Book contents
- Frontmatter
- Dedication
- Contents
- Illustrations
- Abbreviations
- Foreword
- Preface and Acknowledgments
- Executive Summary
- Chapter 1 What Is Inclusive Growth?
- Chapter 2 What Is the Main Constraint that Developing Countries Face?
- Chapter 3 Why Full Employment and Who Should Be Responsible for Trying to Achieve It?
- Chapter 4 Why Is Growth Unstable?
- Chapter 5 What Is the Role of Agriculture in the Process of Structural Change and in Delivering Full Employment? Full Employment I
- Chapter 6 What Is the Role of Investment in Delivering Full Employment? Full Employment II
- Chapter 7 Why Is “Planning Development” Necessary?
- Chapter 8 What Is Industrial Policy? Full Employment III
- Chapter 9 Structural Transformation, Industrialization, and Technological Change in Developing Asia: What Does the Empirical Evidence Show?
- Chapter 10 Why Do Export Diversification and Sophistication Matter?
- Chapter 11 Unemployment Versus Inflation: Which One Should Be the Public Enemy Number One?
- Chapter 12 What Should Be the Role of Fiscal and Monetary Policies for Development? Full Employment IV
- Chapter 13 Is It Possible to Achieve Full Employment in the Presence of Structural Transformation?
- Chapter 14 Should the Government (Public Sector) Intervene Directly and Become the Employer of Last Resort? Full Employment V
- Chapter 15 Can Competitiveness and Globalization Deliver Inclusiveness and Full Employment?
- Chapter 16 Export-Led Growth or Domestic Demand–Led Growth?
- Chapter 17 Is Education a Key Ingredient of Inclusive Growth?
- Chapter 18 Conclusions: How Can Developing Countries Implement an Inclusive-Growth and Full-Employment Strategy?
- References
- Author Index
- Subject Index
Chapter 3 - Why Full Employment and Who Should Be Responsible for Trying to Achieve It?
Published online by Cambridge University Press: 10 September 2020
- Frontmatter
- Dedication
- Contents
- Illustrations
- Abbreviations
- Foreword
- Preface and Acknowledgments
- Executive Summary
- Chapter 1 What Is Inclusive Growth?
- Chapter 2 What Is the Main Constraint that Developing Countries Face?
- Chapter 3 Why Full Employment and Who Should Be Responsible for Trying to Achieve It?
- Chapter 4 Why Is Growth Unstable?
- Chapter 5 What Is the Role of Agriculture in the Process of Structural Change and in Delivering Full Employment? Full Employment I
- Chapter 6 What Is the Role of Investment in Delivering Full Employment? Full Employment II
- Chapter 7 Why Is “Planning Development” Necessary?
- Chapter 8 What Is Industrial Policy? Full Employment III
- Chapter 9 Structural Transformation, Industrialization, and Technological Change in Developing Asia: What Does the Empirical Evidence Show?
- Chapter 10 Why Do Export Diversification and Sophistication Matter?
- Chapter 11 Unemployment Versus Inflation: Which One Should Be the Public Enemy Number One?
- Chapter 12 What Should Be the Role of Fiscal and Monetary Policies for Development? Full Employment IV
- Chapter 13 Is It Possible to Achieve Full Employment in the Presence of Structural Transformation?
- Chapter 14 Should the Government (Public Sector) Intervene Directly and Become the Employer of Last Resort? Full Employment V
- Chapter 15 Can Competitiveness and Globalization Deliver Inclusiveness and Full Employment?
- Chapter 16 Export-Led Growth or Domestic Demand–Led Growth?
- Chapter 17 Is Education a Key Ingredient of Inclusive Growth?
- Chapter 18 Conclusions: How Can Developing Countries Implement an Inclusive-Growth and Full-Employment Strategy?
- References
- Author Index
- Subject Index
Summary
For conservatives who believe that the unemployed have chosen not to work, the mystery of the unemployed's profound unhappiness is a matter for psychologists more than economists.
—Joseph Stiglitz et al. (2006, 42)Full employment is a widely used term, although often different people mean different things. There are two important issues to consider. The first one concerns the resource the term refers to. In my discussion, full employment refers to labor. Underutilization of plant and equipment is not the problem that developing countries face, as noted above. The second issue regards the level to which “full” refers to. During the last three decades, the term “full employment,” as used in orthodox circles, refers to the nonaccelerating inflation rate of unemployment (NAIRU), one of the most powerful notions in economic policy since the 1970s. This is the level of unemployment that is associated with price stability, even if many workers ready and willing to work are unemployed. The basic proposition underlying the NAIRU is that policy makers cannot use deficit spending or an increase in the money supply to reduce unemployment below some “equilibrium” rate, except at the cost of accelerating inflation. This is an important departure from the Keynesian view that inflation poses a problem only when the economy approaches full employment.
Full employment in the framework of the NAIRU obviously places fighting inflation (as a macroeconomic objective) above combating unemployment. Indeed, the view that price stability requires maintaining a pool of unemployed means that the fiscal and monetary brakes have to be slammed as soon as economic growth causes unemployment to drop below a certain level. Many policy makers and politicians also seem to have accepted this concept and hold the view that there is a natural rate of unemployment that is invariant to aggregate spending. They argue that this natural rate can be reduced only through supply-side measures: deregulation, privatization, and welfare reforms (e.g., cutting the minimum wage, eliminating unemployment benefits), or upgrading the skills of workers. For those who view the economy through this lens, supply-side measures are the only way to reduce unemployment. Moreover, when this is close to the NAIRU, the monetary authorities must take prompt anti-inflationary measures to prevent the economy from overheating, otherwise inflation will not only grow but will also accelerate (I will take up these issues again in chapters 11 and 12).
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- Information
- Inclusive Growth, Full Employment, and Structural ChangeImplications and Policies for Developing Asia, pp. 17 - 28Publisher: Anthem PressPrint publication year: 2010