Munich Personal RePEc Archive

Private Sector "Employer of Last Resort".

Musgrave, Ralph S. (2009): Private Sector "Employer of Last Resort".

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Abstract

Those advocating “government as employer of last resort schemes” (ELR) nearly always assume, first, that “ELR employers” should be specially set up to employ those out of work, i.e. that these projects or “employers” should be separate from existing public sector employers. A second almost universal assumption is that, as already intimated, the work involved should be public sector type work rather than private sector commercial type work.

This paper puts an argument which demolishes or weakens both the above two assumptions. That is, it is argued, first, that ELR work should be with EXISTING employers. Second, it is argued that this work should be in BOTH public and private sectors, not just the public sector. I actually argued against the above two assumptions in a paper in 1991 (Musgrave (1991)) but for different reasons. The argument below complements these “1991” reasons, rather than renders them obsolete in any way.

These 1991 reasons are set out below in abbreviated form, and begin after the heading “Marginal Employment Subsidy” below.

The argument that is new in this paper centres around the other factors of production (OFP) that need to be employed alongside the relatively unskilled ELR employees (these factors of production are skilled labour, materials and equipment). If ELR involves little or no OFP, then output will be hopeless. On the other hand if ELR involves anywhere near the usual ratios of different factors of production, then the ELR scheme amounts to much the same thing as a normal employer. This suggests that ELR employees should be placed with existing public sector employers.

Second, traditional ELR advocates normally claim that public sector ELR is not inflationary. This claim is based on the assumption that no OFP need be withdrawn from the private sector to make ELR work. Once this false assumption is rectified, it turns out there is no difference in the inflationary impact as between public and private sector ELR, thus there is no reason to confine ELR to the public sector.

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