Abstract:

A consensus has emerged among economists that central banks cannot ignore employment and how monetary policies affect workers and employers. However, there is no agreement on the extent to which labour issues should be incorporated into operational frameworks or whether central banks should support structural reforms. In fact, more than 80% of the world’s central banks have no explicit employment objective. That said, given that labour issues can directly cause macroeconomic imbalances, many central banks, even those without explicit dual objectives, have incorporated labour indicators into their core policy frameworks. We assess the implicit mandate of the Bank of Canada and the European Central Bank, which, unlike the Federal Reserve, do not have an express labour mandate. To scrutinize modern central banking practices, we investigate the historical, legal, and extra-statutory data with regard to the primary objectives of central banks and how they interact with secondary objectives in practice. Our analysis shows that both the Global Financial Crisis and the recession triggered by COVID-19 have had tremendous impacts on the workforce, requiring immediate action and eventually changing the policy environment in which central banks operate. However, while neither the Bank of Canada nor the European Central Bank have an explicit dual mandate, the latter has been much more aggressive in pursuing labour objectives. We discuss the legality of this mandate transformation in light of the Bank of Canada Act and the European Union Treaty. Finally, we make a legal case for a more human-developmental approach to central banking, one that involves greater social and labour dimensions.