Resources | Subject Notes | Economics | Lesson Plan
Supply-side policies are government actions aimed at increasing the productive capacity of the economy. The main goal is to shift the aggregate supply curve to the right, leading to economic growth, lower inflation, and higher output.
Labour market reforms are a key component of supply-side policy. These policies aim to improve the efficiency and flexibility of the labour market, making it easier for businesses to find and employ workers, and for workers to find suitable jobs. This can lead to increased productivity and economic growth.
Historically, strong trade unions could lead to wage increases that were not matched by productivity gains, contributing to inflation. Reforms aimed to limit union power might include changes to rules about collective bargaining and strike action.
EPL refers to laws that make it costly for firms to dismiss employees. Reducing EPL can make firms more willing to hire, as they face less risk. However, it can also lead to job insecurity for workers.
Investing in education and training can improve the skills and productivity of the workforce. This can involve funding for schools, universities, vocational training, and apprenticeships.
Lowering income taxes and national insurance contributions increases the amount of money workers receive. This can incentivize people to work and can also reduce the cost of employing labour for businesses.
Policies to reduce benefit dependency aim to encourage people to find work by making the benefits system less attractive to those who are capable of working. This might involve stricter eligibility criteria or time limits on benefits.
| Reform | Description | Potential Benefits | Potential Drawbacks |
|---|---|---|---|
| Reducing Union Power | Changes to collective bargaining rules and strike action regulations. | Increased flexibility for businesses, potentially leading to more hiring. | Potential for lower wages and reduced worker rights. |
| Reducing EPL | Making it easier for firms to dismiss employees. | Increased willingness of firms to hire, potentially leading to lower unemployment. | Increased job insecurity for workers. |
| Improving Training & Education | Investment in schools, universities, vocational training, and apprenticeships. | Improved skills and productivity of the workforce. | Can be costly and may take time to have an impact. |
| Reducing Income Taxes & NI | Lowering income taxes and national insurance contributions. | Increased incentives to work and reduced cost of employing labour. | May reduce government revenue. |
| Reducing Benefit Dependency | Stricter eligibility criteria or time limits on benefits. | Encourages people to seek employment. | Can lead to hardship for those who are unable to find work. |
Diagram: A simple diagram showing the aggregate supply curve shifting to the right as a result of labour market reforms.