By John Weeks (auth.)
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Additional resources for A Critique of Neoclassical Macroeconomics
While post-Keynesians, Leijonhufvud for example, have sharply attacked the neoclassical treatment of the labour market on other grounds, they have implicitly or explicitly accepted this analogy between the sale of labour services and the sale of other commodities. l(a) take on particular meaning. If the prevailing wage is w(o), the demand for labour is l(o), corresponding to point A' on the demand schedule. This amount, l(o), should not be thought of as the level of employment, but rather the job openings businesses would offer at such a wage.
The argument is as follows: workers have a commodity to sell, labour services; when they are unable to sell all the units of this commodity that they wish to sell at the prevailing price, they reduce the offer price until the amount they wish to sell can be sold. The analogy with a producer of commodities is clear: a farmer, for example, takes his or her potatoes to market and makes an offer; unable to sell all of the potatoes, he/she offers them at a lower price, and continues to reduce the offer price until all are sold.
If this does occur, then within the model itself a change is required which contradicts the basis upon which the real variables are constructed: the model is specified in terms of constant relative prices, but changes in the level of aggregate demand result in relative price shifts. Keynesian neoclassicals argue that this contradiction arises only when the model is very close to its maximum real output position (full employment of resources). When there is unemployed labour and unutilised plant, they argue, supply of all commodities can be treated as forthcoming at constant prices.