Why aggregate demand matters for understanding unemployment

This paper by William Mitchell and Joan Muysken compares the employment and unemployment experience of the Australian and Dutch economies over the last 25 years. It aims to examine the evidence needed to support Modigliani's (2000) view that in particular misguided government policy has been responsible for persistently high unemployment and the cumulative and permanent losses to social and economic well-being experienced by most OECD economies. In challenging the traditional NAIRU-view, which simplifies the rise in unemployment to a claim of reduced search effectiveness among the unemployed, the paper argues that the ultimate cause of unemployment is the failure of the two economies to produce enough jobs since the mid-1970s. Jobs have to exist before search can be effective. Moreover, job growth is determined by aggregate demand.