Transformational Growth and Full Employment
Edited by Edward J. Nell and Mathew Forstater
Chapter 15: The Operational Role of Functional Finance for Labor Market Behavior and Outcomes
Ingrid H. Rima Before World War II, economists who concerned themselves with Ôlabor issuesÕ often identified themselves with that distinctively American approach known as Ôinstitutionalism.Õ With the economic malaise of the 1930s, their interests overlapped with those of macroeconomists like J.M. Keynes, Abba Lerner, Alvin Hansen, and Adolph Lowe, all of whom took the position that the functioning of the macroeconomy can and should be managed to protect society from the vagaries of the free market. After 1945, the postwar economy brought with it relative prosperity and other institutional and societal changes that fundamentally altered labor market behavior and outcomes, and, consequently, the ways in which economists defined the problems they would single out for study. Two societal changes stand out with respect to labor markets: the first is the perception of education as an investment in a future income stream; the second is the perception of labor force participation as an activity that is competitive with other uses of time, not only for males, but also for females. For economists trained in marginal analysis, these institutional developments were interpreted as offering an opportunity to pursue a new research agenda. Unfortunately, they also led most labor economists toward their present predominantly microeconomic orientation in which scant attention is paid to the interdependence of the behavioral decisions of firms and households or to their links to the macro economy. The latter is conventionally presumed to have strong tendencies toward labor markets that equilibrate at employment levels that provide jobs for all...
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