Selective Use of Discretionary Public Employment and Economic Flexibility

Flexibility is a desirable feature of an economic system. Structural rigidities can result in
sluggish growth and inflationary pressures; many economic models, however, display
considerable system flexibility because of the use of unacceptably unrealistic assumptions. The
primary “real-life” features endowing the system with flexibility are unemployment and excess
capacity. While realistic, unemployment is economically costly and socially undesirable. In
economic theory, there appears to be a trade-off between flexibility and realism. In reality, there
appears to be a trade-off between flexibility and full employment. What has not been adequately
recognized, however, is the degree to which policies are available that can promote higher levels
of employment—and even full employment—without resulting in deleterious rigidity.