Investment Theory of Employment

The investment theory of employment is Hyman Minsky's extension of Keynes's framework in The General Theory of Employment, Interest and Money (1936). Against the textbook model in which employment clears through the intersection of labor supply and demand, Minsky argued that employment is determined by the investment decisions of firms and governments. Firms hire workers when they invest — when they expand capacity, develop new products, enter new markets. They shed workers when they disinvest. The investment decisions are driven by expectations about future profitability, by the availability of financing, and by the institutional environment. Applied to the AI economy, the framework produces a specific prediction: AI's effect on employment depends not on the technology itself but on whether firms convert productivity gains into expanded output (employment-creating) or margin capture (employment-destroying). The choice is shaped by the institutional incentive structure, which currently rewards margin capture.