Unemployment is the greatest economic problem facing Australia and other OECD countries. Yet it has received less attention than issues such as tax reform and exchange rate policy. In part this reflects a general air of fatalism. It is generally accepted that nothing can be done to generate substantial reductions in unemployment. This paper is based on the premise that the fundamental cause of rising unemployment is a decline in the demand for labor. This in turn may be traced to the failure of the publicly financed community services sector (primarily health and education) to continue the expansion of the post-war boom, thereby compensating for the contraction of employment in older sectors such as manufacturing. A second premise is that the contraction in the public sector, and particularly in publicly financed community services, has been greater than is consistent with efficiency and welfare objectives. Both of these premises are defended in more detail in Quiggin (1993). It is argued that both an active labor market policy and an expansion of the publicly financed community services sector, sufficient to generate a substantial reduction in employment, is feasible. A number of proposals for financing such a program ar
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