Friday, October 02, 2015

works progress administration 2.0


paecon |  As the global crisis deepens and most industrialized and developing countries continue facing the risk of a prolonged labour market recession, it is leading to a catastrophic rise in unemployment and decline in real wages. Several countries have used neoclassical tools to mitigate this, primarily by moving legislation to have more flexible labour markets. The oft-repeated neoclassical logic has been that rigidities in labour markets are the barriers to recovery. The economic mechanism being that of lowering interest and wage rate to incentivize private investment; but the plans have not succeeded so far due to a lack of effective demand. On the other hand, public investment driven public work projects, by encouraging social participation, can be the way to stimulate economic recovery and expansion in employment. Along similar lines, the International Labor Organization (2009) reiterates that it is crucial to implement a coherent, job-oriented recovery strategy to address the basic needs of millions workers and their families, and emphasizes that employment and social protection must be at the centre of fiscal stimulus measures to protect the vulnerable groups and to reactivate investment for raising aggregate demand in the economy.

Public works become closely interlinked to social programs in contemporary democracies under the tension of various kinds of identity politics of exclusion and inclusion. It has the potential to alleviate these tensions and contrariwise, if badly conceived such programs can also heighten such tensions. This paper explores new frontiers of public works program from this viewpoint; and investigates how public work programs can be effective in combating labour market problems in economically and socially meaningful ways. The paper consists of six parts. The second part, after this introduction, reviews briefly the theoretical debate of market mechanism and unemployment related to classical and Keynesian paradigms regarding voluntary and involuntary unemployment and their policy implications. Section three draws a clear distinction between Keynesian demand management and new public works programs with emphasis on the distinction between demand side and supply side of the problem. Section four focuses on two issues which could be the basis for demarcating new employment policies, i.e. public works programs with and without skill components relating it to questions of benefits, externality and labour productivity. Section five discusses the principle of finance sharing of public works programs and its possible effects on inflation and private investment. In the last section, we conclude with a discussion of possible inclusion benefits of newly designed public works programs.