Public Employment as Fiscal Policy

IN A COUNTERCYCLICAL public-employment program, the government attempts to expand employment during a recession and its aftermath by creating additional jobs in the public sector.Congress and the public like such policies, but most economists view them with suspicion.Since considerable experience with public-employment programs has developed over the past five years, the time seems right to evaluate their operation and potential.Two caveats are in order.The first is that this paper will not address the efficacy of fiscal policy or the desirability of discretionary policy in general.Throughout, expenditures on public employment are assumed to be financed by borrowing.The beneficial effect of this outlay on aggregate demand or national product will be reduced to an uncertain degree by the impact on interest rates.Nonetheless, considerable evidence suggests that, on balance, fiscal policy "works" in the sense that deficit-financed government outlays can increase gross national product and employment.'