Full Employment Abandoned: Shifting Sands and Policy Failures

309 Pages·2008·1.16 MB·English

by  William Mitchell

Full Employment Abandoned

Full Employment
Abandoned
Shifting Sands and Policy Failures
William Mitchell
Professor of Economics,Centre of Full Employment and
Equity, University of Newcastle,NSW,Australia
and
Joan Muysken
Professor of Economics,CofFEE-Europe,University of
Maastricht, The Netherlands
Edward Elgar
Cheltenham,UK • Northampton,MA,USA
© William Mitchell and Joan Muysken 2008
All rights reserved.No part of this publication may be reproduced,stored in
a retrieval system or transmitted in any form or by any means,electronic,
mechanical or photocopying,recording,or otherwise without the prior
permission of the publisher.
Published by
Edward Elgar Publishing Limited
Glensanda House
Montpellier Parade
Cheltenham
Glos GL50 1UA
UK
Edward Elgar Publishing,Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library ofCongress Cataloguing in Publication Data
Mitchell,William,1952–
Full employment abandoned :shifting sands and policy failures / William
Mitchell,Joan Muysken.
p. cm.
Includes bibliographical references and index.
1.Full employment policies.2.Unemployment.3.Employment (Economic
theory) I.Muysken,J.II.Title.
HD5706.M575 2008
331.12′042—dc22
2007039446
ISBN 978 1 85898 507 7
Printed and bound in Great Britain by MPG Books Ltd,Bodmin,Cornwall
Contents
List of figures vi
List of tables vii
List of abbreviations viii
Acknowledgements x
PARTI FULL EMPLOYMENT:CHANGING VIEWS
AND POLICIES
1 The full employment framework and its demise 3
2 Early views on unemployment and the Phillips curve 23
3 The Phillips curve and shifting views on unemployment 49
4 The troublesome NAIRU:the hoax that undermined full
employment 81
PARTII FULL EMPLOYMENT ABANDONED:SHIFTING
SANDS AND POLICY FAILURES
5 The shift to full employability 123
6 Inflation first:the new mantra of macroeconomics 146
7 The neglected role of aggregate demand 163
PARTIII THE URGENCY OF FULL EMPLOYMENT:
FOUNDATIONS FOR AN ACTIVE POLICY
8 A monetary framework for fiscal policy activism 205
9 Buffer stocks and price stability 224
10 Conclusion:the urgency of full employment 260
References 267
Index 289
v
Figures
1.1 The pillars of the full employment framework 8
1.2 Unemployment rates,Australia,Europe and the
United States,1950–2006 10
1.3 The full employability framework 16
2.1 The classical labour market 25
4.1 The determination of the NAIRU by the BRW and
PRW curves 84
4.2 Unemployment and vacancies,sectoral and aggregate
shocks 103
4.3 Unemployment and vacancies,equilibrium on the
labour market 107
5.1 The full employability framework 126
6.1 Inflation and inflation expectations,Australia,1974–2004 155
6.2 Summary average sacrifice ratios 160
7.1 Employment gaps,selected countries,1960–2005 177
7.2 Employment growth and GDP growth for eight OECD
countries,1960–2006 179
7.3 Average employment growth and GDP growth for eight
OECD countries,1960:1–1973:3,1973:4–1991:4,
1992:1–2006:1 183
7.4 The official unemployment rate and OECD NAIRU
estimates,selected countries,1970–2006 185
7.5 Difference- and trend-stationary processes and
persistence 187
7.6 Unemployment and labour demand (inverted) for eight
OECD countries,various periods 193
7.7a Current and lagged unemployment,1960–2006 197
7.7b Current and lagged vacancies,1960–2006 199
7.8 Layoffs,quits and hiring rates,Canada,1978–1994 200
8.1 The essential government and non-government structure 206
8.2 Vertical and horizontal macroeconomic relations 214
vi
Tables
7.1 Misery index (%),selected OECD countries,1960–2006 166
7.2 Components of the MI,selected OECD countries,1960–2006 167
7.3 Inflation as a percentage of misery,selected OECD countries,
1960–2006 169
7.4 Underemployment,males,females,persons,selected OECD
countries,various periods,per cent of the labour force 171
7.5 Comparison of the MI and the AMI,various OECD
countries,1985,1995 and 2005 (%) 173
7.6 Characteristics of OECD NAIRU estimates,selected
countries,1970–2006 186
7.7 Shifting AR parameters for OECD unemployment rates,
various periods 189
7.8 AR(1) estimates for unemployment and the NAIRU,selected
countries,1970:3–1995:1 and 1995:1–2006:4 190
8.1 Central bank balance sheet 217
9.1 A comparison of selected national employment creation
schemes with the JG ideal 257
vii
Abbreviations
AMI augmented misery index
AR autoregressive process
BER buffer employment ratio
BRW bargained real wage
BSE buffer stock employment
CLMI CofFEE labour market indicators
CofFEE Centre of Full Employment and Equity
CPI consumer price index
EC European Commission
ECB European Central Bank
EES European Employment Strategy
ELR employment of last resort
EMU European Monetary Union
EPWP Expanded Public Works Programme
EU European Union
FOMC Federal Open Market Committee
GBC government budget constraint
GDP gross domestic product
HP Hodrick–Prescott Filter
HPM high powered money
ICLS International Conference of Labour Statisticians
ILO International Labour Organisation
IMF International Monetary Fund
IS–LM investment–savings,liquidity–money supply
JG job guarantee
LNJ Layard,Nickell and Jackman
MI misery index
NAIBER non-accelerating inflation rate buffer employment ratio
NBER National Bureau of Economic Research
NAIRLU non-accelerating inflation rate of labour underutilisation
NAIRU non-accelerating inflation rate of unemployment
NGO non-governmental organisation
NK new Keynesian
NKPC new Keynesian Phillips curve
NREGS National Rural Employment Guarantee Act
viii
Abbreviations ix
NRU natural rate of unemployment
OECD Organisation for Economic Cooperation and Development
OPEC Organisation of the Petroleum Exporting Countries
PRW price-determined real wage
PSE public service employment
SGP Stability and Growth Pact
UK United Kingdom
US United States
UV unemployment to vacancies curve (Beveridge curve)