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Macroeconomic Policy and Employment: A Development Perspective

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  • Rizwanul Islam

    (Employment Sector, International Labour Office)

Abstract

The present paper questions the conventional framework of macroeconomic policies where their primary role is to ensure macroeconomic stability which, in turn, is expected to ensure economic growth and employment. Using empirical evidence on countries of South Asia, it shows that the relationships between economic growth, inflation and budget deficit do not always support the conventional framework. The paper points out that some developed countries, e.g., the USA, have legislated the dual mandate of maintaining price stability and full employment for their monetary policy, and take the labour market situation into account in formulating such policies. In contrast, countries of South Asia seem to be guided more by inflation than by considerations of growth and employment. The paper argues that in developing countries, the notion of full employment cannot be conceptualized in the same way as in developed countries. In such cases, monetary policy would have to be informed by in-depth analysis of the employment and labour market situation. In fiscal policy, the effectiveness of different instruments (e.g., tax rates, and government expenditures) in boosting employment varies. Hence, the choice should be guided by the size of the fiscal multiplier. Experience indicates that public expenditure, especially on infrastructure, should have a greater impact on employment compared to tax reduction.

Suggested Citation

  • Rizwanul Islam, 2018. "Macroeconomic Policy and Employment: A Development Perspective," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 61(3), pages 427-451, September.
  • Handle: RePEc:spr:ijlaec:v:61:y:2018:i:3:d:10.1007_s41027-018-0139-y
    DOI: 10.1007/s41027-018-0139-y
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    References listed on IDEAS

    as
    1. Islam, Rizwanul. & Mujeri, Mustafa K. & Ali, Zulfiqar., 2011. "Fiscal and political space for crisis response with a focus on employment and labour market : study of Bangladesh," ILO Working Papers 994658743402676, International Labour Organization.
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    3. F. Gerard Adams & Byron Gangnes, 2010. "Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers," Working Papers 201010, University of Hawaii at Manoa, Department of Economics.
    4. Bhattacharyya, Nikhilesh., 2012. "Monetary policy and employment in developing Asia," ILO Working Papers 994685223402676, International Labour Organization.
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    6. F. Gerard Adams & Byron Gangnes, 2010. "Why Hasn’t the US Economic Stimulus Been More Effective?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 11(4), pages 111-130, October.
    7. Muqtada, Muhammed., 2015. "Challenges of price stability, growth and employment in Bangladesh : role of the Bangladesh Bank," ILO Working Papers 994873053402676, International Labour Organization.
    8. Dasgupta, Sukti. & Kim, Kee Beom., 2011. "Coordinated macroeconomic, employment and social protection policies in Asia and the Pacific," ILO Working Papers 994665553402676, International Labour Organization.
    9. World Bank, 2012. "World Development Report 2013 [Rapport sur le développement dans le monde 2013]," World Bank Publications - Books, The World Bank Group, number 11843, December.
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