A post-Kaleckian, post-Olsonian approach to unemployment and income inequality in modern varieties of capitalism

Arne Heise

The ‘big trade-off’, described by Arthur Okun some thirty years ago, is back again. Equality or efficiency, or to put it differently again: modern highly developed economies and societies must choose between the Scylla of income inequality or the Charybdis of unemployment. Furthermore, it seems that the continental European economies — foremost Germany and France — have sided with more egalitarian ends accepting higher unemployment. This has occurred whilst the liberal economies such as the United States and the United Kingdom choose higher inequality for lower unemployment. In this paper it is argued that the trade-o is not a supply-side necessity to maintain work effort in a situation of incomplete contracts, but is a politico-economic issue between particular interest groups to seek rents. However, unlike in Mancur Olson’s seminal approach, it is not the trade unions which are forming distributional coalitions on the labor market. Rather, it is the meritocracy who are happy to use Keynesian-type demand management in order to advance their material interests by pursuing a ‘Meritocratically Optimal Rate of Unemployment’ (MORU).