THE KEYNESIAN THEORY OF EMPLOYMENT
In the discussion thus far, much has been said about the determination of national income, but nothing directly about the level of employment. As its title indicated, the General Theory was intended as an analysis of employment in the first instance.
Quite clearly variations in the level of economic activity have a major impact on employment and unemployment. But Keynes was fully aware that the relationship between national income and the aggregate demand for labour was difficult to establish precisely. In his search for leverage on this problem he introduced the concept of the wage unit.As an analytical device, the Keynesian wage unit has much in common with the manoeuvres performed by those classical economists who attempted to measure the value of goods in terms of labour. They were obliged to explain how various grades and skills of labour could be reduced to a common denominator. Normally, they treated an hour of unskilled labour as the basic unit. The same unit of time input on the part of members of the labour force whom the market rewarded more highly could be expressed as a multiple of the standard unit. In most classical accounts, however, this technique was not free of internal contradiction.
Keynes adopted a similar procedure for purposes of relating the volume of employment to national income. Differentiation within the labour force could be accommodated by assigning higher weights to the time inputs of persons possessing the more highly remunerated skills.14 Keynes was on more secure logical ground in this exercise than were the classical economists. The latter were at a loss to find a basis for the weighting of skills without appealing to valuations assigned by market place. This introduced supply and demand considerations into an argument which was supposedly based exclusively on physical inputs. Keynes, who had no interest in searching for a criterion of value independent of the market, was not troubled by this complication.
This procedure, though logically sound, was still not ideal. Empirically the relationship between changes in income and changes in employment has been found to be far from tight. The relationship breaks down most conspicuously when employment is reckoned (as it commonly is in popular discussions as well as in official statistics) in terms of the number of persons at work. Employment, when calculated in Keynesian wage units, can be linked more reliably to changes in income. For practical purposes this technique of measurement - in terms of the number of standard hours of labour employed - is unwieldy. None of the employment statistics presently gathered lend themselves to a wage unit type of measurement without enormously time-consuming adjustments.
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