Research Topics

In comparison to the policy responses in the aftermath of the 2008–9 global financial crisis, the reactions of EU policymakers to the combined shocks of the COVID-19 crisis and Ukraine-Russia conflict reveal a greater willingness to deploy public finance in support of the population. Yet, while this display of renewed solidarity is commendable, policymakers have a long way to go in building a more resilient and sustainable EU. A confrontation with long-standing “business as usual” EU rules and policies is necessary, and it is in this context that the job guarantee deserves serious consideration. Acting for the common purpose of reducing and eventually eliminating long-term unemployment would send a clear message that a Social Europe is possible.

The Greek government has agreed to a new round of fiscal austerity measures consisting of a sharp increase in taxes on income and property and further reductions in pension and other welfare-related expenditures. Based on our model of the Greek economy, policies aimed at reducing the government deficit will cause a recession, unless other components of aggregate demand increase enough to more than offset the negative impact of fiscal austerity on output and employment.

In this report we argue that the troika strategy of increasing net exports to restart the economy has failed, partly because of the low impact of falling wages on prices, partly because of the low trade elasticities with respect to prices, and partly because of other events that caused a sharp reduction in transport services, which used to be Greece’s largest export sector.

A policy initiative to boost aggregate demand is urgently needed, now more than ever. We propose a fiscal policy alternative based on innovative financing mechanisms, which could trigger a boost in confidence that would encourage renewed private investment.

Even under optimistic assumptions, the policy status quo being enforced in Greece cannot be relied upon to help recover lost incomes and employment within any reasonable time frame. And while a widely discussed public investment program funded by European institutions would help, a more innovative, better-targeted solution is required to address Greece’s protracted unemployment crisis: an “employer of last resort” (ELR) plan offering paid work in public projects, financed by issuing a nonconvertible “fiscal currency”—the Geuro.

The Greek economy has not succeeded in restoring growth, nor has it managed to restore a climate of reduced uncertainty, which is crucial for stabilizing the business climate and promoting investment. On the contrary, the new round of austerity measures that has been agreed upon implies another year of recession in 2016.

After reviewing some recent indicators for the Greek economy, we project the trajectory of key macroeconomic indicators over the next three years. Our model shows that a slow recovery can be expected beginning in 2017, at a pace that is well below what is needed to alleviate poverty and reduce unemployment. We then analyze the impact of a public investment program financed by European institutions, of a size that is feasible given the current political and economic conditions, and find that, while such a plan would help stimulate the economy, it would not be sufficient to speed up the recovery. Finally, we revise our earlier proposal for a fiscal stimulus financed through the emission of a complementary currency targeted to job creation. Our model shows that such a plan, calibrated in a way that avoids inflationary pressures, would be more effective—without disrupting the targets the government has agreed upon in terms of its primary surplus, and without reversing the improvement in the current account. 

Expanding Child Care and Preschool Services

This one-pager presents the key findings and policy recommendations of the research project report The Impact of Public Investment in Social Care Services on Employment, Gender Equality, and Poverty: The Turkish Case, which examines the demand-side rationale for a public investment in the social care sector in Turkey—specifically, early childhood care and preschool education (ECCPE)—by comparing its potential for job creation, pro-women allocation of jobs, and poverty reduction with an equivalent investment in the construction sector.

The Turkish Case

Produced in partnership with the International Labour Organization, United Nations Development Programme, and UN Women, this report examines the demand-side rationale for a public investment in the social care sector—specifically, early childhood care and preschool education (ECCPE)—by comparing its potential for job creation, pro-women allocation of jobs, and poverty reduction with an equivalent investment in the construction sector.

The authors find that a public investment of 20.7 billion TRY yields an estimated 290,000 new jobs in the construction sector and related sectors. However, an equal investment in ECCPE creates 719,000 new jobs in ECCPE and related sectors, or 2.5 times as many jobs. Furthermore, nearly three-quarters of the ECCPE jobs go to women, whereas a mere 6 percent of new jobs go to women following an expansion of the construction sector.

ECCPE expansion is also shown to be superior in terms of the number of decent jobs (i.e., jobs with social security benefits) created: some 85 percent of new ECCPE jobs come with social security benefits, compared to the slightly more than 30 percent of construction jobs that come with equivalent benefits. Both expansions are found to benefit the poor, with an ECCPE expansion targeting prime-working-age poor mothers of small children showing the potential to reduce the relative poverty rate by 1.14 percentage points. In terms of fiscal sustainability, an ECCPE expansion is estimated to recoup 77 percent of public expenditures through increased government revenues, while construction recovers roughly 52 percent.

The report concludes that in addition to supply-side effects, there is a robust demand-side rationale for expanded funding of ECCPE, with clear benefits in terms of decent employment creation, gender equality, poverty alleviation, and fiscal sustainability. These findings have important implications for expanded public investment in the broader social care sector as a strategy that embraces gender budgeting while promoting inclusive and sustainable growth.

With the anti-austerity Syriza party continuing to lead in polls ahead of Greece’s election on January 25, what is the outlook for restoring growth and increasing employment following six years of deep recession?   Despite some timid signs of recovery, notably in the tourism sector, recent short-term indicators still show a decline for 2014. Our analysis shows that the speed of a market-driven recovery would be insufficient to address the urgent problems of poverty and unemployment. And the protracted austerity required to service Greece’s sovereign debt would merely ensure the continuation of a national crisis, with spillover effects to the rest of the eurozone—especially now, when the region is vulnerable to another recession and a prolonged period of Japanese-style price deflation.   Using the Levy Institute’s macroeconometric model for Greece, we evaluate the impact of policy alternatives aimed at stimulating the country’s economy without endangering its current account, including capital transfers from the European Union, suspension of interest payments on public debt and use of these resources to boost demand and employment, and a New Deal plan using public funds to target investment in production growth and finance a direct job creation program. 

What are the prospects for economic recovery if Greece continues to follow the troika strategy of fiscal austerity and internal devaluation, with the aim of increasing competitiveness and thus net exports? Our latest strategic analysis indicates that the unprecedented decline in real and nominal wages may take a long time to exert its effects on trade—if at all—while the impact of lower prices on tourism will not generate sufficient revenue from abroad to meet the targets for a surplus in the current account that outweighs fiscal austerity. The bottom line: a shift in the fiscal policy stance, toward lower taxation and job creation, is urgently needed. 

Case Studies in South Africa and the United States

This paper demonstrates the strong impacts that public job creation in social care provisioning has on employment creation. Furthermore, it shows that mobilizing underutilized domestic labor resources and targeting them to bridge gaps in community-based services yield strong pro-poor income growth patterns that extend throughout the economy. Social care provision also contributes to promoting gender equality, as women—especially from low-income households—constitute a major workforce in the care sector. We present the ex-ante policy simulation results from two country case studies: South Africa and the United States. Both social accounting matrix–based multiplier analysis and propensity ranking–based microsimulation provide evidence of the pro-poor impacts of the social care expansion.

The slow recovery of the job market after the recessions of 2001 and 2007–09 has fostered concerns that the link between output growth and job creation has been severed. Between 2000 and 2010, the employment rate for males plunged from 71.9 to 63.7 percent—a decline that can be accounted for almost entirely by a fall in the employment rate for the disabled members of this group.

Research Scholar Greg Hannsgen examines whether the Great Recession disproportionately affected the job prospects of disabled workers, and whether the long-run fall in employment among the disabled can be blamed largely on the design of Social Security disability insurance. His findings? At least since 2008, the ongoing fall in the probability of being employed has strongly affected the job prospects of both the disabled and the nondisabled, and the accelerated declines since 2007 hint at an important, and negative, role for the recent recession. Hence, a government jobs initiative such as an employer-of-last-resort program, and not just long-term improvements in entitlement programs, is still very much apropos.

A Strategy for Effective and Equitable Job Creation

Massive job losses in the United States, over eight million since the onset of the “Great Recession,” call for job creation measures through fiscal expansion. In this paper we analyze the job creation potential of social service–delivery sectors—early childhood development and home-based health care—as compared to other proposed alternatives in infrastructure construction and energy. Our microsimulation results suggest that investing in the care sector creates more jobs in total, at double the rate of infrastructure investment. The second finding is that these jobs are more effective in reaching disadvantaged workers—those from poor households and with lower levels of educational attainment. Job creation in these sectors can easily be rolled out. States already have mechanisms and implementation capacity in place. All that is required is policy recalibration to allow funds to be channeled into sectors that deliver jobs both more efficiently and more equitably.

A Microsimulation Approach

Over the last two decades, those at the bottom of the income scale have seen their incomes stagnate, while those at the top have seen theirs skyrocket; without intervention, the recession that began in December 2007 was likely to exacerbate this trend. Will the American Recovery and Reinvestment Act of 2009 (ARRA) be able to keep the situation from getting worse for those at the bottom of the income scale? Will ARRA reverse the upward trend in inequality that we’ve seen in the recent past? The authors of this new working paper employ a microsimulation of ARRA to address these questions. They find that, despite a large amount of job creation, ARRA is likely to have little impact on overall income inequality, or on the income gaps between relatively advantaged and disadvantaged groups.

 

South Africa and India

Documents relating to the South Africa and India case studies are available below.

SOUTH AFRICA	INDIA
Policy Brief Full Report Appendix A. SAM–SA Technical Report Appendix B. Statistical Analysis Appendix C. Job Identification Tables Appendix D. SAM Reformulation	Policy Brief Full Report Appendix A. SAM-Nana Kotda Village Appendix B. A Note on the Village Sam Appendix C. A Summary Table on Unpaid Work and Its Implications for Public Works Programmes
Annotated Bibliography