ABSTRACT
This chapter provides a simple and systematic treatment of a two-commodity, two-factor general equilibrium model of a closed economy which is widely used in several real models of unemployment. 1 This should be contrasted with models of unemployment that are aggregate in nature and also include money. 2 Of course, it is not being asserted that the aggregate models necessarily require the use of money for generating unemployment. The basic point to emphasize is that real and monetary models should be clearly distinguished from each other. Notable examples of two-sector real models with unemployment are models of trade and unemployment as expounded by Batra and Seth (1977), Brecher (1974), Bhagwati (1983) and Haberler (1950), the Harris-Todaro (1970) model of urban unemployment and, more recently, the Hazari-Sgro (1987) model of urban and disguised unemployment with Nash bargaining. This chapter provides a framework for discussing various two-sector models of unemployment.
