In chapter 3 (p. 23) we have denned the aggregate supply function Z = ϕ(N), which relates the employment TV with the aggregate supply price of the corresponding output. The employment function only differs from the aggregate supply function in that it is, in effect, its inverse function and is defined in terms of the wage-unit; the object of the employment function being to relate the amount of the effective demand, measured in terms of the wage-unit, directed to a given firm or industry or to industry as a whole with the amount of employment, the supply price of the output of which will compare to that amount of effective demand. Thus if an amount of effective demand Dwr, measured in wage-units, directed to a firm or industry calls forth an amount of employment Nr in that firm or industry, the employment function is given by Nr = Fr(Dwr). Or, more generally, if we are entitled to assume that Dwr is a unique function of the total effective demand Dw, the employment function is given by Nr = Fr(Dw). That is to say, Nr men will be employed in industry r when effective demand is Dw.

We shall develop in this chapter certain properties of the employment function. But apart from any interest which these may have, there are two reasons why the substitution of the employment function for the ordinary supply curve is consonant with the methods and objects of this book.