Question

According to neoclassical economics and Keynesian economics, what are the causes of involuntary unemployment?

Answer 1

Answer - Involuntary unemployment exists when people are willing to work at the exisiting wage rate but are not able to find the job.

In the keysian economics this unemployment occurs when the aggregate demand decreases. When the AD decreases , wages are sticky downward but the output is low. This raises cost for producer and hence employs less worker resulting in unemployment

In the neoclassical economics , efficiency wages exists . These efficiency wages when rises above the equilibrium create less demand for labor leading to unemployment.