BPEA | 1977 No. 2

Macroeconomic Effects of Selective Public Employment and Wage Subsidies

1977, No. 2

DIRECT JOB CREATION and selective wage subsidies are policies designed
to alter the mix of employment in favor of workers who, in the
normal course of economic events, experience high rates of unemployment.
As instruments of macroeconomic policy, these measures are intended
to mitigate the conflict between society’s goals for unemployment
and inflation. The hope is to “cheat the Phillips curve.” For the short run,
as in the current cyclical recovery, this means to diminish the inflationary
consequences of higher rates of employment. For the long run, it means
to diminish the natural rate of unemployment-or, to use a more neutral
term, the minimal nonaccelerating-inflationr ate of unemployment (NAIRU). In general, the purpose is to allow standard fiscal and monetary
policy to achieve more satisfactory joint paths of output, employment,
and prices.