THE EMPLOYMENT EFFECTS OF AN INCOME-REDISTRIBUTION IN DEVELOPING-COUNTRIES

During the 1970s a host of macroeconomic studies led to the conclusion that a redistribution of income in favor of the poor would produce only a very minor increase in employment. This paper contends that the existing research systematically tends to underestimate the true employment effect of an income redistribution, partly because it is conducted at too high a level of aggregation and partly because it neglects a variety of important macroeconomic relationships. We find that these underestimates can be corrected on the basis of a disaggregated Social Accounting Matrix (SAM) for Indonesia.