Beyond Job Guarantee: The Employer of Last Resort Program as a Tool to Promote the Energy Transition

ABSTRACT

We argue that a careful design of a program of direct employment and public provision by the state can have permanent effects and promote the structural and environmental transformation of the economy. Starting from this point, we develop a multisectoral stock-flow consistent model to study the long-run effects of the implementation of a job guarantee program, both in the original formulation of Minsky and in its recent version put forward as part of the ‘Green New Deal’ (GND) policy package. We also assess the impact of both ‘green’ and ‘brown’ standard fiscal expenditures, as well as a policy mix including industrial, environmental and employment measures. Results from our simulations point out that, in order to pursue the twin targets of full employment and environmental sustainability, the government should invest in gross fixed capital formation while both reducing energy consumption and acting as an employer of last resort in order to absorb the workforce expelled from the energy sector.

KEYWORDS:

• Stock-flow consistent models
• job guarantee plan
• structural change
• energy transition

JEL CLASSIFICATION:

• B52
• J68
• Q43

Acknowledgements

I am grateful to Francesco Ruggeri, Marco Veronese Passarella, Tracy Mott, Ricardo Summa, Nikoalos Rodousakis, Giacomo Cucignatto and two anonymous referees for their useful comments on a first draft of this article. The usual disclaimers apply.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1 Knapp’s main take is indeed that money is an institutional arrangement used to measure debt and credit relations rather than primarily as a medium of exchange. His view was endorsed by Keynes in his 1930 Treatise on Money (Keynes 1930), where he stated that the State accomplished the monopoly of the payment system when it ‘claimed the right not only to enforce the dictionary but also to write the dictionary’, a situation existing for at least ‘four thousand years’.

2 Mitchell, Wray, and Watts (2019) offer Prima facie to this problem the adoption of a floating exchange rate regime, which would absorb the shocks from the rest of the world through a simple price adjustment and maintain, in check, the trade balance. However, Epstein (2019) and Vernengo and Perez Caldentey (2020) criticize this mechanism as a pure flexible exchange arrangement, if left unchecked, to attract speculative capital flows that bet against the value of the local currency and trigger destabilizing dynamics.

3 The points of departure from each of these works in terms of policy scenario are discussed more in depth in Section Three.

4 The reader may find in Appendix 1 the complete presentation of all symbols.

5 The purpose of introducing a simple foreign sector (which it basically is, restricted to the trade balance) is to evaluate the impact of a change in import demand following a change in aggregate demand (driven by consumption once the JG is enacted). Here, we do not consider more complex cases (such as heterogeneous trade composition).

6 The .R code to generate the simulations can be obtained upon request.