Answer to Question #228274 in Macroeconomics for Louis

Question

 Between 2011 and 2016, UK unemployment fell from a high of 8.5% to 4.8%. Some argue that

Government attempts to reduce unemployment inevitably lead to trade-offs with other

macroeconomic policy objectives.

 

1.     Explain how government policies can reduce the natural rate of unemployment.

Answer 1

(1) The government can reduce natural rate of unemployment through provision of public information services such as job centers which can serve to increase the availability of job information, reducing frictional unemployment thus reducing the natural rate of unemployment.

(2) Government to increase market flexibility through liberalising the labour markets, which makes it easier for companies to fire or hire workers and also making it easier for individuals to become unemployed thus reducing the natural rate of unemployment .

(3) Through public provision of adult education schemes to allow people who have become structurally unemployed to retrain and rejoin the workforce which leads to smaller rate of natural unemployment.