ABSTRACT
This chapter begins by considering the New Keynesian approaches to the determination of wages and the consequences of that for unemployment, and then seeks to evaluate the empirical relevance of that approach. It is argued that the concepts associated with the New Keynesian approach, such as insider—outsider models, efficiency wage, etc., do not aid in understanding the generally higher levels of unemployment since the mid-1970s (as compared with the 1950s and 1960s) and that the empirical relevance of the New Keynesian approaches to wage setting appears to be declining. The second purpose is to argue that a related strand of the New Keynesian approach, namely the non-accelerating inflation rate of unemployment (hereafter NAJRU) imposes a severe constraint on thinking about the causes of and cures for high levels of unemployment, and could be seen as a contributory factor to the prevailing levels of unemployment. Third, it is argued that New Keynesian macroeconomics pays no attention to aggregate demand (nor indeed to the roles of investment and pervasive uncertainty), and hence does not deserve the name Keynesian.
