STRATEGIES TO REDUCE UNEMPLOYMENT
STRATEGIES TO REDUCE UNEMPLOYMENT
The govt has undertaken many special programmes to generate
employment opportunities. The major ones among them are:
RURAL WORKS PROGRAMME:
- Construction of civil works of permanent nature in rural
areas.
INTEGRATED DRY LAND AGRICULTURAL DEVELOPMENT:
- Permanent works like soil conservation, development of land
and water harnessing are undertaken.
NATIONAL RURAL EMPLOYMENT PROGRAMME:
- to create community assets for strengthening rural
infrastructure like drinking water wells, community works,
irrigation wells, rural roads, schools etc.
The Rural Landless Employment Guarantee Programme aims at
generating gainful employment, creating productive assets in rural
areas and improving the overall quality of rural life.
SKILL DEVELOPMENT:
- a skilled labour is one who has proper training and education
to work in a particular field.
- Training and education increase the productivity of
workers.
- Educate and provide specialized training to the labour
force
- To ensure continuous employment of labour
- Able to absorb new technologies at work.
- To compete with labour force of the other developed
countries.
With a view to impart shills through training, the govt of India
has taken many steps.
- The Central Board Of Workers Education (CBWE) formed in1958 is
creating understanding and enthusiasm among workers.
- There are around 4300 Industrial Training Institutes (ITI) to
produce specialized workers.
- Various ministries of the govt of India are providing
vocational Education and Training which has introduced vocational
education in the school system and there is a provision for
vocational education after class X.
Problems associated with these steps are
- Restructuring and reorientation of ITI courses with the
changing system.
- Industry-institute interaction continues to be weak.
- Vocational system in schools has to be modified.
ENTREPRENEURIAL DEVELOPMENT:
Growth of employment involves
- setting up of new businesses
- Expertise and organizing ability
- Training and implementing schemes which are necessary to
promote self-employment.
- Low cost capital provided by the Govt to small enterprises and
self-employed persons to develop their entrepreneurial ability.
- Giving technical and professional help in running the
business.
- Banks providing credit faci lities at concessional rates.
- All the above have helped in expansion of Indias industries
and business into newer domains and regions.
10 Strategies that the Government has undertaken to Reduce
Unemployment in India
1. Heavy Investment in Basic Industries:
Investment in heavy and basic industries and consumer goods
industries should be increased. They provide more employment along
with the supply of consumer goods.
2. Development of Cottage and Small-scale Industries: As they
provide more employment by adopting labour intensive
techniques.
3. Change in Educational System: More emphasis should be given
to vocational education.
5. Checking of Population Explosion: Rapidly rising population
should be checked by adopting family planning and welfare
schemes.
6. Modernisation of Agriculture: Modernisation of agriculture
should be done. Waste lands should be utilised.
7. Introduction of Rural Works Programmes: Rural works
programmes should be increased.
8. Developing Infrastructure of Economy: Infra-structure of the
economy should be developed.
9. Subsidies to Private Sector: Subsidies and other incentives
should be given to private sector.
10. Stress on Self-employment: Young entrepreneurs should be
financed for self-employment.
Policies to reduce Unemployment
Government policies to reduce unemployment must be based upon
the types and causes of unemployment that are prevalent. It may be
worth glancing back to that section to remind you of the major
kinds of unemployment; however, we will go into more detail in this
section. General policies such as cuts in direct taxes should be
effective across any kind of unemployment, as it increases the
appeal of any job to any potential employee.
Real Wage Unemployment
This is unemployment as a result of a kind of market failure, a
failure of the labour market to respond to changes in demand. If
demand for workers rises, it is logical that they will demand
greater real wages (diagram). Similarly, if demand falls, workers
should expect to suffer lower real wages for the same work.
Unfortunate though it may seem, that is the way the market works!
Real wage unemployment is usually caused by a combination of:
Strong trade unions - giving employees greater power over
deciding wage conditions with the threat of industrial action
(strikes etc.) With strong unions, firms will not be able to reduce
wages when demand is low, leading to bankruptcy (unemployment) or
layoffs of workers (unemployment)
Wage 'stickiness' - Employees on long term contracts will have a
fixed wage over a long period of time. If a downturn in demand
occurs, wages cannot fall immediately in response - they are
'sticky'
Minimum wage - This is a characteristic of most modern
economies, guaranteeing every worker a minimum standard of living.
Whilst this is undoubtedly wonderful, if the minimum wage is set
too high, the labour market is once again inflexible
Government policies to tackle this form of unemployment are
invariably unpopular for workers, as their wage levels are
threatened to the benefit of firms and businesses. However, it is
largely appreciated that, for example, overly strong trade unions
can utterly paralyse an economy (see Margeret Thatcher's time as
Prime Minister in the UK). Policies to combat real wage
unemployment include trade union reform (reducing their powers),
increasing firms' ability to change wages and encouraging shorter
term contracts and ensuring that the minimum wage level does not
adversely impact the economy.
Frictional Unemployment
Remember, this is unemployment generated through incomplete
information of the labour market. This can be solved in two main
ways. Firstly, increasing the knowledge of the local vacancies
through government funded 'job centres' could reduce time between
jobs. Secondly, increasing the incentive to search for suitable
jobs (such as reducing unemployment benefits and lower taxes on
wages) could serve the dual purpose of increasing incentives to
search for work, and making more vacancies acceptable to the
unemployed individuals.
Cyclical Unemployment
It is worth noting that this form of unemployment can also be
known as Keynesian or demand-deficient unemployment. Over the
economic cycle demand changes, and regardless of how flexible wages
are, unemployment will rise of fall (diagram). There are clear
links between the rate of economic growth and the level of
unemployment. It is clear that in a depression, unemployment will
rise, as demand for good and services falls. This could result in a
negative multiplier effect, without government intervention.
Policies to reduce the impact of Keynesian unemployment
include:
Increased government spending - this includes reductions in
taxes. Increased G will cause an outward shift in AD, and may
create a multiplier effect. Theoretically, government spending to
pay workers to dig huge trenches and fill them in again will help,
as it increases national income. However, targeted policies to
increase the quality of infrastructure or levels of investment will
be more effective. Also, reductions in direct taxes will encourage
more people into work, and also increase the level of disposable
income, hopefully leading to a positive multiplier effect
Reduction of interest rates - remember that a fall in interest
rates can also stimulate AD. Return to that section to remind
yourself that a fall in interest rates encourages consumption and
investment
Geographical Unemployment
Naturally, policies to reduce geographical unemployment will
seek to decrease geographical immobility of labour. This is the
inability of people to relocate from areas with low demand for
labour, to areas with high demand for labour. Policies to reduce
geographical unemployment include:
Regional Incentives - this is regional policy to increase the
incentives for new businesses to locate in areas of high
unemployment, thus reducing regional variations in unemployment
caused by geographical immobility
Reducing geographical immobility - is the second and more direct
method of combatting geographical unemployment. It aims to reduce
geographical immobility by reducing barriers to free movement of
workers (such as no border controls and cheap housing). This is
more difficult within a country as the barriers are often social in
nature, such as family ties.
Structural Unemployment
This is the inability of workers to change the kind of
employment (for example from manufacturing to IT) they are in. Left
without intervention, this could lead to dangerous long term
unemployment, whereby workers find it increasingly difficult to
find jobs as they become less desirable the longer they are
unemployed. Policies to reduce occupational unemployment
include:
Retraining - incentives for both companies to retrain and
employees to take part in training to make them more attractive and
useful to firms. Governments may also directly take part in
retraining projects where unemployment levels as a result of
structural unemployment are very high
Reducing geographical immobility - could result in no need for
retraining programs, as worker could simply move to an area in
which their skills are in high demand. This works providing the
costs associated with reducing geographical immobility are lower
than those required for occupational-orientated projects such as
retraining, and that their skills are in demand somewhere.
policies to reduce unemployment
In the long term, effective policies to reduce the total level
of unemployment need to encourage
An improvement in the employability of the labour supply - so
that the unemployed have the right skills to take up the available
job opportunities. Policies should focus on improving the
occupational mobility of labour
An improvement in the incentives for people to search and then
accept paid work - this may require some reforms of the tax and
benefits system
A sustained period of economic growth so that new jobs are being
created - this requires that aggregate demand is sufficiently high
for businesses to be looking to expand their workforces
Improving skills and reducing occupational immobilityPolicies
should provide the unemployed with the skills they need to find
re-employment and improve the incentives to find work. Structural
unemployment is the result of workers being occupationally immobile
- improvements in education and training will increase the human
capital of these workers, and therefore give them a better chance
of taking the new jobs that become available in the economy.
Reflating Aggregate Demand
The government can also use macro-economic policies to increase
the level of aggregate demand. These policies might involve lower
interest rates or lower direct taxes. It might also encourage
foreign investment into the economy from foreign multinational
companies. In the diagram below we see an increase in aggregate
demand leading to an expansion of aggregate supply. Because of the
increase in demand for output, the demand for labour at each wage
rate will grow - leading to an increase in total employment.
Not every increase in demand and production has to be met by
using more labour. Each year we expect to see a rise in labour
productivity (more output per worker employed). And, businesses may
decide to increase production by making greater use of capital
inputs (machinery and technology).
Benefit and Tax ReformsReducing the real value of unemployment
benefits might increase the incentive to take a job - particularly
if the real worth of unemployment benefits is well below the
national minimum wage rate.Targeted measures are designed to help
the long-term unemployed find re-employment (including the
Government's "Welfare to Work Schemes" - see New Deal
Employment Subsidies Government subsidies for those firms that
take on the long-term unemployed will create an incentive for firms
to increase the size of their workforce. Employment subsidies may
also be available for overseas firms locating in the UK.
Economic Growth and UnemploymentA growing economy creates jobs
for people entering the labour market for the first time. And, it
provides employment opportunities for people currently unemployed
and looking for work
The chart above shows the level of real national output (GDP)
and total employment in the economy since 1980. In both of the last
two recessions (1980-81 and 1990-92), the number of people in work
has fallen sharply. But a period of sustained economic growth (as
experienced by the UK from 1993-2001) has led to a significant
increase in employment levels. Indeed by the summer of 2001,
employment in the British economy was at record levels. This has
helped reduce the official measures of unemployment to a level not
seen for over twenty-five years.
A range of government policies are available for Governments
wanting to reduce the scale of unemployment in the economy. These
policies need to focus on the underlying causes of unemployment for
them to be successful.
Real Wage
Keynesian
Structural
Frictional
Real Wage Unemployment
Prescriptions for reducing real wage unemployment normally focus
around the strategy of making each labour market more flexible so
that pay conditions become more adaptable to changing demand and
supply conditions. Real wages should rise when demand, output and
employment and rising, but they may need to fall if an industry
experiences recession which puts jobs at threat. The UK economy has
developed a flexible labour market model similar to that of the
United States during the last fifteen years.
Trade Union reforms were a centre-piece of the Conservative
Government's strategy to improve the performance of the labour
market. The Labour Party under Tony Blair has not reversed these
reforms since coming to office, although some new legislation has
been introduced to give workers the right to achieve union
recognition. A National Minimum Wage has also been introduced.
Keynesian Unemployment
Policies to reduce Keynesian demand-deficient unemployment need
to raise the level of aggregate demand for goods and services in
the economy. A number of options are available.
Increased Government Expenditure
The Government can raise the level of its own spending. This
"fiscal pump-priming" directly increases aggregate demand and can
have a multiplier effect on equilibrium national income. The
government could raise current expenditure (for example raising pay
levels in education and the health service) or expand spending on
capital projects which add to the stock of capital (for example
spending on new roads, new hospitals or other major infrastructural
projects). Sustained economic growth provides a platform for more
jobs to be created in the economy.
Lower Taxation
A reduction in direct taxation increases consumers' disposable
income and should boost household spending. The effect may be
greater if taxes are cut for people on lower than average incomes.
These tax-payers are likely to spend a greater percentage of their
disposable income.
Lower interest rates
A relaxation of monetary policy through lower interest rates
encourages the demand for credit, reduces saving and increases
consumers' real 'effective' disposable incomes; all of which will
boost consumption and demand. It may also encourage firms to
invest, as the marginal cost of investment will fall. Remember that
interest rates are not set by the government. The Bank of England
now sets interest rates each month at the meetings of the Monetary
Policy Committee.
Depreciation of the exchange rate
A lower value for the pound should lead to a rise in the orders
of exports from UK firms and to a reduction of import penetration
by making exports cheaper and imports more expensive.
Remember the importance of time lags!
Government policies to stimulate increased aggregate demand for
domestic output take time to have their effect. There are variable
time lags between the government relating the economy using fiscal
and or monetary policy and the final effect on output and
employment in specific industries.
Structural Unemployment
There are a number of different approaches that can be adopted
to help alleviate structural unemployment. These are sometimes
known as active labour market policies. The first involves direct
government action to match jobs to the unemployed.
Regional policy incentives
Gives grants and subsidies to firms to locate in areas of high
unemployment. However, this does not solve the problem of
occupational immobility. Often regional policy requires extra
retraining schemes to give workers the relevant skills to allow
them to take up new jobs.
Investment in worker training
Spending on training schemes to re-skill the unemployed through
investment in vocational education or guaranteed work experience
for unemployed "outsiders" in the labour market.
Improving geographical mobility of labour
The government could provide grants or low cost housing to
encourage workers to move to other regions where there are jobs.
The problem with this policy is that people are inherently immobile
as they are often bound by family and social ties.
Market solution - no need for government to get involved!
One approach is to simply leave the problem of structural
unemployment to the market. Some economists argue that intervention
slows the natural reallocation of resources to high growth areas
and only makes the problem worse. In areas of above average
unemployment it may make some sense to allow wage levels to fall to
attract new capital into an area.
Frictional Unemployment
Lower real values of unemployment benefit and improved job
information
The implementation of the Job Seeker's Allowance in 1996 ensures
that workers are actively seeking work as the payment of benefit is
dependent on them proving this at fortnightly interviews.
However, if the government reduced the real value of
unemployment benefits, or limited the duration of a claim, search
times between jobs could be reduced even further as workers would
have to quickly take on new positions before their financial
situations deteriorated.
Better information on job vacancies in the labour market can
help to reduce job search.
Cuts in direct taxes
The government could reduce direct taxes for the low paid to
increase the post tax wage and, therefore, encourage them to find
work more quickly. The Labour Government is introducing a 10%
starting rate of tax to encourage more low income groups back into
work.
Most analysts believe that tax cuts on their own are
insufficient to reduce frictional unemployment. Complementary
reforms to the benefits system to reduce the problem of the poverty
trap may also be needed.
Conclusion
It can be safely said from the information gathered that
unemployment cant be generalized as being caused by just one thing,
but is caused by a variety of reasons. Some of the main factors
are: relevant skills, educational qualifications, and the
organization of choice. More emphasis should be placed in educating
people and creating jobs.