Vip Call US 📞 7738631006 ✅Call Girls In Sakinaka ( Mumbai )
Classical theory of employment
1. Classical Model of Employment
Prepared by:
Surbhi ; Rudrakshi ; Divyani ;
Harleen ; Pooja ; Shubhra.
B.Com (PC) Sem V
2. Introduction
The classical economists believed
in the existence of full
employment in the economy. To
them, full employment was a
normal situation and any
deviation from this regarded as
something abnormal. the
tendency of the economic
systems is to automatically
provide full employment
4. Say’s law of market
“Supply creates its own demand”
Production creates demand for goods
General over production is impossible
Saving investment equality
Rate of interest as determinant factor
Labour market
6. Wage price flexibility
Classical economist believed in full employment
situation
In case of unemployment, a general wage cut in
money wage to the full employment situation
Demand of labour < supply of labour
Demand falls » fall in demand of labour
Fall in wage rate » rise in demand of labour
Unemployment removed » full employment
7. Labour market equilibrium
Demand & supply of labour is function of wage rate
Demand for labour is decreasing function of wage
rate
Supply of labour is increasing function of wage rate
8. Full Employment
Full employment refers to that situation in which at a given
level of real wage demand of labour is equal to the available
supply of labour.
All those people get employment who are willing to work at
prevailing wage rate
Demand of labour = Supply of labour
9. Determination of employment and output
Factors of production:
P = f{land,labour,capital,technology}
In short run,supply of labour
increases therefore production will
increased
Law of diminishing return:
Output increases less propotionately
with employment
10. Determination of employment and output
Demand & Supply of labour:
Demand increase with
decrease
In wage rate and vice versa
Supply increase with
decrease in
Wage rate and vice versa
11. Determination of employment
Demand of labour =
Supply of labour
At real wage rate
labour and entrepenuer
are in equilibrium
no. of labour willing to
supply their labour and
gets maximum
satisfaction
12. Explanation of Classical Theory
Real wage = money wage
DD < SS{unemployment}
money wage decreases
real wage decreases
demand increases
therefore DD = SS{full
employment}
13. Criticism
• Underemployment situation
• Refutation of say’s law
• Overproduction is possible
• Long run analysis unrealistic
• State intervention is essential
• Money is not neutral