However, supporters of the deregulations approach point to the continued existence of awards and use of safety net wage increase for lower paid workers and reduce access to long term unemployed vacancies.
Critics of this approach argue that it has a narrow focus on wages, often ignoring skills and the importance of productivity generation. It is a smokescreen for diluting employment conditions and does little to generate jobs.
A second supply side approach is labour market programs that attempt to improve the matching within the labour market. Such policies would include:
- Training and education programs
- Work experience programs
- Direct job creation programs
The labour government introduced its ‘Working Nation’ program in 1994 as an attempt to reduce long term unemployment and target the disadvantaged work groups within. Special Labour Market programs included:
- Australian Traineeships
- Jobstart
- Skillshare
- Landcare
However these special programs were not successful during times of recession when there are few job vacancies.
The crux of the problem is insufficient job generation. What is required is some expansion in demand within the economy. All sides of the debate agree on this.
The Long Run Phillips Curve might be used to suggest that any policy aimed at reducing the actual rate of unemployment below the natural rate of unemployment will be totally ineffective in the long run. Discuss.
The importance of the natural rate of the unemployment is that it is the rate of unemployment at which there is no cyclical unemployment and as such, discretionary demand management policies (MP & FP) would not be able to permanently reduce the unemployment rate below the natural rate as they would require structural policies (training and education, and industry policies) which take time to impact.
This suggestion can be portrayed in the long run Phillips curve as it identifies the natural rate of unemployment as that rate of unemployment at which price expectations are stable and realized.
Under this view there is a direct link between the natural rate of unemployment, the actual rate of unemployment and the average level of price expectations.
At the long run Phillips curve:
- The expected inflation rate is equal to the actual inflation rate
- There is no reason to revise price
- The labour market is in equilibrium to the extent there is no cyclical unemployment
Therefore in the long run, there is no trade off between inflation and unemployment, and the economy would inevitably settle at the LR Phillips curve and at the natural rate of unemployment.
