Paradox of toil
The paradox of toil is the economic hypothesis that, under certain conditions, total employment will shrink if there is an increased desire among the population to take on paid work. According to the macroeconomist Gauti Eggertsson, this occurs when "the short-term nominal interest rate is zero and there are
deflationary pressures and output contraction".
The paradox of toil was proposed by Gauti Eggertsson in 2009.[2] The term was coined to parallel the "paradox of thrift", a concept resurrected by John Maynard Keynes and popularized under that name by Paul Samuelson.[3]
Debate
- seasonal fluctuations in the job market in 2009;
- the increase in the U.S. minimum wage in 2009.
These, he said, failed to demonstrate the paradoxical effects.[4][5]
Eggertsson responded that seasonal labor supply variations, being relatively predictable, would have negligible effect on nominal short-term interest rates; and that an increase in the minimum wage affected only aggregate employment, with paradox of toil saying nothing about composition.[6]
Paul Krugman and Eggertsson have since proposed that the paradox of toil and the paradox of flexibility mean that wage and price flexibility do not facilitate recovery from recessions during a liquidity trap, but actually exacerbate them.[7]
Influence
The reasoning behind the paradox of toil, together with the paradox of flexibility, has led to speculation that there might be a "paradox of innovation" by which greater labor productivity or cheaper products reduces demand for labor, which reduces wages, and therefore reduces demand overall.[8]
See also
- Baumol's cost disease
Notes
- ^ a b Eggertsson, Gauti (February 2010). "The Paradox of Toil" (PDF). NY Fed Staff Report (433). New York, NY: Federal Reserve Bank of New York. Retrieved 23 April 2011.
- ^ Krugman, Paul (14 December 2009). "A New Paradox". Conscience of a Liberal (blog). The New York Times. Retrieved 24 April 2011.
- ISBN 0-07-123932-4.
- S2CID 154069428.
- Mulligan, Casey (16 December 2009). "A 'Paradox of Toil?". Economix: Explaining the Science of Everyday Life. The New York Times. Retrieved 24 April 2011.
- )
- ^ Eggertsson, Gauti B.; Krugman, Paul (14 February 2011), Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach (PDF), archived from the original (PDF) on 3 October 2011, retrieved 23 April 2011
- ^ Baxter, Michael (22 November 2010). "Why the super rich should pay more tax, and the rest should pay a lot less". Investment & Business News. IABN. Archived from the original on 21 December 2010. Retrieved 24 April 2011.
External links
- "Double, double, toil and trouble: the paradox of toil", The Economist: Free Exchange, 2 May 2010
- The paradox of toil, Money Supply, Financial Times, 15 December 2009
- "Up is down", The Economist: Free Exchange, 14 December 2009