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Government as Employer of Last Resort: Full Employment Without Inflation

Levy Economics Institute Working Paper No. 213

56 Pages Posted: 10 Apr 1998  

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: November 1997

Abstract

Since WWII it has been the stated policy of the U.S. government to simultaneously pursue high employment and stable prices. Paradoxically, neither accepted economic theory nor practical experience appears to indicate that high or full employment is even possible with stable prices. In this paper we argue that stable prices and truly full employment are indeed possible. In fact, the Humphrey-Hawkins Act sets the goalpost too low; we argue that the government can guarantee a zero unemployment rate, defined as all who are ready, willing, and able to work at the going wage will be able to find a job--only those unwilling (or unable) to work at the going wage would be left without work (which are not normally counted as unemployed). The government does this by acting as the employer of last resort, offering to hire all who show up to work at a fixed wage. In doing so, the government ensures that all who are ready, willing, and able to work at that wage will be provided a job. At the same time, by setting this wage, the government will provide a price anchor that will impart price stability to the system, that is, we will show that a true full employment policy is not, in itself, "inflationary" and indeed could reduce inflationary pressures under some conditions. Further, the full employment policy would help to reduce economic fluctuations (the "business cycle") through a powerful built-in automatic stabilizer feature.

JEL Classification: E24

Suggested Citation

Wray, L. Randall, Government as Employer of Last Resort: Full Employment Without Inflation (November 1997). Levy Economics Institute Working Paper No. 213. Available at SSRN: https://ssrn.com/abstract=74942 or http://dx.doi.org/10.2139/ssrn.74942

L. Randall Wray (Contact Author)

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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