Employer of Last Resort: Could It Deliver Full Employment and Price Stability?

Abstract

: Proposals under the headings of employer of last resort (ELR) and job guarantee have been made under which jobs would be available to all at a basic wage. These schemes promise a combination of full employment and price stability. This paper examines whether they would be able to deliver on such a promise. The paper discusses the notion of 'functional finance' which forms an important element of ideas on ELR. The nature and role of money as envisaged in the tax driven money approach which is often associated with the ELR proposals is critically examined. It is argued that whilst the ELR budgetary costs may be relatively small, this would also be the case from any public sector employment program. The question is raised as to whether there would be jobs of a type which could fit in with the ELR proposals, and what the nature of these jobs might be. The paper considers the extent to which ELR would involve underemployment and unemployment by another name. The possible inflationary implications of the ELR are next considered. This has two aspects : first to consider whether inflation would result from unemployment falling below any form of supply-side inflation barrier (such as a NAIRU), and second to consider whether the use of a base wage would bring price stability as claimed. In the subsequent section, the idea that ELR employment would form a buffer stock is critically examined.

The Return of Fiscal Policy: Can the New Developments in the New Economic Consensus Be Reconciled with the Post-Keynesian View?

“…This is an approach that is driven by growth, investment and demand or supply side expansions to achieve full employment. But there is no explicit commitment to secure jobs for all; in fact such a policy is explicitly rejected by Sawyer (2003).…”

The Social and Economic Importance of Full Employment

“…Critics argue that a job guarantee would be inflationary, using some version of a Phillips curve argument according to which lower unemployment necessarily means higher inflation (Sawyer 2003). Some argue that ELR would reduce the incentive to work, raising private sector costs because of increased shirking, since workers would no longer fear job loss.…”

The state spends first: Logic, facts, fictions, open questions

“…I have counted nearly a dozen scholarly critiques of neo-chartalism over the years, the more general one being that of Perry Mehrling (2000). Half of these critiques have focused on the idea of the State as the employer of last resort, with papers by Lopez-Gallardo (2000), Aspromourgos (2000), Kadmos and O'Hara (2000), King (2001), Sawyer (2003), and Seccareccia (2004). The other half of the critiques focused on their monetary views, with articles by Parguez and Seccareccia (2000), Gnos and Rochon (2002), Rochon and Vernengo (2003), Van Lear (2002-03), andFebrero (2009).…”

“…For instance, I thought that the remarks made by Eladio Febrero on modern monetary theory were worth discussing and well documented, but despite Febrero (2009, p. 524) concluding that "the policy implications that can be drawn from neo-chartalism are essentially correct", Fullwiler rejected the paper as uninteresting and poorly researched. 6 Malcolm Sawyer's (2003) paper was also subjected to a strong counter-attack by Mitchell and Wray (2005) and Forstater (2005), both responses claiming that Sawyer's critiques were superficial and overly relied on second-hand views. Even eight years later, some of the ELR proponents had still not gotten over this yet.…”