Why labour markets don't clear

New Keynesians argue that sticky wages prevent labour markets from clearing. I disagree - I think labour markets can eventually clear. But we don't allow them to do so, because the social costs of are far too high. At Pieria, I explain why this is. Read the whole article here.


  1. This comment has been removed by the author.

  2. Goods and services are expendable, people are not , and so a truly free market in goods , services and labour can't be.
    On the subject of absolutes , unemployment is a feature not of a poor country but of a rich one, a country can only have a permanent unemployment level if it can afford it.
    As for the clustering I have heard that wages for bar staff work went down after the minimum wage was introduced.

  3. With capitalism, people are definitely expendable.

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  5. I am big fan of cleaning processes. Money does know where to flow to. It automatically goes to where it's spent. Money cannot decide if you don't need it at the moment or you are too weak acquire what you need. Question is - can that shortcoming be address via a centralized redistribution mechanism. In general no. A minimum wage is good idea since it's a response to that shortcoming in the primary income distribution. It's better to move one's 'ass' early.

    The story with the cheese. Mice in a labyrinth move to another place in order to find cheese. The day will come and there is no cheese anymore. You can search for cheese until you starve to death. when the mice ask the cats the answer is, 'Forget about cheese, bacon is king'. (Taken from a video by Gunther Dueck, not my story). From the centralist perspective the absence of cheese can be observed and communicated but the problem cannot be solved by adding cheese crumbs to the labyrinth.


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