Government policies to reduce unemployment
Governments attempt to manipulate the economy so as to improve its economic performance. One aspect the government would try to control is the employment level. Since unemployment is a major problem in society, the government would try to keep it as low as possible through various policies.
Firstly, the government can introduce policies that should improve skills and reduce occupational immobility. Policies should provide the unemployed with the skills they need to find re-employment and improve the incentives to find work. Structural unemployment is the result of workers being occupationally immobile - improvements in education and training will increase the human capital of these workers, and therefore give them a better chance of taking the new jobs that become available in the economy.
The government can also use macro-economic policies to increase the level of aggregate demand. These policies might involve lower interest rates or lower direct taxes. It might also encourage foreign investment into the economy from foreign multinational companies. In the diagram on the next page there is an increase in aggregate demand leading to an expansion of aggregate supply. Because of the increase in demand for output, the demand for labour at each wage rate will grow - leading to an increase in total employment.
The government may also introduce benefit and tax reforms. Reducing the real value of unemployment benefits might increase the incentive to take a job - particularly if the real worth of unemployment benefits is well below the national minimum wage rate.
Lastly, the government may introduce employment subsidies. Government subsidies for those firms that take on the long-term unemployed will create an incentive for such firms to increase the size of their workforce.
In the nutshell, the use of these policies should help a government control the level of unemployment in a country and subsequently reduce it.