Government as Employer of Last Resort: Full Employment without Inflation
AbstractSince, WWII, it has been the stated policy of the U.S. government to simultaneously pursue high employment and stable prices. Paradoxically, neither accepted economic theory nor practical experience appears to indicate that high or full employment is even possible with stable prices. In this paper, we argue that stable prices and truly full employment are indeed possible. In fact, the Humphrey-Hawkins Act sets the goalpost too low; we argue that the government can guarantee a zero unemployment rate, defined as all who are ready, willing, and able to work at the going wage will be able to find a job--only those unwilling (or unable) to work at the going wage would be left without work (which are not normally counted as unemployed). The government does this by acting as the employer of last resort, offering to hire all who show up to work at a fixed wage. In doing so, the government ensures that all who are ready, willing, able to work at that wage will be provided a job. At the same time, by setting this wage, the government will provide a price anchor that will impart price stability to the system, that is, we will show that a true full employment policy is not, in itself, "inflationary" and indeed could reduce inflationary pressures under some conditions. Further, the full employment policy would help to reduce economic fluctuations (the "business cycle") through a powerful built-in automatic stabilizer feature.
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Bibliographic InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_213.
Date of creation: Nov 1997
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Other versions of this item:
- L. Randall Wray, 1998. "Government as Employer of Last Resort: Full Employment Without Inflation," Macroeconomics, EconWPA 9802006, EconWPA.
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
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by Lucas Llach in La ciencia maldita on 2009-08-17 00:02:49
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by duncanseconomicblog in Duncan's Economic Blog on 2009-12-08 10:19:15
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- Tony Aspromourgos, 2000. "Is an Employer-of-Last-Resort Policy Sustainable? A review article," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(2), pages 141-155.
- Mathew Forstater, 1998. "Selective Use of Discretionary Public Employment and Economic Flexibility," Macroeconomics, EconWPA 9802014, EconWPA.
- Julio Lopez-Gallardo & Luis Reyes-Ortiz, 2011. "Effective Demand in the Recent Evolution of the US Economy," Economics Working Paper Archive, Levy Economics Institute wp_673, Levy Economics Institute.
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