In order to minimize the costs of unemployment, the government can prevent unemployment in many ways.
The government can use a combination of policies to minimize different types of unemployment, depending on different factors that cause different types of unemployment. Specifically, the government will be looking into adjusting monetary policy, fiscal policy and supply-side policies in the country.
Here are detailed instructions regarding those policies that the government can make to prevent unemployment.
1. THE BUSINESS CYCLE:
- Avoid economic recessions. Manage the economy properly to achieve six economic objectives. It will help to avoid substantial swings in The Business Cycle. However, with recession being an unavoidable part of the economic cycle, cyclical unemployment tends to increase during that time. Secondly, while trying to avoid economic recession, the government should not try to prevent the economic changes that lead to structural upgrading of the country. As this would be standing against economic change and progress. Structural unemployment tends to increase during economic upgrading.
2. INFLATION:
- Fight inflation. Keep inflation at low levels at around 2%-3% annual growth, and prevent it from rising too high too fast. If inflation rises sharply and goes above 5%, the government might be forced to use anti-inflationary measures. These will include increasing interest rates to start with, which will increase the cost of borrowing money from the bank. Higher interest rates will lead to lower consumption from individuals and less investment from businesses. In the long-term, lower economic activity will most likely lead to unemployment.
3. EXCHANGE RATES:
- Maintain stability of the exchange rate. Maintain a stable rate of exchange for domestic currency. So, that overseas demand for home-produced goods does not fall when the value of home currency appreciates too much. Expensive domestic currency against foreign currencies will lower exports to other countries which may now not be interested in purchasing relatively expensive goods. Also, sudden increase in the value of local currency, will make domestic businesses that sell products to the domestic market less competitive. It is because as appreciation makes imports cheaper, foreign competitors will gain substantial pricing advantage over domestic firms.
4. FISCAL POLICIES:
- Lower Individual Income TAX. Reducing Individual Income TAX will increase customer spending to boost the level of consumption in the country. It is because lower marginal TAX rates increase effective take-home pay for the workers. So, they will end up having more money at the end of the month to spend on buying goods and services.
- Lower Corporate TAX. Reducing Corporate TAX for businesses will stimulate business activity and investments in the long-term. Simply because more entrepreneurs will start businesses hoping for earning higher Net Profits. Because now the government takes less part of the company’s Net Profit, there is a bigger reward for entrepreneurs to set up their businesses and for investors to invest. With lower Corporate TAX that increases Net Profit After Interest and TAX, there will be more money available that can be paid out to shareholders as dividends, or retained in the business for future growth.
- Lower Indirect TAXes such as Value Added Tax (VAT). The government can lower consumption TAXes such as Value Added Tax (VAT) to bring down the shelf prices of products in the country. When final prices paid by the customers are lower, this will increase demand for products and services. Now, many people will be able to purchase products which they could not have previously afforded. Companies will then need to produce more products to fulfill growing demand. Therefore, it will create many new employment opportunities, hence increasing the demand for employees.
5. MONETARY POLICIES:
- Lower Interest Rates. The government can lower interest rates to encourage individual consumers and businesses to borrow cheaper. Therefore, with more cash available, there will be an increase in the level of consumption and investments as people will have more money to spend and companies will have more capital to invest. Saving money will not make that much sense anymore in the low-interest-rate environment.
- Increase government spending. Increasing spending on public education, public hospitals, training programs for unemployed workers, construction of public infrastructure, boosting military capabilities, etc. will definitely boost the employment, especially in the secondary sector of the economy. The government can also increase government spending in less economically advanced parts of the country funding public projects such as public schools, transportation networks, hospitals, etc. It will help the most underdeveloped regions which often tend to face poverty resulting from very high unemployment levels.
6. SUPPLY-SIDE POLICIES:
- Protect domestic businesses against foreign competitors. Use protectionist measures to safeguard domestic businesses from international competition. Domestic businesses provide jobs to local citizens. Therefore, increased competition from abroad may cause local domestic businesses to go bankrupt. Going out of business will cause massive layoffs that can turn into violent social unrest caused by increased levels of dissatisfaction among the unemployed.
- Break down monopolies. Deregulation means reduction or removal of government controls over an industry, or by acting against monopolies. The advantage of deregulation is that it is leaving businesses on their own which should stimulate healthy competition, may attract foreign direct investments, as it is easier and faster to conduct business in such countries. Deregulation can also eradicate political corruption which can be a major and ongoing threat for domestic businesses as it lowers their international competitiveness.
- Support exporters. Aid exporters through grants, subsidies, low rent premises or TAX rebates to help newly emerging industries become as competitive as in other countries. The government can also establish a trading bloc, or join the existing trading block, where a single currency and common regulations will be adopted to make trading between countries easier.
- Increase training and education for the workers. Offer training courses to all long-term unemployed. Provide education and training programmes for workers who do not have the required skills to find employment, e.g. computer literacy, decision-making skills or soft skills. This will increase opportunities for them to find new jobs in tertiary sector of the economy.
- Lower social benefits. Lower generous unemployment benefits for those people who are slow to find alternative employment, which will make accepting a job more attractive. This would encourage many unemployed workers to take up offers of work more quickly. Refusal of accepting a job offer would lead to state benefits being reduced or cancelled.
- Assist workers in finding new jobs. Job centers and recruitment agencies can help find jobs for individuals to fill open positions at different firms. Improve the efficiency of the labor market by the provision of information about job opportunities, both locally and in other regions. Organize public campaigns to inform the citizens about job opportunities in other sectors of the economy that are still labor intensive.
- Ease local restrictions. Offer regional assistance to domestic businesses to encourage business location in underdeveloped parts of the country. The government can also ease planning regulations such as cancelling restrictions on building new factories or offices in an area of residential housing or in areas of natural beauty.
- Redistribute wealth. Redistribute wealth from richer areas of the country to support citizens living in rural areas. Create more job opportunities in public sector of the economy in poor areas of the country using public money.
After winning this battle with joblessness, the costs will be eliminated for both the whole country, and to each individual citizen. All in all, by lowering the rate of unemployment, the country’s authorities will be able to make the full use of its human resources – labour.
