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Unemployment benefits, the ‘added worker effect’ and income distribution in a monetary economy

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  • Guglielmo Forges Davanzati

    ()
    (University of Salento)

  • Andrea Pacella

    ()
    (University of Sannio)

Abstract

This paper focuses on the effects of public expenditure for unemployment benefits on the path of income distribution, within the theoretical framework of the monetary theory of production. By contrast to the standard view that unemployment benefits produce bad macroeconomic performances, it will be argued that – by increasing total demand – they boost the level of employment. The increase in the level of employment contributes to generate an ‘added worker effect’, which, in turn, pushes the Government to pay further unemployment benefits. At the same time, once firms’ fixed capital has been completely exploited, firms’ money profits at the aggregate level grow. This, in turn, generates inflationary pressures which reduces real wages. Moreover, following the Smithian argument that increase in demand fosters division of labour within firms, this policy can increase labour productivity, thus eventually counterbalancing the inflationary pressures associated to profits increases. A different policy option has been suggested, where – for the sake of allowing more ‘security’ to workers - the State directly supplies them with goods and services.

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File URL: http://www.postkeynesian.net/downloads/wpaper/PKWP1402.pdf
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Bibliographic Info

Paper provided by Post Keynesian Economics Study Group (PKSG) in its series Working Papers with number PKWP1402.

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Length: 16 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:pke:wpaper:pkwp1402

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Keywords: monetary theory of production; wage bargaining; unemployment benefits;

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References

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  1. Smith, Adam, 1977. "An Inquiry into the Nature and Causes of the Wealth of Nations," University of Chicago Press Economics Books, University of Chicago Press, number 9780226763743 edited by Cannan, Edwin.
  2. Andrea Pacella, 2008. "The Effects Of Labour Market Flexibility In The Monetary Theory Of Production," Metroeconomica, Wiley Blackwell, vol. 59(4), pages 608-632, November.
  3. Gilberto Tadeu Lima & Mark Setterfield, 2010. "Pricing Behaviour and the Cost-Push Channel of Monetary Policy," Review of Political Economy, Taylor & Francis Journals, vol. 22(1), pages 19-40.
  4. Hassan Bougrine & Mario Seccareccia, 1999. "Unemployment Insurance and Unemployment: An analysis of the aggregate demand-side effects for postwar Canada," International Review of Applied Economics, Taylor & Francis Journals, vol. 13(1), pages 5-21.
  5. Alvaro Angeriz & Philip Arestis, 2009. "The consensus view on interest rates and fiscal policy: reality or innocent fraud?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(4), pages 567-586, July.
  6. David A. Spencer, 2004. "Deconstructing The Labour Supply Curve," Metroeconomica, Wiley Blackwell, vol. 55(4), pages 442-458, November.
  7. Gennaro Zezza, 2004. "Some Simple, Consistent Models of the Monetary Circuit," Macroeconomics 0405006, EconWPA.
  8. Alain Parguez & Jean-Gabriel Bliek, 2007. "Full Employment: Can It Be a Key Policy Objective for Europe?," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 36(3), pages 24-46, September.
  9. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Octomber.
  10. Riccardo Bellofiore & Guglielmo Forges Davanzati & Riccardo Realfonzo, 2000. "Marx Inside the Circuit: Discipline device, wage bargaining and unemployment in a sequential monetary economy," Review of Political Economy, Taylor & Francis Journals, vol. 12(4), pages 403-417.
  11. Setterfield, Mark, 2007. "The rise, decline and rise of incomes policies in the US during the post-war era: an institutional-analytical explanation of inflation and the functional distribution of income," Journal of Institutional Economics, Cambridge University Press, vol. 3(02), pages 127-146, August.
  12. Guglielmo Forges Davanzati & Andrea Pacella, 2010. "Emulation, indebtedness and income distribution: A monetary theory of production approach," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 7(1), pages 147-165.
  13. Jerry Courvisanos & Anthony J. Laramie & Douglas Mair, 2009. "Tax policy and innovation: A search for common ground," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 6(2), pages 271-287.
  14. Eladio Febrero, 2008. "The Monetization of Profits in a Monetary Circuit Framework," Review of Political Economy, Taylor & Francis Journals, vol. 20(1), pages 111-125.
  15. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
  16. Edward Nell, 2002. "On Realizing Profits in Money," Review of Political Economy, Taylor & Francis Journals, vol. 14(4), pages 519-530.
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