The past experiences of wage employment programs in India, however, suggest that there are several challenges ahead. These include strengthening the planning component of the program, particularly planning for infrastructure and natural resource management; coordination and conversion of the Employment Guarantee Scheme with ongoing programs; ensuring supply of labor on EGS works; promoting equity in the ownership of the assets; and using assets to improve the employment generation in the long run. This paper discusses these challenges and observes that the Employment Guarantee Act should not be treated as one more poverty alleviation program, but should be seen as an opportunity to eradicate the worst kind of poverty and to empower the poor and promote pro-poor growth of the Indian economy.
This paper explores the possibility that unregulated FDI flows are causally implicated in the decline in labor productivity growth in semi-industrialized economies. These effects are hypothesized to operate through the negative impact of firm mobility on worker bargaining power and thus affecting wages. Downward pressure on wages can reduce the pressure on firms to raise productivity in defense of profits, contributing to a low wage–low productivity trap. This paper presents empirical evidence, based on panel data fixed effects and GMM estimation for 37 semi-industrialized economies, that supports the causal link between increased firm mobility and lower wages, as well as slower productivity growth over the period 1970–2000.
The nonaccelerating inflation rate of unemployment, or NAIRU, is generally viewed as asupply-side-determined, short-run equilibrium rate of unemployment. In most NAIRU models,aggregate demand plays no essential role in determining equilibrium unemployment. However,Visiting Scholar Malcolm Sawyer demonstrates that the relationship between the real wage andemployment (often mistakenly called labor demand) cannot be fully articulated without referenceto aggregate demand. In Sawyer's model, investment shifts the real wage-employmentrelationship by adding to the capital stock. Therefore, in a sufficiently expansionary environment,the NAIRU can be made compatible with full employment.
It is widely perceived that today's conventional monetary wisdom, and the common practice of monetary policy based thereupon, is essentially "monetarist" by nature, if not by name. One objective of this paper is to assess whether monetarism has had a lasting effect on the theory and practice of monetary policy; another is to scrutinize the key dividing lines between Milton Friedman's monetary thought and that of John Maynard Keynes. Among the paper's main theoretical findings are that the key issue is the theory of interest, which is at the root of differences in approach to money demand and liquidity preference. Similarities are more pronounced with respect to the supply of money and monetary policy control issues. However, while Keynes favored a stabilized wage unit combined with a flexible central bank to steer interest rates and aggregate demand, Friedman advocated a stabilized central bank combined with a free interest rate and employment determination in financial and labor markets, respectively. Additional differences arise at the practical and empirical levels: the dynamics of adjustment processes and expectation formation on the one hand, and the relative efficiency and riskiness of market-driven versus government-guided adjustments on the other. The puzzling fact is that, despite today's dominant market-enthusiast ideology, Friedman's idea of delegation—not to independent central bankers, but to the markets—enjoys remarkably little popularity.
Unemployment was singled out by John Maynard Keynes as one of the principle faults of capitalism; the other is excessive inequality. Obviously, there is some link between these two faults: since most people living in capitalist economies must work for wages as a major source of their incomes, the inability to obtain a job means a lower income. If jobs can be provided to the unemployed, inequality and poverty will be reduced—although such policy will not directly address the problem of excessive income at the top of the distribution. Most importantly, Keynes wanted to put unemployed labor to work—not digging holes, but in socially productive ways. This would help to ensure that the additional effective demand created by government spending would not be exhausted in higher prices as it ran up against bottlenecks or other supply constraints. Further, it would help maintain public support for the government’s programs by providing useful output. And it would generate respect for, and feelings of self-worth in, the workers employed in these projects (no worker would want to spend her days digging holes that serve no useful purpose). President Roosevelt’s New Deal jobs programs (such as the Works Progress Administration and the Civilian Conservation Corps) are good examples of such targeted job-creating programs. These provided income and employment for workers, actually helped increase the nation’s productivity, and left us with public buildings, dams, trails, and even music that we still enjoy today. As our nation (and the world) collapses into deep recession, or even depression, it is worthwhile to examine Hyman P. Minsky’s comprehensive approach to resolving the unemployment problem.
The skill-base hypothesis defines two strategies of human resource investment: a broad anddeep skill base uses skilled work by many people, at different levels of the organizationalhierarchy, and across organizational functions; a narrow and concentrated skill base uses skilledwork by a small and elite portion of the labor force. According to the hypothesis, changes intechnology and international competition have been important factors relating to level ofsustained prosperity, but not for the reasons usually given. Lazonick observes that US firms arestill innovative, but tend to invest in technologies that require a narrow and concentrated skillbase. International competition has been important, not primarily because foreign wages arelower, but because other high-wage nations, such as Japan, have chosen superior corporatestrategies. Lazonick uses a case study of the automobile industry in the United States and Japanto demonstrate that investment in technologies that rely on a broad and deep skill base will leadto more international competitiveness, economic equality, and sustainable prosperity.
Immigration is having an increasingly important effect on the social insurance system in the United States. On the one hand, eligible legal immigrants have the right to eventually receive pension benefits but also rely on other aspects of the social insurance system such as health care, disability, unemployment insurance, and welfare programs, while most of their savings have direct positive effects on the domestic economy. On the other hand, most undocumented immigrants contribute to the system through taxed wages but are not eligible for these programs unless they attain legal status, and a large proportion of their savings translates into remittances that have no direct effects on the domestic economy. Moreover, a significant percentage of immigrants migrate back to their countries of origin after a relatively short period of time, and their savings while in the United States are predominantly in the form of remittances. Therefore, any analysis that tries to understand the impact of immigrant workers on the overall system has to take into account the decisions and events these individuals face throughout their lives, as well as the use of the government programs they are entitled to. We propose a life-cycle Overlapping Generations (OLG) model in a general equilibrium framework of legal and undocumented immigrants’ decisions regarding consumption, savings, labor supply, and program participation to analyze their role in the financial sustainability of the system. Our analysis of the effects of potential policy changes, such as giving some undocumented immigrants legal status, shows increases in capital stock, output, consumption, labor productivity, and overall welfare. The effects are relatively small in percentage terms but considerable given the size of our economy.
It is commonplace to link neoclassical economics to 18th- or 19th-century physics and its notion of equilibrium, of a pendulum once disturbed eventually coming to rest. Likewise, an economy subjected to an exogenous shock seeks equilibrium through the stabilizing market forces unleashed by the invisible hand. The metaphor can be applied to virtually every sphere of economics: from micro markets for fish that are traded spot, to macro markets for something called labor, and on to complex financial markets in synthetic collateralized debt obligations—CDOs. Guided by invisible hands, supplies balance demands and markets clear. Armed with metaphors from physics, the economist has no problem at all extending the analysis across international borders to traded commodities, to what are euphemistically called capital flows, and on to currencies themselves. Certainly there is a price, somewhere, somehow, that will balance supply and demand. The orthodox economist is sure that if we just get the government out of the way, the market will do the dirty work. The heterodox economist? Well, she is less sure. The market might not work. It needs a bit of coaxing. Imbalances can persist. Market forces can be rather impotent. The visible hand of government can hasten the move toward balance.
I formulate measures of the effective minimum wage, based on broad definitions of the labor costs that face employers, and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954-78.I then ground the model more closely in the theory of factor demand, first by adding the relative wages of youths and adults to the equation describing their relative employment, and then by specifying a complete system of demand equations for these two types of labor. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of -0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers' ability to substitute other factors for young workers. Using both sets of results, I find that a subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.
As I see it, the errors in Keynes's analysis in chapter 2 of the General Theorv were his acceptance of diminishing returns in the short-period relation between output and labor employed, and of perfect competition in the product market. These "errors," however, are easily corrected and do not alter Keynes's basic and correct ideas—that employment is determined by aggregate demand, that real wages are determined by aggregate demand given the degree of competition and the level of capital utilization and other determinants of the productivity of labor, and that the supply of labor, at least below full employment, has no effect on either employment or real wages.