Two policies to reduce unemployment

I will evaluate two different policies from both - demand and supply side. One of them is lowering or eliminating taxes. The second one is the training program provided by the government.

1. Tax cuts.
demand side
If the government wouldn't take the tax from certain groups of people, it might help the economy. Their income would obviously increase, their confidence too. Their ability to buy rises as well, and combined, these factors have to increase aggregate demand. If the aggregate demand goes up, the aggregate supply goes up too.

supply side
If the employers get benefits when hiring new people, it is most likely that they would eventually hire more people only because of this tax cut. It is efficient because they would be able to produce more output with less money than they would pay without the tax cut

2. training programme
demand side
Unemployed people can sometimes fall behind since they were not working, and are not familiar with newest technology anymore. This training would help them catch up, and if it was for free provided by the gov't, or at least subsidized by the gov't, people could afford it and with some kind of certificate find a job easier.

supply-side
Businesses are more willing to hire workers who are skilled than people who have no experience. If the training programme consisted of real life experience in any random company for at least some amount of time, the comapny would know that this person has some skills, and therefore hire the person more likely. If there is unsatisfied demand for workers because they are not skilled enough, the gov't could provide this special kind of training and then the demand will be satisfied with skilled workers.

5 stories

Case #1

Type of unemployment: Real wage unemployment

Name of the victim of the current economic situation: Marek Novansky

City: Bratislava

State: Slovakia

Born in: Snina

Date of birth: 15.02.1972

Marek started working as a pharmacist.  We worked for a company, which produces antibiotics. Now, he is left with his entire family jobless. His wife makes a minimum wage as a teacher, and he is now looking for a job. The reason why Marek got fired is the request from the Union. The union of workers demanded higher salaries of their jobs. They couldn’t say no, because all of their workers were qualified for their exact posts and therefore their salaries were raised. Therefore the entire industry was affected. The problem was, that the pharmacy industry couldn’t raise the salary for everyone, and had to fire some people to maintain their profits.

The graph above shows the economic situation of the market. The industry realized that this illustration shows the situation for the pharmacy industry. I have changed the actual numbers with constant variables. W1 stands for the wage the union has proposed. Q1 is the quantity supplied and q2 is the quantity demanded. Since there is more Qs than Qd, we know that surplus of workers is the quantity between q2 and q1. So the raise causes the Qd to decrease in quantity – it used to be at Eq, which is obviously more than q2 and less than q1. So there were more people employed for less money. For the overall economy it, I think, would be better if there were more people hired for less money. The people who are now unemployed, have less consumer confidence.

Case #2

Type of unemployment:  Structural unemployment

Name: Borat Ragdo

Permanent address: Klionskoyue 15

City: Turela

Country: Kazachstan

Born in: Kazachstan

Borat has 13 kids and 12 siblings. He is very talented in the area in microscopic production. He used to be very happy because he had a good paying job. Everything has changed when the company moved to the capital city and Borat couldn’t go and live there because there was no way for him to travel. No roads and no airports caused him to be left jobless. He has now hard time getting a job, because his standards are high and there is no job opportunity for him since he is specialized in microscope production.

Demand for workers in the city fell to zero. Since the company moved somewhere else, all the workers could move, work and live in the new place, or could stay at home and try to find another kind of job.

Borat could take the horse that goes once a day and go to the nearest city from which he could take the tram. This would allow him to travel to the place where the company he used to work for is situated. He could get his job back easily, because he already had experience in this field. If Borat doesn’t want to move and wants to stay with his family, he will have to give up the chance to work for the same company. He might find a job where no skill is required – which will be paid low, or take the unemployment benefits. These benefits are not enough to survive, and therefore Borat has to decide.

Case #3

Type of unemployement: Frictional unemployment

Name: Hans Plowiczky

Permanent address: Bergstrasse 23

City: Nordsee

Country: Austria

Born in: Poland

Hans lives in Austria for 5 years and is qualified as a doctor. The only problem with him is his greediness. He resigned because he thought that he can get a better paid job with his qualification. So Hans is now jobless, still unemployed, yet his chances to get a job he’s requesting are very high. In Austria, doctors have good salaries. Maybe he went to the wrong hospital, where the salary wasn’t reaching his expectations or felt uncomfortable and therefore wanted to go somewhere else. He should not have any problems with getting a job, yet he wants to be sure that he finds the right job – and he takes time to find it. So even if he can get a job as soon as he wants, he is still unemployed.

On a graph, we would find that people like Hans are still demanded, yet the person individually looks for the job that is good for him from each side. So he is the one who is deciding – because is demanded.

Case #4

Type of unemployment: Seasonal unemployment

Name of the victim of the current economic situation: Jakub Cszynek        

City: Budapest

State: Hungary

Born in: Hungary

Date of birth: 16.04.1985

Jakub was a swimmer since he was 5. He has a girlfriend and they lived together in an apartment in the downtown in Budapest. During summer, Jakub travels to Balaton which is the biggest lake in the entire Europe. In the most exlusive parts, he is one of the life guards. He gets a lot of money, yet he can’t survive the whole year just with the money he makes during summer. But he doesn’t feel like working during the rest of the year, because government pays him unemployment benefits and with the money he saves from summer and benefits he can manage pretty good living standard. In this case, the government might have decreased the benefits for the people who are in this group. This would force them to find a new job during their low season. The problem with this is that the government would probably have a hard time realizing this kind of reform. It would be hard to determine exactly who are the people who fall into the “seasonal unemployment” and who doesn’t. Perhaps they can create a system where it would check the past jobs for the past 4 years and see who is constantly in and out. He is quite satisfied, but for economy he is a potential harm. Since he doesn’t make money all year, he doesn’t spend that much. And when he spends, it’s most likely to be the money from the government. The government also looses the chance to invest in something else – opportunity cost.

Case #5

Type of unemployment: Demand Deficient Unemployment (cyclical)

Name of the victim of the current economic situation: Frodo Paliento        

City: Madrid

State: Spain

Born in: Spain

Date of birth: 12.07.1965

Worked as a supervisor on an assembly line. He lives with his two brothers who all work on the same plant and seem to enjoy it. The biggest problem appeared when they all got fired because the plant got shut down and moved to china. Now, they are jobless and are trying to find a job in a factory or a plant. Since the plants were the main part of the world’s economy, and were moved, the unemployment has risen to its highest point. Government could only provide free training for all the workers, because they are not demanded as workers anymore. This is caused by the decreased aggregate demand for workers. Frodo would then be able to be trained and accepted other jobs if provided. This kind of unemployment is connected to the whole country’s demand, it is considered to be cyclical. Less demand for workers makes the workers buy less, earn nothing, getting unemployment benefits, they save money – withdrawal for country’s economy, last, but most importantly less demand for everything. This destroys the economy as a whole, and companies want to save money because people are not buying as before.