ABSTRACT
High unemployment in the 1930s provided the background to the Keynesian revolution. Keynesian economics emphasises that resources often remain unemployed, underemployed and unrecognised, that economies can become stuck at levels of demand at which there is persistent involuntary unemployment. Under these circumstances, labour with a strong desire for opportunity (and willingness to accept employment on terms less generous than currently offered to those in jobs) cannot insist on work. Rising unemployment in the 1970s and 1980s provided the background to a new view of unemployment. There are various strands to this counter-revolution (monetarist, rational expectations, neo-classical, new classical macroeconomics), but all stress the importance of individual flexibility and choice. The ‘natural rate’ of unemployment, which is regarded as the market-clearing rate, is consistent with voluntary unemployment and adjustment unemployment: the ‘natural rate’ of unemployment can be reduced if individuals are more flexible and less selective in their employment search (by occupation, industry and region) and the wage they will accept. The individual has control over his/her labour market state – employed, self-employed or unemployed.
