This chapter is designed to fill a lacuna in most contemporary work in the comparative political economy of unemployment — that is, that little serious attention is paid to the developments of macroeconomic theory that have taken place over the past two decades. During that period much mainstream (at least Harvard/MIT/London School of Economics [LSE﹜) macroeconomics has moved toward a broader New Keynesian (NK) position and away from a simplistic neoclassical (NC) approach - if it had ever really been there. New Keynesian models differentiate themselves from the NC model in the attention they pay to three elements: equilibria in which unemployment is involuntary; the role of aggregate demand and of monetary and fiscal policy; and the operation of open economies.

The first goal of the chapter is analytic: It is to provide an understanding of the differences between the NK and NC approaches in ways that will be useful to political economists working on comparative unemployment. In fact the logical structure of NK models parallels that of the neoclassical; indeed the NC model can usefully be seen as a special case of the NK. In important respects the NC model can be identified with the deregulated approach to labor markets, whereas unionized labor markets fit in more easily with NK models. This gives an analytic tool to discuss comparisons between them.

The second goal stems from this: that most quantitative, comparative, political-economic analyses of unemployment have paid attention to only one of the three differentiating elements of NK models mentioned above - namely, involuntary unemployment in equilibrium. Little attention has been directed toward the role of aggregate demand in causing unemployment; and virtually no interest has been shown in the openness and interdependence of advanced economies. Yet much of the unemployment in Northern Europe in the 1990s has been caused by the sharply deflationary policies of the hegemonic economic power of the region, Germany, combined with the interdependence — as a result of the European Monetary System — and openness of the economies of the region. Since these economies have centralized or coordinated systems of wage bargaining, and since the more deregulated Anglo-Saxon economies have pursued expansionary macroeconomic policies over the same period, political economic analyses of unemployment that focus only on the institutions of wage bargaining give potentially misleading results.