STRATEGIES TO REDUCE UNEMPLOYMENT The govt has undertaken many special programmes to generate employment opportunities.

The major ones among them are: RURAL WORKS PROGRAMME: xonstruction of civil works of permanent nature in rural areas.

INTEGRATED DRY LAND AGRICULTURAL DEVELOPMENT: permanent works like soil conservation, development of land and water harnessing are undertaken. NATIONAL RURAL EMPLOYMENT PROGRAMME: to create community assets for strengthening rural infrastructure like drinking water wells, community works, irrigation wells, rural roads, schools etc. The Rural Landless Employment Guarantee Programme aims at generating gainful employment, creating productive assets in rural areas and improving the overall quality of rural life. SKILL DEVELOPMENT: a skilled labour is one who has proper training and education to work in a particular field. Training and education increase the productivity of workers. Educate and provide specialized training to the labour force To ensure continous employment of labour Able to absorb new technologies at work. To compete with labour force of the other developed countries.

With a view to impart shills through training, the govt of India has taken many steps. The Central Board Of Workers Education (CBWE) formed in1958 is creating understanding and enthusiasm among workers. There are around 4300 Industrial Training Institutes(ITI) to produce specialized workers. Various ministries of the govt of India are providing vocational Education and Training which has introduced vocational education in the school system and there is a provision for vocational education after class X. Problems associated with these steps are restructuring and reorientation of ITI courses with the changing system. Industry-institute interaction continues to be weak. Vocational system in schools has to be modified.

ENTREPRENEURIAL DEVELOPMENT: Growth of employment involves setting up of new businesses expertise and organizing ability training and implementing schemes which are necessary to promote selfemployment. Low cost capital provided by the Govt to small enterprises and self-employed persons to develop their entrepreneurial ability. Giving technical and professional help in running the business. Banks providing credit faci lities at concessional rates.

All the above have helped in expansion of Indias industries and business into newer domains and regions.

10 Strategies that the Government has Undertaken to Reduce Unemployment in India 1. Heavy Investment in Basic Industries: Investment in heavy and basic industries and consumer goods industries should be increased. They provide more employment along with the supply of consumer goods. 2. Development of Cottage and Small-scale Industries: As they provide more employment by adopting labour intensive techniques. 3. Change in Educational System: More emphasis should be given to vocational education. 5. Checking of Population Explosion: Rapidly rising population should be checked by adopting family planning and welfare schemes. 6. Modernisation of Agriculture: Modernisation of agriculture should be done. Waste lands should be utilised. 7. Introduction of Rural Works Programmes: Rural works programmes should be increased. 8. Developing Infrastructure of Economy: Infra-structure of the economy should be developed. 9. Subsidies to Private Sector: Subsidies and other incentives should be given to private sector. 10. Stress on Self-employment: Young entrepreneurs should be financed for selfemployment.

Policies to reduce Unemployment

Government policies to reduce unemployment must be based upon the types and causes of unemployment that are prevalent. It may be worth glancing back to that section to remind yourself of the major kinds of unemployment; however, we will go into more detail in this section. General policies such as cuts in direct taxes should be effective across any kind of unemployment, as it increases the appeal of any job to any potential employee. Real Wage Unemployment This is unemployment as a result of a kind of market failure, a failure of the labour market to respond to changes in demand. If demand for workers rises, it is logical that they will demand greater real wages (diagram). Similarly, if demand falls, workers should

expect to suffer lower real wages for the same work. Unfortunate though it may seem, that is the way the market works! Real wage unemployment is usually caused by a combination of:

Strong trade unions - giving employees greater power over deciding wage conditions with the threat of industrial action (strikes etc.) With strong unions, firms will not be able to reduce wages when demand is low, leading to bankruptcy (unemployment) or layoffs of workers (unemployment) Wage 'stickiness' - Employees on long term contracts will have a fixed wage over a long period of time. If a downturn in demand occurs, wages cannot fall immediately in response - they are 'sticky' Minimum wage - This is a characteristic of most modern economies, guaranteeing every worker a minimum standard of living. Whilst this is undoubtedly wonderful, if the minimum wage is set too high, the labour market is once again inflexible

Government policies to tackle this form of unemployment are invariably unpopular for workers, as their wage levels are threatened to the benefit of firms and businesses. However, it is largely appreciated that, for example, overly strong trade unions can utterly paralyse an economy (see Margeret Thatcher's time as Prime Minister in the UK). Policies to combat real wage unemployment include trade union reform (reducing their powers), increasing firms' ability to change wages and encouraging shorter term contracts and ensuring that the minimum wage level does not adversely impact the economy. Frictional Unemployment Remember, this is unemployment generated through incomplete information of the labour market. This can be solved in two main ways. Firstly, increasing the knowledge of the local vacancies through government funded 'job centres' could reduce time between jobs. Secondly, increasing the incentive to search for suitable jobs (such as reducing unemployment benefits and lower taxes on wages) could serve the dual purpose of increasing incentives to search for work, and making more vacancies acceptable to the unemployed individuals. Cyclical Unemployment It is worth noting that this form of unemployment can also be known as Keynesian or demand-deficient unemployment. Over the economic cycle demand changes, and regardless of how flexible wages are, unemployment will rise of fall (diagram). There are clear links between the rate of economic growth and the level of unemployment. It is clear that in a depression, unemployment will rise, as demand for good and services falls. This could result in a negative multiplier effect, without government intervention. Policies to reduce the impact of Keynesian unemployment include:

Increased government spending - this includes reductions in taxes. Increased G will cause an outward shift in AD, and may create a multiplier effect. Theoretically, government spending to pay workers to dig huge trenches and fill them in again will help, as it increases national income. However, targeted policies to increase the quality of infrastructure or levels of investment will be more effective. Also, reductions in direct taxes will encourage more people into

work, and also increase the level of disposable income, hopefully leading to a positive multiplier effect Reduction of interest rates - remember that a fall in interest rates can also stimulate AD. Return to that section to remind yourself that a fall in interest rates encourages consumption and investment

Geographical Unemployment Naturally, policies to reduce geographical unemployment will seek to decrease geographical immobility of labour. This is the inability of people to relocate from areas with low demand for labour, to areas with high demand for labour. Policies to reduce geographical unemployment include:

Regional Incentives - this is regional policy to increase the incentives for new businesses to locate in areas of high unemployment, thus reducing regional variations in unemployment caused by geographical immobility Reducing geographical immobility - is the second and more direct method of combatting geographical unemployment. It aims to reduce geographical immobility by reducing barriers to free movement of workers (such as no border controls and cheap housing). This is more difficult within a country as the barriers are often social in nature, such as family ties.

Structural Unemployment This is the inability of workers to change the kind of employment (for example from manufacturing to IT) they are in. Left without intervention, this could lead to dangerous long term unemployment, whereby workers find it increasingly difficult to find jobs as they become less desirable the longer they are unemployed. Policies to reduce occupational unemployment include:

Retraining - incentives for both companies to retrain and employees to take part in training to make them more attractive and useful to firms. Governments may also directly take part in retraining projects where unemployment levels as a result of structural unemployment are very high Reducing geographical immobility - could result in no need for retraining programs, as worker could simply move to an area in which their skills are in high demand. This works providing the costs associated with reducing geographical immobility are lower than those required for occupational-orientated projects such as retraining, and that their skills are in demand somewhere.

policies to reduce unemployment

In the long term, effective policies to reduce the total level of unemployment need to encourage An improvement in the employability of the labour supply - so that the unemployed have the right skills to take up the available job opportunities. Policies should focus on improving the occupational mobility of labour An improvement in the incentives for people to search and then accept paid work - this may require some reforms of the tax and benefits system A sustained period of economic growth so that new jobs are being created - this requires that aggregate demand is sufficiently high for businesses to be looking to expand their workforces Improving skills and reducing 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. Reflating Aggregate Demand 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 below we see 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.

Not every increase in demand and production has to be met by using more labour. Each year we expect to see a rise in labour productivity (more output per worker employed). And, businesses may decide to increase production by making greater use of capital inputs (machinery and technology). 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. Targeted measures are designed to help the long-term unemployed find re-employment (including the Government's "Welfare to Work Schemes" - see New Deal Employment Subsidies Government subsidies for those firms that take on the long-term unemployed will create an incentive for firms to increase the size of their workforce. Employment subsidies may also be available for overseas firms locating in the UK. Economic Growth and Unemployment A growing economy creates jobs for people entering the labour market for the first time. And, it provides employment opportunities for people currently unemployed and looking for work

The chart above shows the level of real national output (GDP) and total employment in the economy since 1980. In both of the last two recessions (1980-81 and 1990-92), the number of people in work has fallen sharply. But a period of sustained economic growth (as experienced by the UK from 1993-2001) has led to a significant increase in employment levels. Indeed by the summer of 2001, employment in the British economy was at record levels. This has helped reduce the official measures of unemployment to a level not seen for over twenty-five years. A range of government policies are available for Governments wanting to reduce the scale of unemployment in the economy. These policies need to focus on the underlying causes of unemployment for them to be successful. Real Wage Keynesian Structural Frictional

Real Wage Unemployment Prescriptions for reducing real wage unemployment normally focus around the strategy of making each labour market more flexible so that pay conditions become more adaptable to changing demand and supply conditions. Real wages should rise when demand, output and employment and rising, but they may need to fall if an industry experiences recession which puts jobs at threat. The UK economy has developed a flexible labour market model similar to that of the United States during the last fifteen years. Trade Union reforms were a centre-piece of the Conservative Government's strategy to improve the performance of the labour market. The Labour Party under Tony Blair has not reversed these reforms since coming to office, although some new legislation has been introduced to give workers the right to achieve union recognition. A National Minimum Wage has also been introduced. Keynesian Unemployment Policies to reduce Keynesian demand-deficient unemployment need to raise the level of aggregate demand for goods and services in the economy. A number of options are available.

Increased Government Expenditure The Government can raise the level of its own spending. This "fiscal pump-priming" directly increases aggregate demand and can have a multiplier effect on equilibrium national income. The government could raise current expenditure (for example raising pay levels in education and the health service) or expand spending on capital projects which add to the stock of capital (for example spending on new roads, new hospitals or other major infrastructural projects). Sustained economic growth provides a platform for more jobs to be created in the economy. Lower Taxation A reduction in direct taxation increases consumers' disposable income and should boost household spending. The effect may be greater if taxes are cut for people on lower than average incomes. These tax-payers are likely to spend a greater percentage of their disposable income. Lower interest rates A relaxation of monetary policy through lower interest rates encourages the demand for credit, reduces saving and increases consumers' real 'effective' disposable incomes; all of which will boost consumption and demand. It may also encourage firms to invest, as the marginal cost of investment will fall. Remember that interest rates are not set by the government. The Bank of England now sets interest rates each month at the meetings of the Monetary Policy Committee. Depreciation of the exchange rate A lower value for the pound should lead to a rise in the orders of exports from UK firms and to a reduction of import penetration by making exports cheaper and imports more expensive. Remember the importance of time lags! Government policies to stimulate increased aggregate demand for domestic output take time to have their effect. There are variable time lags between the government reflating the economy using fiscal and or monetary policy and the final effect on output and employment in specific industries.

Structural Unemployment

There are a number of different approaches that can be adopted to help alleviate structural unemployment. These are sometimes known as active labour market policies. The first involves direct government action to match jobs to the unemployed. Regional policy incentives Gives grants and subsidies to firms to locate in areas of high unemployment. However, this does not solve the problem of occupational immobility. Often regional policy requires extra retraining schemes to give workers the relevant skills to allow them to take up new jobs. Investment in worker training Spending on training schemes to re-skill the unemployed through investment in vocational education or guaranteed work experience for unemployed "outsiders" in the labour market.

Improving geographical mobility of labour The government could provide grants or low cost housing to encourage workers to move to other regions where there are jobs. The problem with this policy is that people are inherently immobile as they are often bound by family and social ties. Market solution - no need for government to get involved! One approach is to simply leave the problem of structural unemployment to the market. Some economists argue that intervention slows the natural reallocation of resources to high growth areas and only makes the problem worse. In areas of above average unemployment it may make some sense to allow wage levels to fall to attract new capital into an area. Frictional Unemployment Lower real values of unemployment benefit and improved job information The implementation of the Job Seeker's Allowance in 1996 ensures that workers are actively seeking work as the payment of benefit is dependent on them proving this at fortnightly interviews. However, if the government reduced the real value of unemployment benefits, or limited the duration of a claim, search times between jobs could be reduced even further as workers would have to quickly take on new positions before their financial situations deteriorated. Better information on job vacancies in the labour market can help to reduce job search. Cuts in direct taxes The government could reduce direct taxes for the low paid to increase the post tax wage and, therefore, encourage them to find work more quickly. The Labour Government is introducing a 10% starting rate of tax to encourage more low income groups back into work. Most analysts believe that tax cuts on their own are insufficient to reduce frictional unemployment. Complementary reforms to the benefits system to reduce the problem of the poverty trap may also be needed.