Flexible Full Employment: Structural Implications of Discretionary Public Sector Employment

Mathew Forstater
1998 Journal of Economic Issues  
Full eiiq)loyment is often associated with structural rigidities. An economy running at full employment and high levels of capacity utilization will have difficulty adjusting to structural changes such as capital-and labor-displacing technical innovations, changes in supply of labor or natural resources, and changes in the composition of final demand [see, e.g., Lowe 1976; Pasinetti 1981 Pasinetti , 1993. Such rigidity is rooted in the structural and technological features of modern capitalist
more » ... conomies. Modem economies are interindustry systems with complex sectoral interdependencies described in iiq)ut-output analyses. Capital goods are highly specific and in no way necessarily shiftable between different lines of production. Means of production are neither highly divisible nor substitutable. Economic processes take place in historical time; there are no instantaneous adjustments. There is a significant amount of uncertainty regarding the future, and the past is unchangeable. There are time lags, distortions, bottlenecks, and rigidities that reflect the physical and technical nature of the system. While standard neoclassical models exhibit flexibility because of unrealistic assumptions, such as perfectly mobile, divisible, substitutable, and homogeneous factors of production, perfectly flexible prices, and perfect information, the primary "real-life" features endowing capitahst systems with flexibility are unemployment and excess capacity. Excess capacity permits firms to respond relatively quickly to unexpected increases in demand. But this abihty to respond requires not only reserve capacity in terms of plant and equipment, it also requires the ability to hire additional workers or to add hours of work. A "reserve army of labor," including the
doi:10.1080/00213624.1998.11506064 fatcat:ovr6yvr4nneuba22jivjj6iilm