Banking on ELR: How Hyman Minsky's Ideas Can Help Tackle Unemployment

Journal of Economic Issues, Volume 51, 2017 - Issue 3, doi: 10.1080/00213624.2017.1353873

Posted: 27 Sep 2017

See all articles by Lorenzo Esposito

Lorenzo Esposito

Bank of Italy

Giuseppe Mastromatteo

Catholic University of the Sacred Heart of Milan

Date Written: September 26, 2017

Abstract

This article suggests a way of building a comprehensive program that can effectively eliminate unemployment using the employer-of-last-resort (ELR) scheme, which comes from the Minskyan tradition. According to this scheme, the state offers a job to everyone who is willing to work. In response to the many critiques the ELR program has received, we show that it is the best alternative to eliminating unemployment, instituting sound public finance, ensuring social and financial stability, and achieving long-term growth and international economic balances. We also make suggestions with a view of ensuring the efficiency of the ELR institutional design. In this context, we highlight the accountability issue that is largely ignored in the relevant literature, but that is paramount given the state of public finances after the 2008 crisis. We argue that accountability and efficiency should be taken as the core of the ELR project if it is to be politically viable, and they can be addressed alongside the analogy of lending of last resort. In particular, ELR projects should be supervised by a state bank that is set up to ensure the cost-effectiveness of the scheme, along with controls from below. We conduct a simulation of how much such an ELR program would cost for Italy, showing that its gross cost would be less than 2.0 percent of Italian GDP and its net cost would be negative.

Keywords: big government, crisis, ELR programs, Minsky, unemployment

JEL Classification: B22, E62, J68

Suggested Citation

Esposito, Lorenzo and Mastromatteo, Giuseppe, Banking on ELR: How Hyman Minsky's Ideas Can Help Tackle Unemployment (September 26, 2017). Journal of Economic Issues, Volume 51, 2017 - Issue 3, doi: 10.1080/00213624.2017.1353873, Available at SSRN: https://ssrn.com/abstract=3043060

Lorenzo Esposito (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giuseppe Mastromatteo

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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