Dictionary

classical unemployment en · NOUN

Meanings

1. (uncountable) The component of overall unemployment caused by too high wage expectations.
   • There can be "Keynesian" and "classical" unemployment. Indeed there can be both at the same time: the real wage might be too high to allow full employment with existing capital stock, while at the same time aggregate demand is inadequate to take off the market what firms would wish to produce. Changes in the real wage could have demand-side and supply-side effects. 1987 8 December, Nobel laureate Robert M. Solow in his prize lecture
   • In the standard fix-price model of price-taking competitive firms, Keynesian and classical unemployment are separate states according to whether notional product supply exceeds or falls short of market demand at the prevailing wage and price configuration, so that labor demand is either output constrained and determined by the inverted production function (Keynesian unemployment), or firms are on their notional product supply and labor demand functions but the real wage exceeds the Walrasian full-employment level (classical unemployment). Thus labor demand is independent of the real wage in the Keynesian state and depends only on the real wage in the classical state. 1988, Robert M. Coen, Bert G. Hickman., “Is European Unemployment Classical or Keynesian?”, in The American Economic Review, volume 78, number 2, pages 188–193:
   • Classical unemployment is the result of real wages being above their market clearing level leading to an excess supply of labour. 2006 September, Geoff Riley, Head of Economics, Eton College