ILO:
a) Distinction between market-based and interventionist methods
b) Market-based and interventionist policies:
o to increase incentives
o to promote competition
o to reform the labour market
o to improve skills and quality of the labour force
o to improve infrastructure
c) Use of AD/AS diagrams to illustrate supply-side policies
d) Strengths and weaknesses of supply-side policies
a) Distinction between market-based and interventionist methods
b) Market-based and interventionist policies:
o to increase incentives
o to promote competition
o to reform the labour market
o to improve skills and quality of the labour force
o to improve infrastructure
c) Use of AD/AS diagrams to illustrate supply-side policies
d) Strengths and weaknesses of supply-side policies
Supply Side Policy:
A supply-side policy is a government scheme to promote market forces, cut costs and to raise the full employment level of output.
Market-based policies focus on the power of the free market, or allowing the forces of supply and demand to eliminate equilibria imbalances.
The role of the government in market-based policies is limited since it tends to interfere with the market mechanism. Conversely, interventionist policies focus on the need for the government to intervene in
markets to achieve a goal.
The role of the government in market-based policies is limited since it tends to interfere with the market mechanism. Conversely, interventionist policies focus on the need for the government to intervene in
markets to achieve a goal.
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Market-based supply-side policies include:
• reducing income and/or corporation tax rates • deregulating and/or privatising the public sector • reducing or abolishing the national minimum wage and trade union power • reforming the benefits system to encourage workers to take available jobs • encouraging free trade. Corporation tax explained - BBC News
Task:
Research and assess recent Government policy aimed at increasing the LRAS of the UK economy. |
Interventionist supply-side policies include:
• increased government spending on education and training • increased government spending on healthcare • increased government spending on infrastructure • stricter government competition policy • policies to reduce the geographical immobility of labour, such as improving information on job vacancies and subsidising worker relocation. Not working: why some apprenticeships are falling short
3rd party Finland as one of the best education systems in the world
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Supply Side Policy - Old v New
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Now that many UK firms have been privatised, the standard argument that a government can sell off state-owned businesses is losing its potency.
It is stronger to argue that competition between firms can be improved, with descriptions and examples of how this might be achieved. Similarly, in relation to reducing trade union power in the UK, students should focus on additional measures that might be undertaken, rather than what has already been done. Related article: Privatisation versus Nationalisation |
Why did we sell off the railways?
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Examples of Policy & Intended Outcome
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Why is the efficiency below important for an economy?
How could the USA Govt. of helped BMW achieve it? How BMWs Are Made
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AD/AS diagrams to illustrate supply-side policies
Strengths and weaknesses of supply-side policies
Exam note - you must relate the analysis to the achievement of the stated aim of the policy.
Unemployment - In contrast to fiscal and monetary policy supply side policy can be targeted directly in the labour market through education and training changes. This means that it becomes the only policy that can effectively deal with structural unemployment, by providing labour with appropriate skills to re-enter another labour market.
However if the economy currently has a negative output gap then supply side policy is not going to be as effective as monetary policy for example in shifting AD and reducing cyclical unemployment. Supply side policy will involve an element of Government spending and/or encourage grater levels of Investment which will shift AD. However a growing negative output gap could be associated to low levels of confidence and a recession, therefore unemployment is likely to increase as economic agents do not respond to the Govt. policy and a negative multiplier continues until demand side management policies are put into place.
Task:
Based upon the above analysis. Explain the strengths and weaknesses of supply side policy in tackling key macro economic objectives:
Unemployment - In contrast to fiscal and monetary policy supply side policy can be targeted directly in the labour market through education and training changes. This means that it becomes the only policy that can effectively deal with structural unemployment, by providing labour with appropriate skills to re-enter another labour market.
However if the economy currently has a negative output gap then supply side policy is not going to be as effective as monetary policy for example in shifting AD and reducing cyclical unemployment. Supply side policy will involve an element of Government spending and/or encourage grater levels of Investment which will shift AD. However a growing negative output gap could be associated to low levels of confidence and a recession, therefore unemployment is likely to increase as economic agents do not respond to the Govt. policy and a negative multiplier continues until demand side management policies are put into place.
Task:
Based upon the above analysis. Explain the strengths and weaknesses of supply side policy in tackling key macro economic objectives:
- Sustainable economic growth
- Inflation
- Current account of the BOP
- Inequality
