctuationsouldbe virtuallyliminated It maybe hownthatthisneednotbe thecase.First, t is feasible hat n some nstances urassumptionbouttherebeingnoscarcity f abour n the boom wouldnot be then nymorevalid. Effectiveemand

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