ABSTRACT
The neoclassical market clearing model is built upon pre-Keynesian economic theory, while the post-Keynesian/institutionalist (PKI) approach builds on the insights of John Maynard Keynes, combined with the institutionalist’s emphasis on historical and social context. Neoclassical economic theory treats the labour market in the same way that it analyses all markets, as the arena which co-ordinates the rational self-interest actions of individual economic actors. The post-Keynesian/institutionalist explanation of unemployment differs from neoclassical economics in two regards: they have not forgotten the essential message of John Maynard Keynes, that the economy has no self-correcting mechanism to bring it to full employment; and they have a very different view of how labour markets behave. The main difference between neoclassical economic theory and PKI theory is the treatment of historical and social factors, that is, the institutional structure of the society and economy.
