Employment for All
✑ ASAD ZAMAN` ╱ ± 4 minutes
Instead of preparing people to fit them into existing or potential private sector jobs by providing them with education and training, we must create jobs tailored to the people.
Jobs should be provided to take people as and where they are.
Instead of preparing people to fit them into existing or potential private sector jobs by providing them with education and training, we must create jobs tailored to the people.
From: Dawn, April 24, 2019. ╱ About the author
Asad Zaman is an economist, professor and social scientist from Pakistan. He is currently Vice Chancellor of the Pakistan Institute of Development Economics, Islamabad. He has a Ph.D. in economics from Stanford University (1978) and has taught in Economics Departments at U. Penn., Columbia Univ., Johns Hopkins, Cal. Tech, Bilkent Univ, Ankara, and LUMS, Lahore. Visit his personal website and read his articles on the WEA Pedagogy Blog.
Global experience shows that market economies create massive inequalities, enriching the top one per cent, while leaving the bottom of the population far behind. One key to prosperity is to provide productive jobs for all who would like to participate in the production process. Unfortunately, contemporary macroeconomics, which was blind to the possibility of the global financial crisis, is not equipped with the ideas and tools required to create full employment.
Conventional macro blames the poor for their poverty, and suggests education and training to fit them into existing jobs. However, the private sector does not naturally create enough jobs to employ everyone. Experience with Keynesian remedies shows that expansionary monetary policy starts to create inflation a long time before full employment is achieved. Modern Monetary Theory provides a genuine alternative, a job guarantee (JG) programme.
Instead of preparing people to fit them into existing or potential private sector jobs by providing them with education and training, we must create jobs tailored to the people. Jobs should be provided to take people as and where they are. Skills should be provided via on-the-job training. There are a huge number of jobs which require low levels of skill and education, and provide enormous benefits to society, but are not profit-making for the private sector.
Planting trees, building roads, cleaning dams, infrastructure projects, a range of social services, all provide benefits to society, and make a measurable impact on appropriate measures of GNP, but may not be privately profitable. Engaging the entire working population in productive jobs is a win-win solution since it will add enormously to the economy’s productive capacity of the economy, while providing a living wage for all members of society. We must solve a complex set of structural problems to make this work.
Next, we must examine the consequences of pumping billions into the economy by providing millions of jobs to all who wish to work, taking them as they are, where they are. A huge amount of additional demand for goods and services will be created by this additional money being paid to the formerly unemployed. Using household income and expenditure surveys which describe consumption patterns of the poor, we can come up with first-round estimates of the nature of the additional demand generated. To prevent inflation, we need to ensure that employment is provided to produce the goods for which we anticipate excess demand will be generated, eg if we forecast additional demand for a million tonnes of food, we must employ the labourers to produce the additional million.
Careful sectoral planning is needed to ensure a match between additional demands generated and the additional production that will be created. However, even if we fail in matching supply to demand, excess demand which leads to inflation is not necessarily harmful. Rising prices signal high demand and set off private mechanisms to create additional capacity to meet new demands. Large amounts of labour made available by the JG programme would facilitate expansion of supply in response to increased prices and profits.
A surfeit of money would create excess demand for imports. With an overvalued rupee, we subsidise all imports and can’t afford to increase demand, since that drains our forex reserves. However, an undervalued rupee acts as a tax on imports which creates forex reserves for the State Bank. Many economies like Japan, China, and East Asia have used undervaluation to promote domestic industries and accumulate dollars. It is true that essential imports with inelastic demands will become more expensive. However, we can use the surplus generated by undervaluation to subsidise essential imports. This dual exchange rate policy is far more efficient than a general across-the-board subsidy to all imports, which is created by overvaluation.
Many aspects of the JG programme require careful planning and adaptation to local social and institutional structure. But the payoff of prosperity for all makes it worthwhile to invest in the required efforts.
Conventional macro blames the poor for their poverty, and suggests education and training to fit them into existing jobs. However, the private sector does not naturally create enough jobs to employ everyone. Experience with Keynesian remedies shows that expansionary monetary policy starts to create inflation a long time before full employment is achieved. Modern Monetary Theory provides a genuine alternative, a job guarantee (JG) programme.
Instead of preparing people to fit them into existing or potential private sector jobs by providing them with education and training, we must create jobs tailored to the people. Jobs should be provided to take people as and where they are. Skills should be provided via on-the-job training. There are a huge number of jobs which require low levels of skill and education, and provide enormous benefits to society, but are not profit-making for the private sector.
Planting trees, building roads, cleaning dams, infrastructure projects, a range of social services, all provide benefits to society, and make a measurable impact on appropriate measures of GNP, but may not be privately profitable. Engaging the entire working population in productive jobs is a win-win solution since it will add enormously to the economy’s productive capacity of the economy, while providing a living wage for all members of society. We must solve a complex set of structural problems to make this work.
It will add enormously to the economy’s productive capacity of the economy, while providing a living wage for all members of society.The first problem is institutional. Just as the private sector cannot provide enough jobs, the government too lacks the capacity or capability to productively employ millions of people. Since neither the government nor the private sector has sufficient capacity, we must turn to communities for provision of jobs. Fortunately, community-driven development was pioneered by Akhtar Hameed Khan in the Comilla Project, and has been replicated across Pakistan. Both the Pakistan Poverty Alleviation Fund and National Rural Support Programmes have created thousands of living communities across Pakistan. These communities can be given the responsibility of providing productive jobs, for which funding can be provided by the government.
Next, we must examine the consequences of pumping billions into the economy by providing millions of jobs to all who wish to work, taking them as they are, where they are. A huge amount of additional demand for goods and services will be created by this additional money being paid to the formerly unemployed. Using household income and expenditure surveys which describe consumption patterns of the poor, we can come up with first-round estimates of the nature of the additional demand generated. To prevent inflation, we need to ensure that employment is provided to produce the goods for which we anticipate excess demand will be generated, eg if we forecast additional demand for a million tonnes of food, we must employ the labourers to produce the additional million.
Careful sectoral planning is needed to ensure a match between additional demands generated and the additional production that will be created. However, even if we fail in matching supply to demand, excess demand which leads to inflation is not necessarily harmful. Rising prices signal high demand and set off private mechanisms to create additional capacity to meet new demands. Large amounts of labour made available by the JG programme would facilitate expansion of supply in response to increased prices and profits.
A surfeit of money would create excess demand for imports. With an overvalued rupee, we subsidise all imports and can’t afford to increase demand, since that drains our forex reserves. However, an undervalued rupee acts as a tax on imports which creates forex reserves for the State Bank. Many economies like Japan, China, and East Asia have used undervaluation to promote domestic industries and accumulate dollars. It is true that essential imports with inelastic demands will become more expensive. However, we can use the surplus generated by undervaluation to subsidise essential imports. This dual exchange rate policy is far more efficient than a general across-the-board subsidy to all imports, which is created by overvaluation.
Many aspects of the JG programme require careful planning and adaptation to local social and institutional structure. But the payoff of prosperity for all makes it worthwhile to invest in the required efforts.
| Top image: Architect Perween Rahman (1957 - 2013), director of the Orangi Pilot Project, a project originally initiated by Akhtar Hameed Khan to provide low cost sanitation, health, housing and microfinance facilities to poor communities in the squatter areas of Orangi Town, Karachi, Pakistan. From: Parhlo.com |
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