The classical theory of employment is criticized on the following grounds:

(1)    Equilibrium Level need not be full Employment Level. At the equilibrium level, it is not necessary that full employment may be attained. Aggregate demand may be equal to aggregate supply at less than full employment level. Keynes calls it ‘under-employment equilibrium’. He points out that all the factor income generated during the process of production need not be spent of consumption. A part of the factor income may be saved. unless the investors are willing to invest an amount equivalent to the amount of saving, the total expenditure will not be equal to total output available for sale. In such a situation, producers will not sell their entire output. Consequently, the profit will fall and the producers will be compelled to reduce their output which will create unemployment.

(2)    Rate of Interest is not the true Determinant of Saving and Investment. In the classical system, both saving and investment are the functions of the rate of interest, and therefore, equality between saving and investment can be attuned through changes in the rate of Interest. prof. Keynes says that decisions about saving and investment are taken by the two fundamentally different groups of people. Saving is not only determined by the rate of interest but also by the level of money income. likewise, investment is not influenced by the rate of interest alone, it also depends upon the marginal efficiency of capital.

(3)    Theory is applicable only in the long run. Full employment equilibrium in the classical system is attained in the long run. but, according to prof. Keynes, “in the long run we are all dead, and after death, there is no economic or non-economic problem. “Most of our problems arise in the short run (particularly the problem of employment) and their solutions must also be found in the short run. If unemployed workers are assured good jobs after three years, the questions arises that how will they survive for three years.

(4)    Employment and output are not eh function of wage rate. Classical thinkers believed that the level of employment and income can be raised by curtailing the wage rate. But, according to Keynes, employment is not a function of wage rate but of effective demand. Curtailment of wage rate brings a fall in aggregate demand, it will discourage investment, as a result, the level of output and employment will decrease.

(5)    Existence of over-production or under-production cannot be overruled. The classical assumption of no general glut (over-production) or under-production labour force was rendered unemployed in the USA. The producers found it difficult to sell off all their output and there was general glut in the economy.

(6)    Full employment is not a normal situation. The classical assumption of full employment as a normal situation is also unreal. According to Keynes, unemployment is a general situation and full employment is a rare exception. Full employment is an ideal situation which can rarely be attained by an economy.

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