Unemployment, capital accumulation and labour market institutions in the Great Recession*

This paper restates the post-Keynesian view of unemployment within a NAIRU framework. In the short run, the private effective labour demand need not be downward sloping because of debt deflation and wage-led demand regimes. In the medium run, the NAIRU will be endogenous because of the social norm character of wage setting and the supply-side effects of capital accumulation. Capital investment rather than labour market institutions is the crucial variable that explains changes in unemployment performance. We provide econometric evidence that the post-Keynesian view holds up well in the recession following the crisis of 2008.