From Wage Rigidities to Labour Market Rigidities: A Turning-Point in Explaining Equilibrium Unemployment?

This paper offers a critical discussion of the concept of labour market rigidity relevant to explaining unemployment. Starting from Keynes’s own view, we discuss how the concept of labour market flexibility has changed over time, involving nominal or real wage flexibility, contract flexibility or labour market institution flexibility. We also provide a critical assessment of the factors that lead the search framework highlighting labour market rigidities (frictions) to challenge the more widespread explanation of equilibrium unemployment grounded on wage rigidity.