--- canonical_url: "https://csls.ca/ipm-archive/ipm-issue-11/fiscal-policy-can-raise-both-employment-and-productivity/" title: "Fiscal Policy Can Raise Both Employment and Productivity" author: name: "CSLS" url: "https://csls.ca/author/cslc/" date_published: "2026-07-13T06:53:27+00:00" date_modified: "2026-07-13T06:53:27+00:00" post_type: "ipm" summary: "" ipm_issue_period: - "Fall 2005" ipm_keyword: - "Canada" - "employment subsidies" - "equity-efficiency tradeoff" - "fiscal policy" - "Okun" - "productivity" - "second-best" - "unemployment" ipm_research_theme: - "Policy and institutions" ipm_country_focus: - "Canada" featured_image: "https://csls.ca/wp-content/uploads/2026/06/IPM_50_banner.webp" status: "publish" --- # Fiscal Policy Can Raise Both Employment and Productivity Canonical URL: https://csls.ca/ipm-archive/ipm-issue-11/fiscal-policy-can-raise-both-employment-and-productivity/ # Fiscal Policy Can Raise Both Employment and Productivity [Download full PDF article](https://csls.ca/wp-content/uploads/2026/07/IPM-Issue-11-5-Scarth.pdf) Cite this article × Cite this article as: Scarth, William. 2005. “Fiscal Policy Can Raise Both Employment and Productivity.” International Productivity Monitor, No. 11 (Fall 2005): 39–46. https://www.csls.ca/ipm-archive/ipm-issue-11/fiscal-policy-can-raise-both-employment-and-productivity/ ## Author: - William Scarth Department of Economics, McMaster University ## IPM Issue 11 Fall 2005 pp. 39–46 ## Related IPM articles [The Relationship between Efficiencies Defenses for Mergers and TFP Growth Robin Shaban Fall 2025 | IPM Issue 49 | pp. 82–102](https://csls.ca/ipm-archive/ipm-issue-49/the-relationship-between-efficiencies-defenses-for-mergers-and-tfp-growth/) [Adult Skills and Productivity: New Evidence from PIAAC 2023 Dan Andrews, Balázs Égert, Christine de La Maisonneuve Fall 2025 | IPM Issue 49 | pp. 41–63](https://csls.ca/ipm-archive/ipm-issue-49/adult-skills-and-productivity-new-evidence-from-piaac-2023/) [Appendix: Variable Definitions and Country/Sector Coverage for Regulatory Reform Analysis Gilbert Cette, Jimmy Lopez, Giuseppe Nicoletti, Océane Vernerey Fall 2025 | IPM Issue 49 | pp. 1–18](https://csls.ca/ipm-archive/ipm-issue-49/appendix-variable-definitions-and-country-sector-coverage-for-regulatory-reform-analysis/) [The Potential Impact of Pro-competitive Regulatory Reforms on Productivity and Growth in Canada Gilbert Cette, Jimmy Lopez, Giuseppe Nicoletti, Océane Vernerey Fall 2025 | IPM Issue 49 | pp. 3–40](https://csls.ca/ipm-archive/ipm-issue-49/the-potential-impact-of-pro-competitive-regulatory-reforms-on-productivity-and-growth-in-canada/) [IPM Issue 49 Editors’ Overview Andrew Sharpe, Bart van Ark, Paul Schreyer Fall 2025 | IPM Issue 49 | pp. 1–2](https://csls.ca/ipm-archive/ipm-issue-49/) [Appendix: UK Productivity Growth Rates Across Data Vintages and Studies Josh Martin Spring 2025 | IPM Issue 48 | pp. 65–73](https://csls.ca/ipm-archive/ipm-issue-48/appendix-uk-productivity-growth-rates-across-data-vintages-and-studies/) [Opportunities and Risks of Artificial Intelligence for Productivity Francesco Filippucci, Peter Gal, Katharina Laengle, Matthias Schief, Filiz Unsal Spring 2025 | IPM Issue 48 | pp. 1–26](https://csls.ca/ipm-archive/ipm-issue-48/opportunities-and-risks-of-artificial-intelligence-for-productivity/) [Using Ecosystem Accounting to Integrate the Environment in Measures of Multifactor Productivity Carl Obst Fall 2024 | IPM Issue 47 | pp. 87–108](https://csls.ca/ipm-archive/ipm-issue-47/using-ecosystem-accounting-to-integrate-the-environment-in-measures-of-multifactor-productivity/) [Eroding Natural Capital: An Alternative Explanation for the Secular Decline in Productivity Growth Christina Caron Fall 2024 | IPM Issue 47 | pp. 109–147](https://csls.ca/ipm-archive/ipm-issue-47/eroding-natural-capital-an-alternative-explanation-for-the-secular-decline-in-productivity-growth/) [Climate Change and Productivity — An Exploration Dirk Pilat Fall 2024 | IPM Issue 47 | pp. 54–86](https://csls.ca/ipm-archive/ipm-issue-47/climate-change-and-productivity-an-exploration/) ## Abstract ## Résumé EN FR Copy link Email LinkedIn This article challenges the conventional Okun trade-off between equity and efficiency, demonstrating in a standard economic model that employment subsidies can simultaneously reduce structural unemployment and raise productivity growth — a ‘win-win’ outcome. The key insight is that involuntary unemployment represents a second-best situation where addressing a market failure can be both equity-enhancing and efficiency-enhancing. The article discusses the Working Income Tax Benefit announced in the November 2005 Economic and Fiscal Update as a policy consistent with this analysis. Cet article remet en question le compromis d’Okun conventionnel entre équité et efficience, démontrant dans un modèle économique standard que les subventions à l’emploi peuvent simultanément réduire le chômage structurel et accroître la croissance de la productivité — un résultat « gagnant-gagnant ». L’idée centrale est que le chômage involontaire représente une situation de second rang où remédier à une défaillance du marché peut être à la fois favorable à l’équité et à l’efficience. L’article examine la Prestation fiscale pour le revenu de travail annoncée dans la mise à jour économique et financière de novembre 2005 comme une politique cohérente avec cette analyse. [Download full PDF](https://csls.ca/wp-content/uploads/2026/07/IPM-Issue-11-5-Scarth.pdf)