Unemployement and Macro Economy policies
When we speak about unemployement we can differentiate
between two different types:
Frictional
Unemployment: this unemployment involves people in
the midst of transiting between jobs and searching for new ones:
sending CV's, visiting employment agencies, interviews, etc.
Structural
Unemployment : this unemployment is produced when
the demand for work is less than the supply,, or when there
are imbalances between the amount of work supplied and the amount
of work demanded (training, geographic location, etc).
Structural unemployement has the greatest effects
on people.
How is unemployment
meausred?
The adult population of a country is classified
into two categories the active population (it
includes those that are employed and those that are unemployed
but want to work) and the inactive population
(those that don't work and are not looking for work: housewives,
retired people, students, etc).
Umployment rate = Number
of people unemployed / active population
In order to reduce unemployment the government
can adopt demand and supply management policies.
a) Demand management
policy
The policy tries to relaunch demand. The measures
can be:
Fiscal meausres: to
lower taxes, increase public expenditure.
Monetary meaures: to
increase the monetary offer to lower rates and relaunch investments.
Measures that effect the exchange
rate: directed at lowering the exchange rate and relaunching
exports.
The efficiency of these measures will depend
on the position of the economy and how distant full unemployment
is:
If the economy is very low, it
is possible that these measures succeed in increasing the employment
rate, but if the economy is close to full unemployment these
meaures don't usually effect employment and as a result generate
inflation, as they remove international competitiveness.
b) Supply management
policy
It tries to act above the aggregate supply curve,
forcing it to the right. There are different measures directed
at improving technology, improving productivity, increase the
savings and investment rate, etc.
Some measures that the government will be able
to inforce are:
Promoting competitivness: surveying
monopolistic positions, freeing the markets, privatisations,
etc.
Training workers, financial help
for investment projects (subsidies, tax relieves, etc)
Incentives for R+D (research
and development)
Improvements in company infrastructures.
Tax reductions for workers and
companies
Subsidies to companies that create
employment.
