Economic Policies to Reduce Unemployment

NTRO

• Unemployment refer to a situation where the aggregate demand for the labour is less than the aggregate supply of labour, so that there is an increase in the proportion of the workforce actively seeking work but who are unable to find.
• Unemployment is major cost to an economy not only in terms of the opportunity cost if lost production, but also in term of major long term social cost including increased inequality, poverty, family problems, crime and social division.
• The Australian governments have struggles with the challenge of the achieving a sustain reduction in unemployment. A variety of strategies have been used over the last three decades.

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• Reducing unemployment in one of the most difficult task for the economy management. Unemployment has remained stubbornly high. In Australia, despite a range of government policies designed to attack the unemployment problem. Even after a decade that experienced the longest and strongest growth period on record, the unemployment rate in 2003 had not fallen below its level at the end of the pervious business cycle in 1989.
• The policies a government uses to reduce unemployment will depend upon what it sees as the main causes of the unemployment problem. ????(for instance) the government will stimulate a rate of economic growth that is sufficient absorb that unemployment and the growth in the labour force, while at the same time holding down the rate of inflation.
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  • in 1994 the Keating Government introduces Australia’s first comprehensive set of unemployment policies in half of the century, known as Working  Nation  Labour Market Policy these polices consisted of labour market assistance, apprenticeships and education and training programs. It was aim to help the long-term unemployment to acquire new job skills and become employable again.
  • Late 1990s, the Howard Government reduced the fund for labour market programs. (They think the policy was ineffective and expensive and that most people returned to the rank of the unemployed after their training program) the policies shifted to broader labour market reform. They claimed that these restrictions prevent employers and employees implementing flexible workplace arrangements that maximise productivity.
• There is a multi-pronged policy approach low unemployment rate at stimulating aggregate demand, improving productivity, and providing low inflation, competitive and dynamic economy containing all preconditions for high long-term economic growth.

1. Macroeconomic policies: policies that affect the economy as a whole with the aim of minimising fluctuation in the business cycle also referred to as demand management or counter cyclical policies
ü          Effectiveness:. these policies unlikely to reduce the structural unemployment rate, it instead increases inflationary pressure because high economic growth induced by technological change can result in high structure unemployment
ü           Fiscal policy: one of the macroeconomic policies which can influence resources allocation, redistribution income and reduce the fluctuation of the business cycle, by varying the amount of government spending and revenue, the government can alter the economic activity, which will influence the economic growth, inflation, unemployment and the external indicators in the economy.
ü          The aim of this policy is to sustainable economic growth and unemployment rate in Australia by reducing public sector dissaving and our reliance on overseas borrowing.
ü          The budget has moved into fiscal surplus since 1997 by a sustained fiscal consolidation policy of reduction in government outlay, therefore provided a higher economic growth and lower unemployment rate.
ü          In  2000 the unemployment rate rises to 7 % which is higher than 1900s however as the curs this rising trend the government undergoes expansionary fiscal policy consequently with no new major employment initiatives in 2003’s budget, it will be expected that no further reduction in unemployment until mid 2004.
ü          Monetary Policy: Is macroeconomic policy which involves action by the RBA , on behalf the government, to influence the cost and availability of money and credit in the economy. It is used to smooth the effects of fluctuation in the business cycle and influence the level of economic activity, output, employment and price.
ü          Used as a long term policy aimed to keeping inflation low, providing an environment which is attractive for investment and employment growth.
ü          Once the RBA believe there is a stable low inflation, which will have a greater range for reducing the interest rate in hance to lower the unemployment rate. If the RBA feels that the level of unemployment is approaching the natural rate, they will tighten monetary policy to prevent excessive spending feeding into higher prices and wages.

1. Labour market reform is by using labour market programmes to improve the flexibility of the labour market to reduce structural unemployment. It can increase the labour productivity, control cost increases and improve flexibility in the supply of the labour market.

ü          it is aim to increase labour market productivity as an essential ingredient for long term sustainable economic and employment growth. Structural unemployment will be reduced by a programme of broad ranging economic reforms, including removal of significant structural labour market impediment.
ü          Labour market programmes are aimed to increase the ability of the unemployed to complete effectively in the labour market. Training programmes are one of the significant programmes which allowed the unemployed to be re-employed again and let the labour market to function more effectively and promote a better synergy between supply and demand.
3. Microeconomic reform: is the government improving the resource allocation between firms and industries, in order to maximise output and seeking to improve the efficiency and productivity of producer. A wide rang of microeconomic reform have been introduced to improve the competitive economic environment in Australia and increase the potential for higher productivity, employment and economic growth. Recent solid productivity growth in Australia economy has led to a stronger economic growth and a lower unemployment rate. There are three major microeconomic policies to reduce the unemployment rate. (industry reform, reduction in real wage, and taxation reform)
ü          Industry reform: based on encouraging research and development and encouraging innovation in specific industry, this can boost their productivity and growth in that particular industry. By increase more understanding and experience therefore can improve the efficiency growth and job creation in hence to lower the unemployment rate.
ü          Reduction in real wage: by reducing the real wages there will be a higher employment rate but it can also increase a high unemployment rate in certain industries and a lower real wage will increase young unemployment.
ü          Taxation reform: introduced in July 2000 which is aimed at improving the investment climate in Australia therefore and a higher potential for economic growth and lower the unemployment rate.