Post Keynesian employment analysis and the macroeconomics of OECD unemployment

The Post Keynesian (hereafter PK) theory of employment is derived from Keynes' chapter 3 (1936a) 'The Principle of Effective Demand' where labour-hire demand is derived from an effective demand point determined in the product markets. Tobin (1992, p. 392) states this chapter is 'the most important innovation of the General Theory'. The effective demand principle means that there is an 'employment function' (Keynes, 1936a, ch. 20) relating alternate labour-hire decisions to alternate points of effective demand. There is no aggregate demand for labour schedule with the real wage as the independent variable (Davidson, 1983). This paper is designed to attempt the following: First, to provide (in Section 1) a PK explanation for persistent high unemployment rates experienced by OECD nations since 1973. Second, so the reader can comprehend why this explanation differs from that of NAIRU proponents, it is necessary to explore (Section 2) the logical difference between Keynes's effective demand equilibrium model and the more restrictive axiomatic system underlying the natural unemployment rate concept. Section 3 demonstrates that natural rate explanations of unemployment involve what Keynes (1936a, p.259) called an ignoratio elenchi, i.e., the fallacy of offering proof irrelevant to the proposition in question. Accordingly, only the PK analysis provides a basis for developing policies to solve the OECD's persistent unemployment problem.