Involuntary unemployment: rehabilitating Keynes' definitions

Keynes' definitions of involuntary unemployment have been criticised by a number of researchers, including Sawyer and Spencer (2008) who argue that the definitions are model specific and can be inconsistent with the presence of unemployment under imperfect competition. This paper argues that their work highlights the problems of retaining an orthodox (real wage) framework to analyse involuntary unemployment. Missing from their analysis is a formal macroeconomic analysis of aggregate demand and supply and a more nuanced treatment of the labour market by treating money wages and prices separately. This paper shows that subject to a small amendment to Keynes' first definition to allow for nonneoclassical specifications of production, the definitions are robust, notwithstanding different configurations of labour demand and supply schedules.