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Underemployment Equilibrium

Definition

In Keynesian economics, underemployment equilibrium is a situation with a persistent shortfall relative to full employment and potential output so that unemployment is higher than at the NAIRU or the "natural" rate of unemployment.

Underemployment Equilibrium

What is 'Underemployment Equilibrium'

A condition where underemployment in an economy is persistently above the norm and has entered an equilibrium state. This, in turn, is a result of the unemployment rate being consistently above the natural rate of unemployment or non-accelerating inflation rate of unemployment (NAIRU due to sustained economic weakness.

Explaining 'Underemployment Equilibrium'

Underemployment in an economy implies that workers have to settle for jobs that require less skill than they possess, or that offer lower wages or fewer hours than they would like. The degree of underemployment is dictated by the strength (or lack thereof) of the job market, and tends to rise when the economy and employment are weak. Advocates of Keynesian economics suggest that a solution to an underemployment equilibrium state is through deficit spending and monetary policy to stimulate the economy.


Underemployment Equilibrium FAQ

What is underemployment equilibrium Class 12?

Answer: Underemployment equilibrium is when there is balance and aggregate demand is the same as aggregate supply below full employment level or when resources are underutilized.

What is the cause of underemployment?

Underemployment could be as a result of unfavorable economic conditions, such as a recession, which occurs when economic activities reduce. Underemployment is what happens when there are more workers than jobs available, there are layoffs, or when there is a technological change.

What gaps exist when equilibrium does not occur at full employment?

When demand is less than full employment level of output, it is called deficient demand which causes under-employment equilibrium. It results in deflationary gap, i.e., gap between aggregate demand and 'aggregate supply at full employment'.

Can an economy be in equilibrium when there is unemployment?

Yes, it's possible to be in equilibrium when there is unemployment, only when the aggregate demand and aggregate supply are the same in the economy at a level where the resources are underutilized.

What do you mean by full employment equilibrium?

Full employment equilibrium occurs when aggregate demand equals aggregate supply where all resources are fully utilized.

What is the difference between equilibrium unemployment and disequilibrium unemployment?

The difference Qb-Qe is the disequilibrium unemployment, which happens when labour supply increases. Equilibrium Unemployment is the difference between those who wants to work and those willing and able to start working at current wage rate.

Further Reading

On the existence of a Keynesian equilibriumOn the existence of a Keynesian equilibrium
www.jstor.org [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

A 'static model of a dynamic process': underemployment equilibrium with flexible wages and pricesA 'static model of a dynamic process': underemployment equilibrium with flexible wages and prices
www.elgaronline.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

US fiscal policy, Keynes, and Keynesian economicsUS fiscal policy, Keynes, and Keynesian economics
www.tandfonline.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Keynes and equilibrium: a noteKeynes and equilibrium: a note
link.springer.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Possible policy implications of modern underemployment equilibrium theoryPossible policy implications of modern underemployment equilibrium theory
link.springer.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Is probability theory relevant for uncertainty? A post Keynesian perspectiveIs probability theory relevant for uncertainty? A post Keynesian perspective
www.aeaweb.org [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Some Negative Thoughts on Friedman's Positive EconomicsSome Negative Thoughts on Friedman's Positive Economics
www.tandfonline.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Financial distress and underemploymentFinancial distress and underemployment
academic.oup.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Macroeconomic theory and stabilization policyMacroeconomic theory and stabilization policy
ora.ox.ac.uk [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …

Economic development: then and nowEconomic development: then and now
onlinelibrary.wiley.com [PDF]
… Since Keynesian economics is concerned with certain questions arising in a monetary economy, the uncertainty of a positive … and proved formally in Lemma 2 and is an essential piece of the proof of an under- employment equilibrium … 330 REVIEW OF ECONOMIC STUDIES …


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Section 508

WCAG 2.0

Section 508