EFFECTIVE EMPLOYMENT THEORY AND THE PARADOX OF ECONOMIC GROWTH

China has seen the paradox since 1997 that unemployment is not decreasing and the price level is low while the economy is growing. The macroeconomic source of them is the distorted macroeconomic relationships and abnormal effects of output on the employment and the price level. The effective employment theory argues that the microeconomic source is the low effective employment, which is the firms' internal stock resulting from the existed system of employment. If the less effective employees are released or become more effective, the productivity of labor and therefore the output will increase.