Efficiency Aspects of Employment and Distribution Policy
Our discussion so far may be summarised as follows. An economy, which is capable of adjusting quickly to equilibrium positions and in which the actual income distribution is the desired one, does not need any economic policy other than the allocation policy discussed in Chapter 2, that is, policy measures aimed at making the allocation Pareto optimal in equilibrium positions. However, as we indicated in the end of the preceding chapter, adjustments to equilibrium positions are, in reality, often quite slow; chronic unemployment, general or local, is perhaps the most significant example here. Moreover, the actual distribution of real income is often considered to be far off the target. Hence, the government intervenes, in practice, to stabilise employment, etc., as well as to redistribute income. The purpose of this chapter is to analyse efficiency aspects of this kind of government intervention.
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