Policies to address unemployment must recognize both the effective demand
problem and the structural change problem, as well as the functionality of unemployment
and the emergence of a hard-core, ‘unemployable’ sector no longer functioning as a
reserve army. Traditional Keynesian policies initially attempted to stimulate aggregate
demand through fiscal and monetary policies. Stimulating the private sector to full
employment may address the aggregate demand problem but not the structural change
problem. In fact, since the structural change problem emerges most forcefully at higher
levels of capacity utilization and employment, stimulating private sector demand may
increase the structural change problem. Some Post Keynesians would utilize incomes
policies to deal with some of the symptoms. Other routes would include promoting
public works and the ‘socialization of investment.’ These latter approaches, if designed
correctly, may be more effective than conventional fiscal stimulus in dealing with the
structural change problem. In the framework of a capitalist economy full employment
requires a policy—or a set of policies—that can increase effective demand without
bringing on structural rigidity and that can eliminate unemployment while finding some
institutional mechanism for dealing with the functionality question.
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