5-12
The employment so created is strictly limited if the newly employed
workers save part of their additional income. But as rising employment and
output approach the physical limits of productive capacity, that may
stimulate investment as well; and an investment-connected multiplier, of
course, requires no price reductions nor extra sales effort. In short, the
employers 1 excess demand for labor in a producer-dominated labor market is
quite likely to generate upward cumulative processes in the face of economy
wide unemployment. Accordingly, generalized, nationwide unemployment, if not
incompatible with a producer-dominated labor market, is at least likely to be
mitigated and unlikely to persist.
(As an aside, let me mention the use of the above argument in
relating the macroeconomic theory of the multiplier to the microeconomic
theory of the price-maker employer's response to the availability of
unemployed labor, and in making more explicit how and why an upward
multiplier process can increase employment and output without also
raising x-rages and prices.)
So far, I was trying to show how the price maker's excess
demand for labor leads him to employ additional workers involuntarily
unemployed. The same excess demand, however, can also keep him from
firing workers when demand for his products declines. for he may
well find it profitable to respond to the fall in sales by trying to
restore them through a price reduction or increased advertising,
while keeping wages and the number of \vorkers employed unchanged.
That conclusion follows from the fact that since the MVP of
labor is initially higher, perhaps quite a bit higher than the