Economic development and unemployment: do they connect?

Purpose – Unemployment is a systemic element of economic development which need not and “normally” does not give rise to full employment of labour regardless of the flexibility in labour markets. This paper aims to address these issues. Design/methodology/approach – The paper presents the common arguments and policy proposals to unemployment put forward by mainstream and Keynesian economics and it continues by exploring the dynamics of economic development and its effects on employment. Findings – The normal utilization of the capital stock is not necessarily associated with any specific level of employment. As a result, even high levels of unemployment may be consistent with the normal (full) employment of capital, and the degree of flexibility in the labour market cannot affect the above result in any significant way. Practical implications – The dynamics of capital accumulation continually tend to reproduce a stream of displaced workers. Moreover, the liberalization of the labour market in the effort to increase labour flexibility have contributed to the polarization of income distribution and increased the poverty rate. Originality/value – The acknowledgment that the normal functioning of capitalism is consistent with a rising unemployment rate may provide policy makers with a solid analytical ground upon which more realistic and viable employment policies can be proposed in the effort on the one hand to reduce unemployment and on the other hand to alleviate its adverse effects on the unemployed and on social cohesion.