Competing Theories of Unemployment and Economic Policies: Evidence from the U.S., Swedish and German Economies

Abstract

The objective of the paper is to evaluate the explanatory power of three competing core interpretations and economic strategy approaches to unemployment. The first is the neo-classical hypothesis according to which the rigidities in the labour market are responsible for the presence of unemployment. The second is the Keynesian hypothesis according to which the market system fails to create adequate effective demand for the full employment of labour. Finally, the third is the classical/Marxian model according to which employment or unemployment are depended on the dynamics of capital accumulation. The econometric analysis uses data from the US, German and Swedish economies which are characterised by quite diverse labour market structures. The results of empirical analysis reveals that the explanatory content of both the Keynesian and the dassical/Marxian core models fared better than the mainstream approach.

Keywords: Unemployment

JEL Classification: C22