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The importance of strong labor demand

Abstract

By conventional measures, the U.S. job market has suffered some degree of slack for about 70 percent of the time since 1980. The absence of persistent, strong labor market demand has a significant negative impact on wages and incomes, with these costs falling disproportionately on the least advantaged. In this paper, I offer a four-part proposal to increase labor demand along with earnings and employment opportunities: (1) reform our monetary policy framework to accommodate more monetary stimulus and reduce the risk of hitting the zero lower bound, (2) develop a Full Employment Fund to reduce labor market slack, (3) support direct job creation programs to boost labor demand, and (4) design international trade policies to safeguard aggregate demand and mitigate the negative effects of trade deficits.

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