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Economics: Structural Unemployment (Solutions & Evaluations)

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Allen suwardi

on 17 April 2013

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Transcript of Economics: Structural Unemployment (Solutions & Evaluations)

Solutions and Evaluations Structural Unemployment Unemployment that occurs when there is a permanent fall in demand for a particular type of labor Solution 1: Interventionist Supply-side Policy What is Structural
Unemployment? Education
Retraining programs
Apprenticeship programs
Subsidies to firms that provide training for their workers
Subsidies or tax breaks Education and Training Trains people to be more occupationally flexible by learning skills that can help them adapt to rapidly changing economic conditions. Solution 2: Market-Based
Supply Side Policies Reduce unemployment benefits
Deregulation What are the causes of Structural Unemployment?

Decrease in labor force demand in a particular good

Replacement of labor force by machines

Change in economic structure (e.g. from agricultural to industrial) Subsidies to Firms who give Worker Trainings Firms can use the subsidy to provide training for workers, improving the quality of the labor force Subsidies or Tax Breaks to Workers Encourage people to move to areas within the country where jobs are available, enhancing geographic mobility Subsidies or Tax Breaks to Firms Evaluation Decreases structural UE in the long run -> increase labor (FOP) -> increase LRAS
Very expensive -> Increase GOV spending-> Increase GOV borrowing -> GOV increase taxes->Increase burden of tax payers
High opportunity cost -> decrease provision of merit goods and infrastructure
People may be unable or unwilling to learn new skills
May encourage firms to simply replace current workers with the long term unemployed in order to benefit from the subsidy or tax break Subsidies or Tax Breaks can be given to firms for taking in the long term unemployed Reduce Unemployment Benefits Give unemployed people the incentive to take the jobs that are available Deregulation Reducing or removing the legislation that businesses must follow in their hiring, firing, and employment practices Apprenticeship Programs Usually in Germany or Austria, aims to help potential workers acquire the skills needed in the labor force Evaluations Reduce unemployment in the short run
Increase supply of labor -> decrease costs of production (COP) -> increase SRAS
Increase in real GDP
Increase in economic growth
Decrease in unemployment
Increase in national income -> increase in standard of living -> increase in economic development
Decrease in APL
Decrease in inflation
BOP will improve in the long run Conclusion Structural unemployment can be corrected by applying interventionist and market-based supply side policies. Interventionist supply side policy increases LRAS, whereas market-based supply side policy increases SRAS. ? Any Questions ? Thank you for your attention By: Allen, Cindy, Marissa, Gita, and Zerlinda
IB DP, Economics
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