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ERIC Number: EJ987541
Record Type: Journal
Publication Date: 2012
Pages: 3
Abstractor: ERIC
Reference Count: 4
ISBN: N/A
ISSN: ISSN-0276-8739
Time to Shift from Macro- to Micro-Policies
Cho, Dongchul; Shin, Sukha
Journal of Policy Analysis and Management, v31 n1 p191-193 Win 2012
All of the authors seem to share the perception that one can no longer expect much from macroeconomic policies. The authors of this paper share this opinion, but this should not be interpreted as the skeptical view that macroeconomic policies are ineffective on employment. They saw from the Korea's two crises how contrasting outcomes could result from different macroeconomic policy responses. The recent Great Recession might have become another Great Depression had the bold boosting policies not been provided. By nature, however, boosting policies cannot continue forever. Monetary policy is constrained by inflation, and fiscal policy is constrained by public debt sustainability. It is also notable that macroeconomic policies are supposed to be used to correct the cyclical part, as opposed to the "natural" part, of the unemployment rate fluctuation. Although no one knows the exact level of the natural rate in each country, policymakers need to bear in mind that unemployment rates in many crisis-hit countries became permanently higher. Therefore, if the unemployment rate does not significantly fall despite the two years of recovery in production, it is reasonable to begin to suspect that a substantial portion may be attributable to a rise in the natural rate, which is not to be dealt with by macroeconomic policies. Some countries, in which the unemployment rate is "unacceptably high" (Haveman, Heinrich, & Smeedling), may need to continue temporary policies that help boost employment. For this purpose, the authors find the argument that direct hiring credits are more cost-effective in job creation than general stimulus convincing because they directly alter the incentives of firms to hire. Similar policies were experimented with in Korea during the crisis periods in the form of employment subsidies for incumbent workers and young interns trying to enter the labor market. The authors' concern about these sorts of policies is not their effectiveness on employment, but their long-term implications. For this reason, policymakers should also make efforts to streamline structural labor market policies. Structural policies will not be able to generate visible effects on employment in the near future. Nevertheless, they deserve to be pursued to enhance labor market efficiency and (possibly) to reduce the natural rate of unemployment, especially when the necessary room for enacting discretionary macroeconomic policies has been eroded. (Contains 3 footnotes.)
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Publication Type: Journal Articles; Opinion Papers
Education Level: Adult Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A
Identifiers - Location: South Korea