HOW T HE GOVE R NME NT CAN I NCR E AS E T HE

QU AL I T Y / QU ANT I T Y OF L AB OU R
SUPPLY SIDE POLICY:
LABOUR
QUALITY AND QUANTITY OF LABOUR
The quality and quantity of labour depends on the
workers education and training, health, physique
and well being.
Supply side policy focuses on shifting the LRAS to
the right. It causes economic growth without
inflationary pressure.




WHAT CAN THE GOVERNMENT DO?
Increased spending on education and training Their productivity
improves and so the LRAS curve shifts to the right. Economies that
have invested heavily in education are those that are well set for the
future. Most economists agree, with the move away from industries
that required manual skills to those that need mental skills, that
investment in education, and the retraining of previously manual
workers, is absolutely vital. It should also be noted that improved
training, especially for those who lose their job in an old industry, will
improve the occupational mobility of workers in the economy.
Trade Union Reforms -Some of the legal protections enjoyed by the
trade unions have been taken away - including restrictions on their
ability to take industrial action and enter into restrictive practices
agreements with employers. The result has been an increase in the
flexibility of the labour market, a decrease in strike action in virtually
every industry and (in the long term) a significant improvement in
industrial relations in the United Kingdom.

Lower rates of income tax Income tax is paid directly from earned
income. Lower rates of tax would encourage people to work longer
hours or take a new job because they get a higher amount of
disposable income. Cutting tax rates for lower paid workers may
also help to reduce the extent of the unemployment trap - where
people calculate that they may be no better off from working than
if they stay outside the employed labour force.
The nation minimum wage - The introduction of a national minimum
wage seeks to boost the incentive for people to actively search for
work.
Unemployment benefits - In some countries where government
spending is relatively high (like Sweden and France),
unemployment benefits are so high that the difference between
disposable income in work and benefits received out of work is
small. There is little incentive to take a job. The other option is to
offer in-work benefits. The new Working Families Tax Credit is a
benefit that is paid through the pay packet. Whether out of work
benefits are reduced or in work benefits are increased, the idea is
to create incentives for people to work and so increase the supply
of labour and the productive potential of the economy.
EXAMPLES
SPAIN: Spain, where unemployment has risen to 20% and domestic
demand has yet to recover, has just approved a labour reform law that
makes it easier for employers to dismiss workers. The reform aims to
encourage hiring by reducing the Spain's high cost of dismissal and
giving companies more flexibility to reduce working hours and staff levels
in economic downturns.