Question

“Reaching full employment, where everyone who is available for work should be able to find a job, is one of the main economic policy targets for the government.” Please discuss.

Answer 1

The main reason for targeting full employment is because high unemployment has various social and economic costs. Firstly, the unemployed will have low income enabling low levels consumption. This low income will lead to relative poverty. Also, the unemployed may become de-motivated and de-skilled. On the job training, is considered important to employers. Being unemployed with no money to spend on training and unable to work can create a negative cycle for the unemployed which makes it difficult for them to find work in the future. People experiencing long-term unemployment find it the most difficult to gain employment. (Hysteresis effect)

Also, during periods of high unemployment, the government will have to spend more on unemployment benefits and also the government will receive lower tax revenues (less VAT, lower income tax). Therefore, high unemployment will increase government borrowing. Finally, unemployment may exacerbate social problems such as crime, vandalism and social alienation, especially if unemployment is concentrated amongst young people who feel alienated by having no jobs.

Therefore, given the costs of unemployment, there are many social benefits to achieving full employment. Also, by achieving full employment, it will have the side-effect of improving other objectives of the government. Lower unemployment will reduce government borrowing and help economic growth. If the unemployed gain work, they will increase spending, and this will cause a positive multiplier effect which helps to increase economic growth.

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