A Model of Full-Employment Growth for Developing Economies

Author(s): KENNETH K. KURIHARA

Source: Pakistan Economic and Social Review, Vol. 10, No. 1 (JUNE 1972), pp. 1-7
Published by: Department of Economics, University of the Punjab
Stable URL: http://www.jstor.org/stable/25824724 .
Accessed: 22/06/2014 20:50

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

Department of Economics, University of the Punjab is collaborating with JSTOR to digitize, preserve and
extend access to Pakistan Economic and Social Review.

http://www.jstor.org

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
 A Model of Full-Employment Growth for
Economies
Developing

L Preliminary Observations

Underemployment and underdevelopment are the twin problems

confronting all developing economies. And yet economic development

per se does not make for full employment, even as many advanced econo
mies are observably confronted with chronic underemployment. As far
as developing economies are concerned, it is not the growth of effective
demand but the growth of productive capacity that fundamentally makes
for or against continuous full employment. To be more specific, it is the

growth of output and capital relative to that of population that determines

whether or not a developing economy is to be persistently underemployed.
Thus such trendforces as population growth, technological advance, and

capital accumulation must be explicitly introduced into any employment

theory that purports to provide a causally significant explanation of secular
underemployment especially in an underdeveloped economy.
Keynes' General Theory lacks generality and applicability in that it
precludes such trend forces as mentioned above. As a consequence,
various post-Keynesian attempts have been made to secularize and
dynamize Keynes' short-run static theory of employment.1 Thus, for

example, Harrod complained : "To secure full employment in the short

period without regard to what may be necessary for securing a steady rate
of progress is short-sighted."2 The essence of Harrod's argument is that
the "warranted" rate of growth of effective demand associated with

"involuntary unemployment" must be made to equal the "natural" rate of

growth of productive capacity determined by population growth and
technological progress. Like Keynes, Harrod considers employment

largely as a function of effective demand, although effective demand is

transformable into capital accumulation via the acceleration principle.3
Unlike Harrod, Domar makes no reference to population and technology
as co-determinants of
employment.4 Both Harrod and Domar are

obviously concerned with the unemployment problem of advanced market

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
2 PAKISTAN ECONOMIC AND SOCIAL REVIEW

economics with their characteristic deficiency of effective demand.

Joan Robinson gave Harrod credit for having "led us toMarx's theory
of the reserve labour, which expands and contracts as the growth of

population runs faster or slower than the rate of capital accumulation."5

She distinguished "Marxian unemployment." as such, from "Keynesian

unemployment" arising from insufficientdemand, but failed to recognize

that part of "Marxian unemployment" which Paul Sweezy attributed to

technological change.* Her subsequent model showed that profits and

capital must be accumulated at such a rate as to equip a given labor popu
lation.7 Joan Robinson's smashing emphasis on the profit rate seems to
make her growth model more applicable to historical capitalism than to
present-day developing economies which are capital-poor yet not somarket
oriented as some advanced economies.*
These and other writers have offered capital accumulation (in one
form or another) as the panacea for the problem of chronic underemploy
ment, and also suffer from their constancy assumption about demographi
cal and technological coefficients. Accordingly, I propose in this paper
to construct a rather more
comprehensive model of full-employment
growth for developing economies on flexible assumptions about trend forces
than those built in other post-Keynesian writings (including my earlier
ones).
II. Population Growth and A Controllable Labor Force
Let us begin with the supply side of employment in a developing
economy. The total labor force to be fully employed is functionally re
lated to total population via

(1.1) L=i+aP, (a=dL/dP^:const.,cUo)

where L is the aggregate supply of labor or simply the labor force, P the
size of population, a the average-marginal manpower coefficient, and a a
zero intercept. The labor-population ratio a reflects the community's
choice between work and leisure, and is usually regarded as a culturally

given parameter. However, we shall assume this manpower coefficient

to be independently variable in the interest of greater generality, as the
.The prefix"some" here implies thatother advanced economies are so comple
telyplanned or Committed to full-employmentpublic policy as to rendertheproblem
ofmass unemploymentnonexistentor insignificant.

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
 KURIHARA :MODEL OF FULL-EMPLOYMENT GROWTH 3

indicator accompanying equation (1.1) specifies. We shall bring out the

policy implications of this assumption later.

In the general case where a is independently variable, the differential
of equation (1.1) becomes

(1.2) dL=9-^d
da +^dP<**

= Pda + adP.

From (1.1) and (1.2) we can derive the rate of growth of the labor
force :

K } L a + P
which shows that the total labor force is capable of growing at a rate

equal to the sum of the rate of change in themanpower coefficient (da/a

and the rateof growthof population (dP/P). Equation (1.3) suggeststhe
additional possibility of manipulating the rate of change in themanpower
coefficient, as well as the rate of growth of population.
To be more specific, equation (1.3) indicates the practical desirability
of reducingtherateof growthof the laborforce (dL/L) througheugenic
programs, contraception clinics, individual family planning, liberal abor
tion laws, and other measures affecting the rate of growth of population

(dP/P)* and/or through lower retirement ceilings, longer schooling,

stringent child-woman labor legislation, selective emigration, and other
ways affecting the rate of change in the manpower coefficient (da/a)**
as far as overpopulated underdeveloped economies are concerned. In
clusion of the independently variable rate of change in the manpower

in thisrespect,to recall Keynes* observation : "The time has

?It is interesting,
already come when each countryneeds a considerednational policy about what size of
Population, whether largeror smaller then at presentor the same, ismost expedient.
And having settledthispolicy,we must take steps to carry it intooperation. The time
may arrivea littlelaterwhen thecommunityas a whole must pay attentionto the innate
quality as well as to themere numbersof its futuremembers," (J.M.Keynes, Essays
inPersuasion, p. 319).

when he talks about his "natural"

**Harrod alludes to themanpower coefficient
rate of growthof output as being indicativeof "a correctbalance betweenwork and
leisure." (Towards a Dynamic Economics, p. 87). But he does not incorporateany
explicitmanpower coefficientintohis analysis.

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
4 PAKISTAN ECONOMIC AND SOCIAL REVIEW

coefficient
(dafa) inequation (1.3) enlargesthepolicy scopeforthedelibe
rate control of the labor force to be fully employed, especially in those

developing economies which cannot readily decrease the rate of growth

of population for religious, sociological, and other extra-economic reasons.
It should be added that population control, however difficult, is consistent
also with a developing economy's ardent desire to increase itsper capita
income.

Therate of growth of the labor force given by equation (1.3) must

be juxtaposed with an independently determined rate of growth of employ
ment. Let us, therefore, turn to the demand side of employment.

III. Output Growth, Technological Change, and Employment

We shall in this section assume that effective demand is always kept

equal to productive capacity through familiar Keynesian fiscal-monetary

policies. This assumption seems plausible to make in the present context

of a developing economy confronted with secular underemployment largely
for lack of capital to equip a large and growing labor population. How
ever, as mentioned at the outset, we shall deal not only with flexible capital
requirements but also with variable labor intensity in the subsequent dis
cussion of the employment function.

Labor-input and capital-input are combined in the overall production

function via the technological-structural relation of the form

(2.1)N/K=A ^ const.,

where N is the total amount of labor demanded or simply employment,

K the total amount of capital demanded as an input, and A the variable

labor-capital ratio which measures the degree of labor intensity for the

economy as a whole. The labor-capital ratio reflects both the labor-in

tensive or capital-intensive structure of the economy and the labor-saving
or labor-using nature of technological progress. If the economy happens
to be market oriented, the variability of the labor-capital ratio may be due

partly to a unitary or greater than unitary elasticity of substitution of labor

for capital with respect to factor prices.

Capital requirements are measured by the capital-output ratio :

(2.2) K/Y=b^ const.,

which variable ratio also reflects the nature of technological change and
the structure of industry as well as market conditions.8

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
 KURIHARA :MODEL OF FULL-EMPLOYMENT GROWTH 5

From (2.1) and (2.2) wc can derive the employment function of the
form

(2.3) N = A bY
which shows that the total amount of labor-input demanded depends on the
variable labor-capital ratio and the variable capital-output ratio as well
as productive capacity.
In the general case where A and b are independently variable, the
differential of equation (2.3) comes to

(2.4) dN=3C|bY)d,+
dA ^>dY 3Y
a(|bY)db+
aO

=bYdA + AYdb+AbdY.
From (2.3) and (2.4; wc can derive the rate of growth of employment :

OKI dN^dX , db , dY

which suggests the theoretical possibility and the practical desirability

of increasing the rate of growth of employment through the deliberate

manipulation of the rate of change in the labor-capital ratio (dA/A), and

the rate of change in the capital-output ratio (db/b), and the rate
of growth of output (dY/Y). Thus, when the independent variables
of equation (2.5) are regarded as manipulative policy parameters,
we come that much closer to our goal of continuous full employment.
For the policy scope is greatly enlarged by the explicit introduction of the
flexible labor-capital ratio and the flexible capital-output ratio into equation

(2.5), that is, in addition to the variable rate of growth of output.

To be moreconcrete, the developing economy in question may
endeavor to increase the rate of growth of employment via the selective

encouragement of labor-intensive techniques and industries and other

measures affecting dA/A and via appropriate saving-investment programs,
capital imports, capital-requiring industrialization, and other ways affect
ing db/b as well as via various output-expanding measures affecting
dY/Y. Thus viewed, the moderate expansion of labor-intensive "cottage
industries" along with the gradual expansion of service industries is help
ful to employment growth in the course of generally capital-intensive
economic development.

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
 6 PAKISTAN ECONOMIC AND SOCIAL REVIEW

IV. Full-Employment Dynamic Equilibrium Conditions

foregoing analysis leads us to the following

The full-employment
:
equilibrium condition to be satisfied formally

/i 11 dL dN = n . d* , dP <U , db , dY
(3.1) +
X-_ Q,-+T=T T+T,
-
which implies that if an unemployment gap, dL/L dN/N>0, develops,
it can be wiped out by influencing the independent variables involved.

But equation (3.1) is devoid of any explicit policy parameters.

So let us contemplate two downward shift parameters to be imposed
on the supply side of employment :

v, p = 1. (f= 0, ...,W;TJ, p= lat/ = 0)

(3.2) vt, pt <
Contrariwise, let us contemplate three upward shift parameters to be
:
imposed on the demand side of employment
= ? , fr, H > !. (t
=
0, ..., n ; ?, fr j*- 1at t= 0)
(3.3)

Taking (3.2) and (3.3) into account,

we can rewrite equation (3.1) as

< > + (-0.">

*n^-<r^ r$-
which is the explicitly policy-ariented condition of full-employment dyna
mic equilibrium to be satisfied practically. The policy makers in each

developing economy would have to decide how much less than unity the

downward shiftparameters should be and how much more than unity the

upward shift parameters should be-for the overall purpose of achieving

and maintaining full employment at time t.
The model described by equations (1.1)-(3.4) is meant to be an
alternative to theHarrodian-Robinsonian extension of Keynes' short-run
static theory of employment. That model may have helped to dispel mis

givings about Malthus' dismal "overpopulation" principle and Marx's

pessimistic "reserve army of labor" doctrine. Be that as itmay, I hope
my model will be useful to all the developing economies concerned with
the serious and onerous problem of chronic underemployment.

StateUniversityofNew York KENNETH K. KURIHARA

Binghamton

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions
 KURIHARA :MODEL OF FULL-EMPLOYMENT GROWTH 7

REFERENCES

1. Cf. R.F. Harrod, Towards a Dynamic Economics, 1948 ; Joan Robinson, The

Accumulation of Capital, 1956 ; E.D. Domar, Essays in the Theory of Economic Growth,
1957 ; andmy TheKeynesianTheoryofEconomic Development,1959.

2. Harrod, ibid, p. 74.

method see my "The Gap between Actual and

3. For such a transformation
Potential Output in Growing Advanced Economies," inW.A. Eltis, M. F.G. Scott and

J.N.Wolfe (eds.), Induction,Growthand Trade :Essays inHonour of Sir Roy Harrod,

1970.

4. Domar, "Expansion and Employment." American Economic Review, March

1947.

5. Robinson, "Mr. Harrod's Dynamics," Economic Journal, March 1949.

6. Sweezy, "John Maynard Keynes," Science and Society, Fall ; reprinted in

S.E. Harris (ed.), The New Economics, 1948. For one answer to Paul Sweezy's com

plaint that "Keynes ignores technological change and technologicalunemployment"

(ibid) see my "The Antinomic Impact of Automation on Employment and Growth,"
Econom a Internazionale, August, 1969.

7. Robinson, The Accumulationof Capital, 1956 (esp, Book II). For a mathe
matization and interpretation of her verbal model see "Notes on the Robinson Model,"
inmy Keynesian Theory of Economic Development, pp. 73-80.

8. For a detailed discussion of the determinants of the capital-output ratio see

my "Technological Flexibilityand 'Golden age', EquilibriumGrowth," IndianEconomic

Journal, January-March 1967. The variabilityassumption involved in equation (2.2)
above is in sharp contrast with the constancy assumption involved in the Harrod-Domar

model.

This content downloaded from 185.44.78.129 on Sun, 22 Jun 2014 20:50:02 PM

All use subject to JSTOR Terms and Conditions