Labor Markets, Unemployment, and Minimum Wages: A New View

This paper presents an alternative macroeconomic framework for understanding labor markets and unemployment. The approach breaks with the standard model which maintains that unemployment is the result of high and rigid wages, and instead focuses on the structural characteristics of labor exchange. Unemployment can arise even if wages are flexible and labor markets competitive. This is because the wage rate is used to determine the level of hours rather than clear the jobs market. Minimum wages can actually increase employment as measured by jobs.