Improving skills and reducing occupational immobility
Reflating Aggregate Demand
The government can also use macro-economic policies to increase the level of aggregate demand. These policies might involve lower interest rates or lower direct taxes. It might also encourage foreign investment into the economy from foreign multinational companies. In the diagram below we see an increase in aggregate demand leading to an expansion of aggregate supply. Because of the increase in demand for output, the demand for labour at each wage rate will grow - leading to an increase in total employment.
Not every increase in demand and production has to be met by using more labour. Each year we expect to see a rise in labour productivity (more output per worker employed). And, businesses may decide to increase production by making greater use of capital inputs (machinery and technology).
Benefit and Tax ReformsReducing the real value of unemployment benefits might increase the incentive to take a job - particularly if the real worth of unemployment benefits is well below the national minimum wage rate.Targeted measures are designed to help the long-term unemployed find re-employment (including the Government's "Welfare to Work Schemes" - see New Deal
Employment Subsidies Government subsidies for those firms that take on the long-term unemployed will create an incentive for firms to increase the size of their workforce. Employment subsidies may also be available for overseas firms locating in the UK.
Economic Growth and UnemploymentA growing economy creates jobs for people entering the labour market for the first time. And, it provides employment opportunities for people currently unemployed and looking for work .
the chart above shows the level of real national output (GDP) and total employment in the economy since 1980. In both of the last two recessions (1980-81 and 1990-92), the number of people in work has fallen sharply. But a period of sustained economic growth (as experienced by the UK from 1993-2001) has led to a significant increase in employment levels. Indeed by the summer of 2001, employment in the British economy was at record levels. This has helped reduce the official measures of unemployment to a level not seen for over twenty-five years.
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