Policies Toward Unemployment

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10/15/2012
Microeconomics
Policies toward Lowering Unemployment

In the last years, there has been a lot of discussions regarding the future economy. We have experienced a period of strong turbulences in the world’s economy, especially in the United States of America. The outcomes of such catastrophes are high interest rates, higher rate of unemployment and many different setbacks in particular in a number of European country. If we lived in free markets these difficulties would have been, probably, overcome in time. However, our economy is partially regulated by the government, who normally tries to find an equilibrium as soon as possible. One of the recurring problems that governments have been trying to solve, is lowering the percentage of people that are unemployed in the country; in other words, improve the overall economy of the nation the government is governing. Usually, when the percentage of unemployed people increases the government analyzes the situation and enacts polices to tackle the problem that arose. There are two main strategies for reducing overall unemployment, the first and the most important one in these days, is to use policies that affect the demand side to reduce demand-deficient unemployment; the second is to look at supply side polices to reduce structural unemployment. Demand-deficient unemployment is a situation in which there is insufficient demand in the economy to maintain full employment. On the other hand we have structural unemployment, which is a form of unemployment resulting in a mismatch between the demand in the labor market and the skills of the workers seeking employment. These forms of unemployment are recurrent in today’s economy, and my paper I will analyze how governments try to lower these percentages and possibly keep them that way.

Typically, demand side policies are significant when there is a recession and a rise in cyclical unemployment. As we can see in Figure 1 we have two examples, the recession of...
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