Societies try a number of different measures to get as many people as possible into work. However, attempts to reduce the level of unemployment beyond the Natural rate of unemployment generally fail, resulting only in less output and more inflation[citation needed].
[edit] Demand side
According to classical economic theory, markets reach equilibrium where supply equals demand; everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labour market this is classical unemployment. Increases in the demand for labour will move the economy along the demand curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand for goods and services in the economy increases, the demand for labour will increase, increasing employment and wages. Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment.
[edit] Supply side
However, the labour market is not efficient: it doesn't clear. Minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. Supply-side policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions. Other supply side policies include education to make workers more attractive to employers.
Supply side reforms also increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.
[edit] Tax-related
One structural solution to unemployment proposed was a graduated retail tax, or "jobs levy", to firms where labor is more expensive than capital. This method will shift tax burden to capital intensive firms and away from labor intensive firms. In theory this will make firms shift operations to a more politically desired balance between labor intensive and capital intensive production. The excess tax revenue from the jobs levy would finance labor intensive public projects.[11] However, by raising the value of labour artificially above capital, this would discourage capital investment, the source of economic growth. With less growth, long-run employment would fall.
[edit] Demand side
According to classical economic theory, markets reach equilibrium where supply equals demand; everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labour market this is classical unemployment. Increases in the demand for labour will move the economy along the demand curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand for goods and services in the economy increases, the demand for labour will increase, increasing employment and wages. Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment.
[edit] Supply side
However, the labour market is not efficient: it doesn't clear. Minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. Supply-side policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions. Other supply side policies include education to make workers more attractive to employers.
Supply side reforms also increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.
[edit] Tax-related
One structural solution to unemployment proposed was a graduated retail tax, or "jobs levy", to firms where labor is more expensive than capital. This method will shift tax burden to capital intensive firms and away from labor intensive firms. In theory this will make firms shift operations to a more politically desired balance between labor intensive and capital intensive production. The excess tax revenue from the jobs levy would finance labor intensive public projects.[11] However, by raising the value of labour artificially above capital, this would discourage capital investment, the source of economic growth. With less growth, long-run employment would fall.
No comments:
Post a Comment