Towards an employment policy: optimum control theory and input-output analysis as instruments to planning

Abstract

The objective of this paper is to integrate optimum control theory and input-output analysis in a model designed to provide elements toward policies of sectoral unemployment minimization. In the paper, the deterministic version of the optimum control problem with linear dynamic equation and quadratic performance criterion is briefly presented. In the model, the objective function contains an index that is regarded as representing the unemployment due to underutilization of sectoral capacity, which is minimized. The state variables are the sectoral gaps between actual output and potential (full-capacity) output; the control variables are the variations in the sectoral final demands accomplished by the government. In the empirical simulations, data from the Brazilian input-output table, built by IBGE, are used. The results show that the service and the civil construction sectors are the most responsive to policies intended to minimize sectoral unemployment, due to its wage coefficients and backward linkages, respectively. Other good reasons to stimulate those sectors are the acceptable degree of government intervention and the small consumption of imported inputs, which characterize them. Government intervention is then recommended to be concentrated on those two sectors.