Publications

Working Paper No. 542 | August 2008

Keynes’s Approach to Full Employment

Aggregate or Targeted Demand?

This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to “close the demand gap,” are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an “on the spot” approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle.


Publication Highlight

Working Paper No. 922
It Pays to Study for the Right Job
Exploring the Causes and Consequences of Education-Occupation Job Mismatch
Author(s): Fernando Rios-Avila, Fabiola Saavedra Caballero
February 2019

Quick Search

Search in: