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Government as Employer of Last Resort: Full Employment without Inflation

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  • L. Randall Wray

Abstract

Since, 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 Info

Paper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_213.

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Date of creation: Nov 1997
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Handle: RePEc:lev:wrkpap:wp_213

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Web page: http://www.levyinstitute.org

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. ¿Ingreso universal o trabajo universal?
    by Lucas Llach in La ciencia maldita on 2009-08-17 00:02:49
  2. Some Links & More on Ireland
    by duncanseconomicblog in Duncan's Economic Blog on 2009-12-08 10:19:15
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Cited by:
  1. Julio Lopez-Gallardo & Luis Reyes-Ortiz, 2011. "Effective Demand in the Recent Evolution of the US Economy," Economics Working Paper Archive wp_673, Levy Economics Institute, The.
  2. Mathew Forstater, 1998. "Selective Use of Discretionary Public Employment and Economic Flexibility," Macroeconomics 9802014, EconWPA.
  3. Jon D. Wisman, 2012. "The Growth Trap, Ecological Devastation, and the Promise of Guaranteed Employment," Working Papers 2012-17, American University, Department of Economics.
  4. William Darity, 2013. "From Here to Full Employment," The Review of Black Political Economy, Springer, vol. 40(2), pages 115-120, June.
  5. Tony Aspromourgos, 2000. "Is an Employer-of-Last-Resort Policy Sustainable? A review article," Review of Political Economy, Taylor & Francis Journals, vol. 12(2), pages 141-155.
  6. Mathew Forstater, 1999. "Savings-Recycling Public Employment: An Assets-Based Approach to Full Employment and Price Stability," Macroeconomics 9908003, EconWPA.
  7. Dimitri B. Papadimitriou, 1998. "(Full) Employment Policy: Theory and Practice," Economics Working Paper Archive wp_258, Levy Economics Institute, The.
  8. Georgios Argitis & Stella Michopoulou, 2011. "Are Full Employment and Social Cohesion Possible Under Financialization?," Forum for Social Economics, Springer, vol. 40(2), pages 139-155, July.

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