Assess the likely impact of UK Government labour market policies on any three macro-economic objectives. Refer to the information and to your own knowledge (30) Labour market policies are government programmes that intervene in the labour market to help the unemployed find work. The three macro-economic policies I am going to look at are: full employment, steady sustainable economic growth and low inflation. Full employment is the point in an economy, where everyone who is willing and able to work is in a job.
A labour market policy the government could implement to help reach full employment could be the rise in the compulsory age for people in training or education. The effect of this will be that people will have better skills when they leave education/ training. This will lead to a reduction in occupational immobility as people’s skills will enable them to enter the workforce for a wider range of jobs, therefore there will be less structural unemployment.
It is important because it means that in the long run the output of the economy will be greater. This is not always the case however, because there is no guarantee that the standard of training/education will be good enough to have a positive effect. It may be the case that people make no improvement and are in fact deskilled as a result of this. Also the time lag between the implementation of this policy and the effects would mean that in the short term there is only a reduction in the supply of workers.
Another point is that some policies only work depending on the state of the economy at the time; in recession some labour market policies will not work, resulting in only a higher rate of inflation. The second macroeconomic objective is steady sustainable growth. Economic Growth is an increase in the real level of national output as measured by the annual percentage change in real GDP. The target the UK government are looking to achieve is 2. 5% a year.
A policy the UK government could introduce to meet this would be increase the population. One way the government could do this is by relaxing their immigration laws. This would shift labour rightward as more people would be entering the labour force, creating jobs for the economy. More jobs in the economy not only mean that firms have a stronger work force but these new workers are spending in the economy, increasing consumption. The diagram shows the effect this would have on the economy. The supply of workers moves from S1 to S2.
However with the increase in the quantity of workers, also means a higher rate of inflation in the economy. A problem however is it would be wrong to assume that the immigrants moving into the country would all get into work immediately, it may be the case that the immigrants come in and are happy with the benefits they are receiving from not working. This would mean that the only thing that has changed is that the government have a larger benefits bill to pay. This leaves them with a smaller amount of money to spend on reinvestment.
Another thing to consider would be the effect on the quality of production. The third objective of the UK government is low inflation. Inflation is defined as the general rise in the prices of everyday goods. A labour market policy the government could use to reduce inflation in the long term would be to weaken trade union powers. Trade unions are organisations of workers that seek through collective bargaining with employers to protect and improve the real incomes of their members.
The effect of reducing their powers is that it puts the power back into the hands of employers. The government can do this by; employing several legislations to union members and giving employers the right to seek compensation from action that has taken place. However these policies may not be relevant as it is already the case that employers have a lot of power over employees because jobs are so insecure, and without the security of a trade union it would have a negative effect on the consumer confidence causing a fall in aggregate demand.