Titelaufnahme

In Chapter 2 of The General Theory of Employment, Interest, and Money (1936), John Maynard Keynes put forward an assumption of downward rigidity in nominal wages as the cornerstone of his analysis of what happens in the labor market over the business cycle. According to his analysis, if the real value of the existing nominal wage exceeds the market-clearing level, downward nominal rigidity prevents arbitrage towards that level. Instead, employment is determined by the short side of the market (the labor demand side), and the excess supply of labor at that wage manifests as high unemployment. Keyness brief theoretical account of why workers refuse to accept a nominal wage reduction, even when unemployment is the consequence, involved workers' concern about their wages relative to their reference group. Keynes did not directly address why workers would be so preoccupied with their relative wage that they would prefer job loss, even during a recession, to accepting a wage cut. Keynes's empirical basis for his assumption was that, "whether logical or illogical, experience shows that this is how labour in fact behaves." He did not provide any quantitative evidence to support this observation.