The
Classical
Approach:
If the principle of supply creating its own demand is made applicable
to the labor market, one would wonder what its effect would be. The number of workers may be
in excess of the available
job opportunities
and the employer’s demand for their services.
Therefore at the existing or going market rate of wages all available working force cannot be
absorbed. Some workers will be rendered
superfluous
and will remain unemployed. The
classical answer to the problem is that like all other goods and their prices workers’ wage rate
should be cut or lowered so that the
employers
will be induced to employ more number of
workers. The condition of
full
employment
can then be restored if workers are agreed upon the
wage cut
solution. Thus flexible rate of wages is a classical approach to solve the problem of
unemployment
.
It is possible that some workers may resist a cut in the wage rate and may remain unemployed.
This
preview
has intentionally blurred sections.
Sign up to view the full version.

This is the end of the preview.
Sign up
to
access the rest of the document.
- Fall '10
- -
- Supply And Demand, wage rate, available job opportunities, wage cut solution
-
Click to edit the document details