Question

What are three developments that can prevent the labor market from operating at a natural unemployment? Hint: one is created by government, one is created by the actions of an institution, and one is created by businesses acting in their own best interest

Answer 1

Natural rate of unemployment exists when the labor market is at equilibrium. It is composed of structural and frictional unemployment. Such unemployment is affected by the supply-side of factors.

Development made by various organisations to help curb this natural unemployment are:

Expansionary monetary and Fiscal policies: The Federal banks reducing fund rates helps the businessman and industrialist take loans and spur their business. This helps in buying capital and also help in hiring more workers which eventually create job opportunities and that reduces the unemployment rate. The other step is tax reforms that form the fiscal structure. With lesser corporate taxes, the business makes profit and thus help in creating job opportunities. Providing government subsidies is also a way to solve this problem.

Reducing geographical immobility of labor and boost aggregate demand : People do have skills to work but factors such as high cost of living and house rents, family and social ties and even regional differences prevent people from changing their place of work. It is therefore necessary for the government to provide schemes and policies that make the movement of labor easier from one place to another. The increase in aggregate demand is important through which the incentives are raised and hence those who do not wish to work enter the employment market.

Build multi-sectional partnership: Once the business start their partnerships with various local institutions, they not only benefit in their own businesses but also help get the unemployment rates decreased. Like, if the companies tie-up with academic institutions, they help in searching for talented employees. Moreover, merging the working of the company with Information, Communication and Technology (ICT) helps the business provide new prospects of introducing jobs and skill initiatives. The business should make the collaboration with local institutions and businesses as priority to make an attempt of carrying inclusive growth. This would help prevent natural unemployment also.