Read this article. It is a dilemma faced by governments. They have a budget deficit and has to reduce spending by laying off workers. But it is difficult for the workers to find jobs in a recession. The workers will receive unemployment benefits for a short period, but the benefits will run out after a while, and they may still be unemployed.
In a recession, there will not reduced demand for goods and services, as those who are still employed will cut down their own spending. Small businesses will not employ the excess workers. It is difficult for the unemployed workers to start their own business, due to lack of funding, lack of credit and lack of business. It is a vicious cycle.
The solution to a recession is for the government to employ more people, and not to lay them off. These people can be used to provide the public goods and services, that are needed by the population at large, in health, education, security, infrastructure and other useful activities. The government needs the money to pay for these services, and it has to come from taxation of those who are employed and those who are well off.
The people who are employed by the public sector do not need to be paid high wages. They only need to be paid enough to get by. When the economy recovers, they can find better paying jobs in the private sector. In the meantime, they should be kept usefully employed.
The advanced countries are now suffering from the current economic system - low taxation, wide income gap, globalisation, high unemployment and budget deficits. The current system is not sustainable. The leaders need the courage to change the system - but the challenges are really big.
Tan Kin Lian
In a recession, there will not reduced demand for goods and services, as those who are still employed will cut down their own spending. Small businesses will not employ the excess workers. It is difficult for the unemployed workers to start their own business, due to lack of funding, lack of credit and lack of business. It is a vicious cycle.
The solution to a recession is for the government to employ more people, and not to lay them off. These people can be used to provide the public goods and services, that are needed by the population at large, in health, education, security, infrastructure and other useful activities. The government needs the money to pay for these services, and it has to come from taxation of those who are employed and those who are well off.
The people who are employed by the public sector do not need to be paid high wages. They only need to be paid enough to get by. When the economy recovers, they can find better paying jobs in the private sector. In the meantime, they should be kept usefully employed.
The advanced countries are now suffering from the current economic system - low taxation, wide income gap, globalisation, high unemployment and budget deficits. The current system is not sustainable. The leaders need the courage to change the system - but the challenges are really big.
Tan Kin Lian
Dear Mr Tan,
ReplyDeleteI heartily agree with your views.
You neglected to mention the most potent effect & benefit of your proposal: "The velocity of money"
Here is the wiki explanation of this economics concept.
http://en.wikipedia.org/wiki/Velocity_of_money
The important thing is to put money into ORDINAY people's pockets. So that they start spending.
Demand for goods and services go up.
As a result, demand for more workers to increase supply goes up.
Putting more money into RICH people's pockets does not help as much.
How much demand for goods & services can 1 rich man generate?
Versus the demand generated by 100 poor men.
After the ideas of the economist, Keynes, successfully brought the Great Depression to an end. I'm surprised that politicians in USA and Singapore still cannot grasp this simple idea.
In many countries, the unemployed people are given some welfare benefits for a certain period. A better alternative is to create suitable public sector jobs that pay a subsistence allowance, which can be lower than the minimum wage, for these people. It is better than allowing them to collect the welfare benefit without doing any work.
ReplyDeleteFor example, they can work for half a day and earn a wage that is half of the minimum wage.
The public sector can create these jobs and it can be a temporary solution until the economy recovers from the recession.