Institutionalist Approaches to Full-Employment Policies
Forstater, Mathew, Journal of Economic Issues
Wendell Gordon's recent  note in this journal is a welcome commentary on institutionalist contributions to full employment policy. In particular, Gordon cites the support of institutionalists (including his own) for job assurance through a government as employer of last resort (ELR) policy based on the recognition of employment as a fundamental economic and human right.
Two additional - and greatly overlooked and underdiscussed - contributions by important figures in recent institutionalist thought supporting the ELR approach to full employment can be found in the work of Adolph Lowe and Hyman Minsky, both recipients of the Veblen-Commons Award. Interestingly, each came to the conclusion that many traditional approaches to promoting higher levels of employment were inadequate and even harmful, but they arrived there from very different starting points.
Lowe's work primarily focused on challenges to attaining and maintaining full employment in the face of ongoing structural and technological change, while Minsky's emphasis was on unemployment of the deficient aggregate demand variety, rooted more in monetary factors and financial crises. A brief review of the proposals of Lowe and Minsky may therefore both supplement Gordon's note and indicate some of the ways in which institutionalist analyses of the contemporary political economy might integrate monetary and financial factors with issues relating to structural and technological change.
Minsky's "Employment Strategy"
For Minsky, full employment approaches based on "subsidizing demand" are likely to result in inflation, financial crisis, and serious instability [1986, 308]. He thus sought an alternative to reliance on schemes based on stimulating private sector demand:
The main instrument of such a policy is the creation of an infinitely elastic demand for labor at a floor or minimum wage that does not depend on long- or short-run profit expectations of business. Since only government can divorce the offering of employment from the profitability of hiring workers, the infinitely elastic demand for labor must be created by government [1986, 308].
Minsky proposed dismantling "the massive transfer-payment apparatus" and removing barriers to labor force participation [1986, 309]. Both of these goals require creating sources of income through increasing the supply of jobs. Minsky believed the model for such a plan existed in the New Deal's Civilian Conservation Corps (CCC), National Youth Administration (NYA), and Works Projects Administration (WPA). Unlike the New Deal programs, however, Minsky viewed his employment programs as permanent [1986, 310].
Minsky also believed that such a plan needed a means of constraining money wages and labor costs:
For income from work to be available to all, the demand for labor must be infinitely elastic over a wide range of labor types and geographical regions. At the same time, this infinitely elastic demand must not unduly decrease the supply of labor to other occupations and employers, creating upward pressure on wages. Furthermore, the employer, while willing to hire all who offer to work, is not committed to hiring any particular number of workers. This can be achieved only by government-funded employment at wage rates that do not place an upward pressure on private wages [1986, 310].
With government acting as employer of last resort, "cyclical variations in employment will be replaced by variations in the proportion of workers on WPA" [Minsky 1986, 312-23]. WPA wages will be lower than in private employment, so "the supply of labor to private employers will be infinitely elastic as long as WPA employment is positive" [1986, 313]. When private sector demand for labor rises (falls), WPA employment will decrease (increase).
Thus, we have in Minsky's brief outline of his "employment strategy" the basic operation of the ELR approach to full employment. …