I
don’t expect anyone to understand this. Pearls before swine and all that. You don't mind being called a swine do you?
Anyway, here goes.
Instead
of raising demand, why not use the money that would have been used to raised demand
to cut costs: e.g. use the money to subsidise all labour. Labour is THE
ULTIMATE COST, so the subsidy would have an anti-inflationary effect, while at
the same time extra money is pumped into the economy, so output and employment
rises.
Spotted
the flaw? . . . No?
The
flaw is that the labour subsidy is a once and for all effect, a secular effect,
while the basic cause if inflation is still operative and it’s a permanent
effect: that’s the fact that there is some level of employment at which the quality
of dole queue labour is so low that employers rather than take dole queue labour,
tend to pinch labour from other employers, consciously or unconsciously. I say “consciously
or unconsciously” because many employers seek extra staff by advertising in
papers etc, and inevitably employees of other firms see those adverts and
sometimes apply for the relevant jobs. (Looking at those adverts was actually a
common pastime during lunch breaks at the first job I ever did.)
So
those adverts result in the price of labour being bid upwards, and that effect
is PERMANENT, as long as the above “low quality of dole queue labour”
phenomenon persists. So the above subsidy wouldn’t work.
OK,
then. Can we circumvent the latter problem? The answer is “yes”, and as
follows.
Subsidise
JUST those relatively low quality dole queue individuals. That way the subsidy
compensates for their low quality RELATIVE TO already employed labour. Which
means employers would take on that dole queue labour rather than bid up the
price of labour. Hey presto: unemployment falls. Or more accurately, NAIRU /
the “natural level of unemployment” falls to below its previous level.
Next
problem:
People
on the dole who are unsuitable for any job in their area on 1st Jan
are not necessarily STILL UNSUITABLE a month later: they might have found a job
to which they are ideally suited. So how do we know when to stop the subsidy in
respect of any given employee?
Well
it’s easy: easy in theory at any rate. All one needs to do is call employers’
bluff.
That
is, if an employer claims the subsidy in respect of individual X, then have
state employment agencies threaten to remove X at any time after X has been in
the subsidised job for more than say a month, (and maybe allocate X to another
subsidised job, or return X to the dole queue). If X REALLY IS a fully viable
employee, the employer will cease claiming the subsidy and keep the employee.
Alternatively, if X is genuinely non-viable, then the employer won’t mind
losing X.
And
there’s nothing wrong with that relatively fast labour turnover: there’s no
harm in the unemployed sampling a variety of different jobs because the mere
fact that they’re unemployed means their existing set of skills may be obsolete
or in excess supply, so they may very well have to find a type of work very
different to their previous job.
Problem
solved. NAIRU is reduced, the natural level of unemployment declines, the
Phillips curve shifts or whatever way you want to put it.
Don’t
understand? Well sleep on it, and read it again tomorrow. Seek and ye shall find. Knock and it shall be opened unto you.
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