Work for all those who want it? Why the neoclassical labour supply curve is an inappropriate foundation for the theory of employment and unemployment

Abstract

This paper questions the usefulness of the neoclassical labour supply curve as a factor in the theory of employment and unemployment. This curve rests on the false premise that workers can 'choose' whether to work or not, and gives credence to the idea that all unemployment constitutes chosen leisure. Despite this, it was used by Keynes to define the point of full employment. This contributed to the misleading impression that the level of full employment is determined by psychological factors. Challenging this view, Joan Robinson sought to integrate a wider set of issues into the theory of labour supply, in order to build a different (non-neoclassical) foundation for Keynes's theory of effective demand. Drawing upon Robinson, the paper argues against the use of the neoclassical labour supply curve within macroeconomic analysis. Copyright 2006, Oxford University Press.