The story of the price adjustment mechanism from a Walrasian world tells us that, in a market, excess supply pulls the price down and excess demand drives the price up, and hence, the market clears. However, there are situations which does not reflect the same story. This rule fails to explain the problem of unemployment which is one of the very predominant phenomenon of almost all economies. Since, unemployment is a typical problem of excess supply of labor, unemployed workers should immediately bid the wage down until the demand and supply match to each other. In reality, wages do not come down enough and unemployment exists. So, a crucial discipline in macroeconomics, namely, the theory of unemployment, has been developed to find suitable theoretical answers to that and identify the non-Walrasian features of the labor market.
|Journal||Indian Statistical Institute, Kolkata|