Tuesday, May 26, 2009

Forecast Essay, GCE Edexcel Unit 2: Assess The Effectiveness Of Supply Side Policies To Increase Employment In UK Economy (30m)

Supply side policies seek to influence the movement of AS by increasing the productive capacity of the economy. There are two thrusts & one of them is supply side measures for labour market

Source: economicshelp

First, the Labour government should continuously improve the British education system & set up more training centers. Courses taught in universities must be reviewed all time to ensure that it is relevant to industrial need. Also new courses that teach modern skills must be introduced. By doing so, UK will have a more productive workforce that are able to apply their knowledge into working life, understand complex instructions & take up more challenging jobs that require mental skills. The government can also consider increasing the existing number of training centers to help those people who lost their job in old industry. These should be able to reduce the damage done by structural unemployment & increase mobility. These two lead to rightward shift of AS

Next is labour union reform. UK government has actually removed some legal protections once enjoyed by unions such as restrictive close shop agreements, putting constrain to their ability to take industrial action and others. The result has been an increase in the flexibility of the labour market & firms are more willing to hire given that there is less pressure on wages increase

Lastly, continuous improvement must be made to the benefit system. For instance, government can consider reducing the amount of jobseekers allowance compared to average wages of people in work. By doing so, the opportunity cost of staying idle will increase & these people especially those frictionally unemployed will have more incentive to look for jobs. Others like Working Tax Credit (WTC), a payment to people on work but with low income should also increase participation rate

Improvement on education system is however more suitable as a long term goal. This is because one has to go through years of education before ending up in job market. Even then, they may need another several years of on-the-job experience before their productivity really pick up. More training centers could a better solution to reduce unemployment in short run

Although reform to trade union is an effective policy, it is somehow less relevant these days given that the unions had been crippled during the era of Conservatives. Furthermore UK has moved from traditional manufacturing sector into more modern sector like services & quaternary, resulting in lower concentration of workers in one area. Therefore it is even much more difficult to organise a strike

Cut in unemployment benefits is actually meant to ‘punish’ those people who refuse to look for jobs. However, it could be seriously unfair to those who have tried their best to look for jobs but fail to secure one. It will just worsen the condition of relative poverty. Meanwhile, WTC has been subject to much criticism surrounding its implementation. Also its computer system often have problem leading to delays in many receiving payments

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