"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

7
AN ECONOMISTS’ MANIFESTO ON UNEMPLOYMENT IN THE
EUROPEAN UNION
Franco Modigliani, Jean-Paul Fitoussi, Beniamino Moro, Dennis
Snower, Robert Solow, Alfred Steinherr, and Paolo Sylos Labini
1 Foreword
This manifesto challenges a pernicious orthodoxy that has gripped Europe’s
policy makers. It is that demand and supply side policies must have different
aims, that a limited number of supply side policies are to be devoted to fighting
unemployment, and that demand management (and particularly monetary
policy) is to be devoted solely to fighting inflation. The prevailing orthodoxy
also claims that the choice of policy instruments for combating unemployment
is a political decision, in which each instrument is evaluated on a case-by-case
basis.
In what follows, we outline various practical proposals aimed at a prompt
reduction of unemployment. We are confident that if the advice is given proper
attention by governments and monetary authorities, unemployment can be
reduced significantly in a matter of a few years.
We will divide the proposed actions into those bearing on the revival of aggregate
demand (demand policies) and those addressed to the reform of the labour
and product markets and the system of benefits for the unemployed (supply policies).
But we stress from the very beginning that we regard our proposals as
strictly complementary with one another. Each proposal, applied in isolation, may
produce little or even perverse effects, while the simultaneous application can be
counted upon to yield the desired outcome. This holds in particular with respect
to the relation between demand and supply policies. The underlying idea is that
it is much easier to encourage people to look for jobs if there are jobs to be found
and it is much easier to encourage firms to offer more jobs if there are more
people willing to accept them.
Reprinted with permission from Labini Banca Nazionale Lavoro Quarterly Review 51, no. 206
(September 1998), 327–361.