CHAPTER 20

The Employment Function 1

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In Chapter 3 (p. 25) we have defined the aggregatesupply function Z = <p( N), which relates the employ-ment N with the aggregate supply price of the cor-responding output. The employment junction onlydiffers from the aggregate supply function in that it is,in effect, its inverse function and is defined in terms ofthe wage-unit; the object of the employment functionbeing to relate the amount of the effective demand,measured in terms of the wage-unit, directed to a givenfirm or industry or to industry as a whole with theamount of employment, the supply price of the outputof which will compare to that amount of effectivedemand. Thus if an amount of effective demand D wr ,measured in wage-units, directed to a firm or industrycalls forth an amount of employment N r in that firmor industry, the employment function is given byN r = F r (D wr ). Or, more generally, if we are entitledto assume that D„ r is a unique function of the totaleffective demand D w , the employment function is givenby N r = F r (Du,). That is to say, N r men will be em-ployed in industry r when effective demand is D„,.

We shall develop in this chapter certain propertiesof the employment function. But apart from any in-terest which these may have, there are two reasonswhy the substitution of the employment function for

1 Those who (rightly) dislike algebra will lose little by omitting thefirst section of this chapter.

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