Which economic policies can be used to reduce unemployment?
Distinction can be made between demand-side and supply-side policies to improve the working of the labour market in matching people to available jobs
Reducing occupational immobility: Immobility is a cause structural unemployment.
Policies such as apprenticeship schemes aim to provide the unemployed with the new skills they need to find fresh employment and to improve the incentives to find work. In 2013, over 500,000 people started apprenticeships in the UK.
For many years the poor quality of work-place training has been a concern, with evidence of a persistent skills-gap in the UK. In a report published in 2011, a trade union reported that 11% of British adults do not have any qualifications.In some areas such as parts of Glasgow and Birmingham, more than a third of people of working age have no qualifications.
Reducing the geographical immobility of labour: Many people have the right skills to find fresh work but factors such as high house prices and housing rents, family and social ties and regional differences in the cost of living make it difficult and sometimes impossible to change location in order to get a new job. Many economists point to a persistently low level of new house-building as a major factor impeding labour mobility and the chances finding new work.
Benefit and tax reforms: To some economists, a policy that reduces the real value of welfare benefits might increase the incentive for the unemployed to take a job. But it is rare that the root cause of someone staying out of work is the prospect of out of work welfare handouts. Targeted measures to improve people's incentives might include linking welfare benefits to participation in work experience programmes or lower marginal tax rates for people on low incomes.
Boosting aggregate demand:
Employment subsidies and/or employment tax cuts (demand-side policy):
Changing the participation age
From 2013, young people in the UK will be required to continue in education or training until they turn 17 and from 2015 they will be required to continue in education or training until they turn 18.
Globalisation, Unemployment & Inequality
Globalisation and technological change favour the highly skilled. In the middle of the income distribution, a strong pair of arms, a willingness to work hard and a bit of common sense used to provide a comfortable income. No longer
Source: Tim Harford, Financial Times
Evaluation on Unemployment Policies
Unemployment policies are designed to
There are always cyclical fluctuations in employment. If growth can be sustained it should be possible to create a steady flow of new jobs. There are always changes in the pattern of demand for different jobs – the labour force needs to be sufficiently flexible to deal and adjust to this.
An economic recovery creates new jobs; the issue is whether people in the labour market have the right skills, qualifications and experience to take them – many training schemes lead to qualifications which don't necessarily help people back into work.
Demand and supply-side policies need to work in tandem for unemployment to fall. Simply boosting demand if the root cause of unemployment is structural is an ineffective way of tackling the problem. If demand is stimulated too much, the main risk is rising inflation
Full-employment does not mean zero unemployment! There will always be some frictional unemployment – it may be useful to have a small surplus pool of labour available. Most economists argue that there will always be some frictional unemployment of perhaps 2-3% of the labour force.
There are still large regional differences in unemployment levels which causes significant economic and external costs. Urban and regional regeneration can take decades to achieve
Policies for Reducing Unemployment – Key Themes
Raising the total level of employment is an important aim of labour market policies. The UK economy has seen some success in this regard in the last few years.
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