Answer to Question #209392 in Macroeconomics for econ

Question

role of involuntary unemployment in the labour discipline model

Answer 1

Solution

Involuntary unemployment is a situation where workers are willing to work at the market wage or just below but usually prevented by factors beyond their control. These factors could include deficiency of aggregate demand, labour market inflexibilities, implicit wage bargaining and efficiency wage theory.

In the labour discipline model, involuntary unemployment is associated with insufficient aggregate demand and so is closely related to demand deficient unemployment.

In equilibrium, both wages and involuntary unemployment have to be high enough to ensure employment rent is high enough for the workers to put in effort.