The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Involuntary Unemployment

  • John B. Taylor
Reference work entry


The most common and analytically useful definition of involuntary unemployment is based on the labour supply curve: if workers are off the labour supply curve – so that there is an excess supply of labour at the current real wage – then, by definition, there is involuntary unemployment. The amount of involuntary unemployment is equal to the amount of excess labour supply. If workers are on the labour supply curve, then, by definition, there is no involuntary unemployment. One could analogously define involuntary overemployment as a situation of insufficient supply of labour at the prevailing real wage (as may occur during wartime with wage and price controls), but the term is seldom used.


Aggregate demand Efficiency wages Frictional unemployment Incentive wages Involuntary unemployment Labour supply Marginal rate of substitution Matching Minimum wages Natural rate of unemployment Nominal wages Non-accelerating inflation rate of unemployment (NAIRU) Optimal contracts Real business cycles Real wages Search theory Staggered wage setting Sticky wages Unemployment Unemployment measurement Wage differentials Wage rigidity 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Azariadis, C. 1975. Implicit contracts and underemployment equilibria. Journal of Political Economy 83: 1183–1202.CrossRefGoogle Scholar
  2. Baily, M.N. 1974. Wages and employment under uncertain demand. Review of Economic Studies 41: 37–50.CrossRefGoogle Scholar
  3. Barro, R.J., and H. Grossman. 1971. A general disequilibrium model of income and employment. American Economic Review 61: 82–93.Google Scholar
  4. Calvo, G. 1979. Quasi-Walrasian theories of unemployment. American Economic Review: Papers and Proceedings 69: 102–107.Google Scholar
  5. Casson, M. 1983. Economics of unemployment. Oxford: Martin Robertson.Google Scholar
  6. Clower, R. 1965. The Keynesian counter-revolution: A theoretical appraisal. In The theory of interest rates, ed. F.H. Hahn and F.P.R. Brechling. London: Macmillan.Google Scholar
  7. Diamond, P. 1982. Aggregate demand management in search equilibrium. Journal of Political Economy 90: 881–894.CrossRefGoogle Scholar
  8. Fellner, W. 1976. Towards a reconstruction of macroeconomics: Problems of theory and policy. Washington, DC: American Enterprise Institute.Google Scholar
  9. Friedman, M. 1968. The role of monetary policy. American Economic Review 58: 1–17.Google Scholar
  10. Green, J., and C. Kahn. 1983. Wage employment contracts. Quarterly Journal of Economics 98(Supplement): 173–187.Google Scholar
  11. Grossman, S.J., and O. Hart. 1983. Implicit contracts, moral hazard, and unemployment. American Economic Review 71: 301–307.Google Scholar
  12. Keynes, J.M. 1936. The general theory of employment, interest and money. London: Macmillan.Google Scholar
  13. Kydland, F., and E.C. Prescott. 1982. Time to build and aggregate fluctuations. Econometrica 50: 1345–1370.CrossRefGoogle Scholar
  14. Leijonhufvud, A. 1968. On Keynesian economics and the economics of Keynes. New York: Oxford University Press.Google Scholar
  15. Lucas, R.E. Jr., and E.C. Prescott. 1974. Equilibrium search and unemployment. Journal of Economic Theory 7: 188–209.CrossRefGoogle Scholar
  16. Lucas, R.E. Jr., and L. Rapping. 1969. Real wages, employment, and inflation. Journal of Political Economy 77: 721–754.CrossRefGoogle Scholar
  17. MaCurdy, T.E. 1981. An empirical model of labour supply in a life cycle setting. Journal of Political Economy 89: 1059–1085.CrossRefGoogle Scholar
  18. Malinvaud, E. 1977. The theory of unemployment reconsidered. Oxford: Basil Blackwell.Google Scholar
  19. Patinkin, D. 1965. Money interest and prices, 2nd ed. New York: Harper & Row.Google Scholar
  20. Phelps, E.S., et al. (eds.). 1970. Microeconomic foundations of employment and inflation theory. New York: W.W. Norton.Google Scholar
  21. Taylor, J.B. 1980. Aggregate dynamics and staggered contracts. Journal of Political Economy 88: 1–23.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • John B. Taylor
    • 1
  1. 1.