Who Benefits from Unemployment?

Abstract

The question addressed here is not very different from the one in chapters 25 and 26 of The Economics of Imperfect Competition (1933). There, Joan Robinson defines labor as being ‘exploited’ when the wage is less than labor’s marginal physical product valued at the price at which it is being sold: this occurs because firms either have monopoly power in the output market or monopsony power in the labor market. She then discusses the conditions under which the removal of such market imperfections is beneficial to the workers. One of her conclusions is that the existence of economywide imperfections cannot benefit the workers relative to the competitive outcome, since ‘their loss as consumers would more than offset their gain as wage earners’ (p.288).

But, in fact, unemployment falls more heavily upon some individuals than upon others, and there is no level of employment which can be regarded as the most desirable for all of them. (Joan Robinson, ‘Full Employment’, in Essays in the Theory of Employment)

The author is indebted to A. Mas-Colell. He has benefitted from comments by J.-P. Benassy, J.-M. Grandmont, C. Greene and G. Laroque. Some of the present research was reported in Silvestre (1982).