Supply Side Policies Reducing Unemployment?
To what extent have supply side policies been responsible for reducing unemployment in the UK
Supply side policies look at improving the expansion of the economy’s production output whether this be increasing the output of labour or the production of good X.
If you look below you’ll see a diagram which illustrates the economy’s total production capacity. Supply side policies implemented by the Government help to shift the Long Run Aggregate Supply Curve to the right, affectively increasing the output of the economy. The Government may wish to do this because the economy is nearing its total output and so is seeing a rise in prices because of scarce resources (Inflation) or perhaps the Government such as in this case is looking to use Supply Side Policies to help deal with employment.
To shift Aggregate Supply the Government may try and use its current policies to try and encourage the output of the economy to grow in order to help unemployment. One of the first policies which the Government may look at is reducing ‘benefits’, this would make current market wage rates look more attractive to people and so would give an incentive for people to come off of benefits and look for work. This would help to increase the supply of labour. The government could also look at reforming their fiscal policy and look at ways to try and cut taxes as again it would be an incentive for more people to work. Just take a look at the diagram below to see the trade off between tax levels and employment.
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