Question

What are the advantages of focussing on the unemployment rate reduction rather than debt reduction? (Include some examples)

Answer 1

To understand the advantage we need to know, the core meaning of unemployment and what debt is. Unemployment refers to the prevalence of those people who are in search of a job but are unable to find the same, due to conditions such as demand being lesser than the supply, skills or other technical factors which prohibit the person from remaining employed.

On the other hand, a debt means that the government need to repay a certain amount of money plus the added interest on the same.

Most economies try their best to reduce unemployment as well as to contain its debts both of which are bad for the economy. However, to reduce unemployment should be the primary focus of the government so that it helps in reducing debt as well as having a higher quality of life and overall production and Gross Domestic Product in the country.

Debt as a measure is reduced in the country when the government increases the tax rates on people or uses other tools such as less spending in the economy. This in turn allows the country to have better revenue for itself which can then be used to repay loans which the government of the country may have taken previously.

In turn, if the government were to use an approach to reduce unemployment in the country, it would lead to creation of more jobs and in return the country would be able to earn additional revenue and repay its debts. This would come from the additional taxes in income and of corporates which the government collects and would be able to accumulate revenue from over a period of time. The addition in income of people would also help in increasing macroeconomic variables such as national income, aggregate demand and supply which in turn would help in increasing the living standards of the country.

A clear example of this are the countries of China and India, which always followed measures of protectionism and increasing taxes and reducing spending to correct their national debt. But since these economies were such that production levels remained low and unemployment was wide spread it was not helping them in growing at all. Once they shifted focus to allowing privatization and globalization to take place, it helped in reducing unemployment through which they have been able to repay their debts as much as possible. The key learning from this is that rather than increasing the tax rates and earning more per tax payers, the key for the government is to increase the number of tax payers and there paying capacity. This is only possible for the country if it reduces unemployment to a level that more people are employed and thus, they spend more and pay more in terms of taxes it is vital to increase earnings than to focus on reduced spending.

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