Public Service Employment: Full Employment Without Inflation

Abstract

For the last few decades, monetary policy has been geared toward raising the unemployment rate as a means of achieving stable prices. However, it is possible to have stable prices as well as full employment, via a federal public service employment (PSE) program that provides jobs for those ready, willing, and able to work at the established wage.

Such a program would not be inflationary; on the contrary, under some circumstances it would even reduce inflationary pressures. It could lead to an increase in federal government spending, possibly even a deficit; however, the irrational horror of deficits should not be allowed to stand in the way of the generation of full employment.

Moveover, such a program would result in the reduction or elimination of current "welfare" payments, such as food stamps, unemployment insurance, and (if health benefits are included) Medicaid expenses. There would also be a positive, albeit hard-to-measure, impact on family wellbeing (less crime, divorce, child abuse, etc.). Thus, the real cost of the program in terms of the deficit and of society in general would certainly be less than the nominal cost.

This paper describes the operation of a PSE program; examines the implications for employment, the federal budget, wages, and prices; and addresses objections to initiating and administering such a program.

Keywords: public service employment, employer of last resort, full employment, unemployment, inflation, wages, prices, welfare, federal deficit, WPA, exogenous pricing, price stabilization, buffer stock, zero employment