Demand Side Policies

As can be seen above, monetary policy has shown to be an effective economic tool to help in minimising unemployment. However, further research has shown that not only monetary policy can be effective, but there are additional efficient ways in solving this matter.

The two main strategies for reducing unemployment are demand side policies and supply side policies. Demand side policies reduce demand-deficient unemployment, unemployment caused by a recession. On the other hand, supply side policies reduce structural unemployment, the natural rate of unemployment. (Pettinger, 2011) Demand side policies are significant when a recession occurs and there is a growth in cyclical unemployment.
John Neville argues that in the golden age, fiscal policy was an important expansionary instrument and that expansionary fiscal policy should be used to achieve lower unemployment. (Bell, 2000) In this case, fiscal policy can decrease unemployment by helping to increase aggregate demand and the rate of economic growth. This would in turn, shift the aggregate demand curve to the left and thus indirectly increase demand for labour. The government will need to cut taxes and increase government spending in order to minimise unemployment. Less taxes increase …show more content…
These policies should cure demand deficient unemployment. They include government subsidies, where the government provides these for firms who take on those who have been long-term unemployed, creating an incentive for businesses to increase the size of their workforce. (Pujari, 2015) The economy could reduce wage stickiness by reducing trade union power, keeping wages higher for their members as a way of reducing unemployment. It is said that real wage unemployment is caused by the inability of wages to fall to their equilibrium level, therefore to fix this you would have to take away the cause of sticky wages. (Pissarides,