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Government Policies to Reduce Unemployment

  • Jinping Zhao

Government policies are available that can and should be used to ensure low unemployment

  1. Introduction

At the present time, ideal for the most people is to live and work within an economic structure which may provide to them the prospect of steady employment, fairly steady prices and a high quality standard of living. According to data from the year 2008 during the worldwide economic recession, the International Labor Office declared that global unemployment extended more than 200 million people, 7 percent of the global workforce was looking for the job, which reached the highest level on record. It is usually recognized that to achieve low levels of unemployment most governments concerning about using the policy instruments to restructure. However, the types of policies are depending on what type of unemployment they address.

  1. Body

As according to Downs (1957) “economics and politics must be merged into a unified theory of social action.” (P. 280). There are two main political for reducing the unemployment, which is demand side policies and supply side policies. Demand side policies aim to reduce the cyclical unemployment, which is caused by the recession. On the other side, the supply side policies are used to reduce frictional and structural unemployment, which are due to imperfections in the labor market.

  • Demand side policies

Related to the demand side policies which mainly deal with cyclical unemployment. The term cyclical unemployment sometimes also known as Keynesian unemployment, generally occurs during the business depression phase when investment and consumption begin to drop off and the economy is incapable to create the equivalent number of jobs as occurred at the preceding cyclical peak. As the results of businesses not having sufficient needs for worker to employ entirely those who are searching for work. The deficiency of worker demand comes from an absence of outlay and consumption around the whole economy. When business cycles are at their peak, total economic output is being maximized, therefore cyclical unemployment will be low. When economic output decreases, the business cycle will drop down and cyclical unemployment will rise.

  • Fiscal policy

Increasing the aggregate demand and economic growth rate is the efficient way to lead unemployment decrease. The government will need to pursue an expansionary fiscal policy, which may include decreasing the taxes and increasing government expenditures. The Government can increase its own expenditure level. This “fiscal pump-priming” straightly increases aggregate demand and can make a significant influence on national income equilibrium. The government might increase current expenditure (for example aggrandizing the payment in the part of education and the health care service) or multiply expenses on capital schemes which improve the stock of capital (such as expenditure on new infrastructures, new infirmaries or other major public service projects). Continued economic growing offers a stage for more jobs to be found in the economy. Besides, a declining in taxation may result of increases buyers’ disposable income and should enhance household spending. The effect may be better if taxes are decreased for individuals on lesser than average incomes. These tax-payers are probable to spend a larger percentage of their disposable income. In short, lesser taxes increase disposal income and therefore assistance to increase consumption, giving rise to higher aggregate demand. As aggregate demand increased, Real GDP will also increase. If the company needs to produce more, there will be an escalation in demand for employees and therefore lower the unemployment.

  • Monetary policy

With the demand side policies government would diminution interest rates of monetary policy. A reduction of monetary policy through lower interest rates stimulates the demand for credit, decreases saving and increases consumers’ actual ‘effective’ disposable incomes; all of which will improve total consumption and demand. During the marginal cost of investment drop down, the low interest rate may also inspire firms to invest. This increases aggregate demand and should benefit to GDP growth and reduce demand deficient unemployment. However, in some cases, as lower interest rate may be useless in improving demand. In this situation, Central Bank may option to quantitative easing. This is an attempt to increase the money supply and increase aggregate demand.

  • Supply side policies

On the other hand, from the supply side policies for reducing unemployment, which don’t aim to enhance total aggregate demand, but pursue to overcome imperfections in the labor market and diminish unemployment. Supply side unemployment includes both frictional and structural unemployment. Firstly, with frictional unemployment is the period during potential workers are searching for or transitioning from one occupation to another. There are vacancies available, but the unemployment worker and the potential employer are not matched yet. Frictional unemployment exists because the labor market is not perfect in matching the vast number of individual suppliers of labor service with the large number of employees who want those services. If the search takes too long for someone is out of work then there is less likely job offers develop. The reason for that situation is that the skills and experience have long time lack of use, and also more potential employers sometimes in contradiction of the person who has been unemployed. Moreover, the level of frictional unemployment will depend upon the number of workers changing their job regard to some specific reasons, the number of workers who laid off by the employers, and the average duration of job search. Since each of three factors can contrast with the level of aggregate demand, frictional unemployment will be dependent on the level of aggregate demand. Secondly, related to structural unemployment is because of the number of people wanting jobs are more than available jobs vacancies. Unemployed workers may deficiency in the skills required for the jobs, or they may not live in the part of the country or world which the jobs are offered. By comparing with the frictional unemployment, structural unemployment is more central, due to the point that workers are not perfectly suitable for the job. In addition, structural unemployment arises may most cause by changes in consumer expectation, production technical skills required, and position of industry, etc., or changes in the characteristics of the labor supply.

In this situation, governments can sanction policies to attempt to reduce frictional and structural unemployment. In order to reduce the frictional unemployment, includes offering guidance and facts for job-seekers and providing unblemished and transparent information on available jobs and workers. For instant, the employment of the Job Seeker’s Allowance in 1996 confirms that workers are enthusiastically looking for work as the payment of benefit is reliant on them demonstrating this at periodical interviews. This can be in the form of free career counseling and job boards or job fairs. The government can offer convenient facilities to intensification availability and flexibility. For example, providing daycare may allow part-time or non-workers to conversion into permanent jobs, and public transportation may extend the number of jobs accessible to somebody without a car. The government may also fund publicity campaigns or other programs to combat bias against certain types of workers, jobs, or locations. Furthermore, public policy can disentangle structural unemployment through job training, education and other motivation strategies to equip workers with the skills firms demand. For example remembrance unemployed steel workers to have basic I.T. skills which may support them catch work in the service sector, or a worker who was trained in an outdated field, such as a textile worker who lost his job when spinning was mechanized, may benefit from unrestricted retraining in another field with strong demand for labor.

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In another word, everything may have double-side. Issues of unemployment numbers and associated problems are frequently raised when discussing the economic policy performance of a government. The clearest trouble for the government policy is that the economic objectives “trade off” against each other. For example, policy instruments that governments want to reach the objective of lesser inflation often inflict a result of higher unemployment. Limitation the money supply may falling the value of expenditure, and increase interest rates, resulting in many companies going to insolvent, with a lot of people lost their jobs. Controlling governing outlay as part of monetary policy can also increase unemployment in the public segment.

  1. Conclusion

Governments would have no macroeconomic difficulties if market forces in the economy spontaneously directed to full employment, with unwavering prices and a fast economic development. Nowadays, the world economy is still depressing from the stresses of the longest crisis, over 100 million people are unavailable of work in the G20 countries, with unemployment at generally high levels in several of them. Government policy always look for to diminish unemployment by providing information, training, facilities and other programs to impact the unemployment. In the future, to deal with the unemployment problem, governments still face a very long and difficult way to go.


Ceyda Ö. (n.d.). Unemployment: The Curse of Joblessness

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Griffiths, A., & Wall, S. (2004). Applied Economics. (10th Ed.). London, Longman, PP. 470-479

Hughes, J.J., & Periman, R. (1984). The economics of unemployment. Brighton, Wheat sheaf. PP. 26-33

Jobs, unemployment and government action. (n. d.). Retrieved from


Mark H., & Asmaa E.(n.d.). Fiscal Policy: Taking and Giving Away

Retrieved from http://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm

Policies to reduce unemployment. (n. d.).

Retrieved from http://www.revisionguru.co.uk/economics/unemp4.htm

Tejvan P.(2011). Policies for Reducing Unemployment. Retrieved from http://www.economicshelp.org/blog/3881/economics/policies-for-reducing-unemployment/


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