The Marginal Efficiency of Labour.

The article introduces the Marginal Efficiency of Labour (MEL), an expectations-based metric adapted from Keynes’s Marginal Efficiency of Capital, which treats labour as an intertemporal asset whose value depends on firms’ forward-looking expectations about future sales. MEL incorporates a realisability factor reflecting anticipated demand constraints, thereby aligning hiring decisions with expected profitability rather than solely current wages or productivity. The framework develops a Tobin-style q-ratio for labour, expressing the valuation of expected labour returns relative to costs, and explains persistent underemployment equilibria even with flexible real wages. By embedding effective demand and uncertainty directly into labour demand, MEL offers a structural foundation for modelling hiring behaviour in Keynesian macroeconomics and suggests policy implications focused on managing expectations, reducing labour costs, and supporting demand to address involuntary unemployment. [Extracted from the article]