Productive capacity and full employment: a policy alternative
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Abstract
The aim of this paper is to propose the rate of productive capacity utilization as the economic policy target to fight unemployment. The idea behind this proposal is aimed at re-installing the management of effective demand as the main tool to reduce unemployment. This proposal attempts to replace the dominant theoretical framework, based on the neo-Keynesian labor market, which imposes inflation as the main restriction to reduce unemployment. We asses our proposal using data of six economies and several econometric techniques. The results indicate that the percentage of productive capacity utilization can indeed be a good substitute of the rate of unemployment. Moreover, according to the results of our panel data estimations, we identify that effective demand variables, like capital accumulation, affect productive capacity.
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