MMP Blog #49: Should Growth Drive Jobs, or Jobs Drive Growth?

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Originally published May 24, 2012 on the New Economic Perspectives blog.

Sorry for the hiatus, but a family emergency is consuming all of my time. I hope to be able to post something next week—to move to finish up the MMP blog. Meanwhile I offer the following.

In an article yesterday in Reuters, Edward Hadas discussed an excellent piece by Pavlina Tcherneva. And, by Jove, he got it. It is much better to create the jobs and then let growth follow, rather than to try to pump up growth in the hope that some jobs might trickle down. That is all the more true when you’ve got 25 million people who need a full-time job. Let me quote the first part of his article; go here for the rest.

“Politicians and other leaders have watched the job destruction with something like horror. They shouldn’t have been surprised. The unending fight against inefficiency leads to a natural employment asymmetry. As technology advances, businesses and governments usually find it easier to cut than to add jobs. Some businesses can progressively expand headcount, but in tough times there are more employers looking for ways to use less labour.

Most politicians and economists believe that GDP growth is the cure. It is considered not only the highest economic good but also the best way to create jobs. In search of higher output, governments run huge deficits, while central banks pass out money for free. The policymakers often invoke the name of John Maynard Keynes. But they twist the great economist’s ideas. As Pavlina Tcherneva points out in a recent article in the Review of Social Economy, Keynes thought “the real problem” governments should address during the Great Depression was “to provide employment for everyone”. In Keynes’s view, output follows jobs, not the other way around.

Keynes’s own preferred solution was for governments to organise projects with a high “elasticity of employment”. “There are things to be done; there are men to do them,” he said. “Why not put the two together? Why not put the men to work?” The best way for governments to create jobs quickly is still to hire people directly. A look at the dilapidated infrastructure of the United States suggests that Keynes’ prescription is still relevant.

Enthusiasts for small government might want to privatise such programmes, but they should still agree with the true Keynesian principle: it is better to pay people to work than to pay them not to. Programmes which protect the unemployed and disabled serve a valuable social purpose and payments for early retirement may be defensible, but programmes which create jobs are far preferable to either.

This Keynesian message has largely been lost in the current official policy mix, which aims at growth and hopes for jobs. Policies which support the financial system, put money in consumers’ hands and cut bloated government bureaucracies may eventually encourage job creation. Four years into the Lesser Depression, however, these highly indirect methods are at best working slowly.”

He’s right. And Pavlina has been producing a series of great papers on this topic. Read his piece and then go to And her most recent paper on Keynes’ Approach to Full Employment (just published in the Review of Social Economics)  is a must-read.

[Today, you can also head over to for tons more info about a Job Guarantee!]

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