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The Job Guarantee (JG hereafter) program of the Modern Money Theory (MMT hereafter) literature seems to be designed for a mature economy in the sense of Lewis (1954). There is no subsistence sector in the economy, so anyone that cannot get a job on the modern sector is unemployed or out of the labor force. This can be a good picture for high income countries, but it is definitely not the case for emerging and developing economies where more than 30% of the labor force works at subsistence or informal urban sector. This means that when one is fired in the modern sector of the economy, he/she has always the alternative (except during covid-19 pandemia) to “work” within the subsistence sector. These people are not officially unemployed, but their situation can be considered a “disguised unemployment” in the sense of Joan Robinson (1936).

In her 1936 article Joan Robinson explicity writes that : “Yet unemployment, as we know it, is specifically the disease of an advanced industrial community” (p.225); and she asks “How can we account for the fact that, over the
the whole range of human history, unemployment in the modern sense is, comparatively speaking, a rare and local phenomenon?” (ip.225).

She answered this question with the concept of disguided unemployment. In her words:

“The answer is to be found in the existence of disguised un-
employment. In a society in which there is no regular system of
unemployment benefit, and in which poor relief is either non-
existent or ” less eligible ” than almost any alternative short of
suicide, a man who is thrown out of work must scratch up a living
somehow or other by means of his own efforts. And under any
system in which complete idleness is not a statutory condition for

drawing the dole, a man who cannot find a regular job will
naturally employ his time as usefully as he may. Thus, except
under peculiar conditions, a decline in effective demand which
reduces the amount of employment offered in the general run of
industries will not lead to ” unemployment ” in the sense of
complete idleness, but will rather drive workers into a number of
occupations-selling match-boxes in the Strand, cutting brush-
wood in the jungles, digging potatoes on allotments-which are
still open to them. A decline in one sort of employment leads
to an increase of another sort, and at first sight it may appear
that, in such a case, a decline in effective demand does not cause
unemployment at all. But the matter must be more closely
examined. In all those occupations which the dismissed workers
take up, their productivity is less than in the occupations that they
have left” (1936, p.225-226).

How a JG programm will work in such situations, which are typical of dual economies in the sense of Lewis?

Another issue is regarding the external constraint. For MMT a system of floating exchange rate seems not only a necessary/sufficient condition for monetary sovereignty, but also for eliminating the external constraint. I had two criticisms to this idea. First of all, in the real world a pure floating exchange rate regime do not exist. All countries intervene in the foreign exchange market in order to reduce the amplitude of exchange rate fluctuations. If that is so, exchange rate floating may be not able to perform the role of “automatic stabilizer” of balance of payments. Second, the effect of changes in the nominal exchange rate over real exchange rate and in trade balance depends of (i) the level of real wage resistance; (ii) the price elasticities of exports and imports. In high income countries, the price elasticities of exports and imports are high, so a real exchange rate devaluation can increase the trade balance; but real wage resistance is higher, mainly in continental Europe countries, like France and Italy. This means that a devaluation of nominal exchange rate will create demand for higher nominal wages, reducing the effect of exchange rate over trade balance. In emerging and developing countries the wage resistance is low – due to low levels of labor unionization – but price elasticities are low (at least for countries specialized in exports of primary goods). This means that for these countries is impossible to make economic policy without considering the external constraint (Prebisch, 1950). The historical record of Latin American countries is the a clear demonstration of this statement.

This means that for Latin American countries the best economic policy for given people a decent job is not to implement a JG programm; but to faster the rate of structural change, speeding the pace of capital accumulation in the modern sector of the economy in order to transfer labor force from the subsistence sector to the modern sector until the so-called “Lewis Point” is reached and labor supply ceases to be unlimited. The most effective way to do that is by means of industrialization, that is, to increase the share of manufacturing industry both in GDP and total employment. A necessary, although not sufficient condition, is to keep the real exchange rate at a stable and competitive level in the medium to the long term (Bresser-Pereira, Oreiro and Marconi, 2015). It will be also required State to coordinate the investment decisions of the private sector in order to produce a “big push” in the rate of capital accumulation and increase the private incentives for investment, which are low in developing countries due to the existence of increasing returns and both technological and pecuniary externalities. Some socialization of investment in Keynes´s sense through State-Owned Enterprizes can be necessary for accomplish this goal.


Bresser-Pereira, L.C; Oreiro, J.L; Marconi, N. (2015). Developmental Macroeconomics: new developmentalism as a growth strategy. Routledge: London.

Lewis, A. (1954). “Economic Development with Unlimited Supplies of Labor”. The Manchester School of Economic and Social Studies, Vol. 28.

Prebish, R. (1950). The Economic Development of Latin America and its Principal Problems. United Nations: New York

Robinson, J. (1936). “Disguised Unemployment”. The Economic Journal ,Vol. 46, No. 182, pp. 225-23