Solutions to the
Unemployment Problem
Much of the discussion on finding solutions to the unemployment
problem has centered on the pivotal role of faster economic growth and cuts in
real wages. Faster economic growth is viewed as a means of generating more
jobs. Cuts in real wages are a reaction to the view that through their demands
for higher wages, some groups of workers have priced themselves out of a job.
How much growth and how large a fall in real wages would be required to reduce
the size of the unemployment problem both remain matters for debate. Ottosen
and Thompson (1996) suggest an overhaul of the National Labor Relations Act in
the United States as a way of preventing unions from delivering the
monopolistic wages and fringe benefit premiums that raise business costs and
lead to unemployment. Such proposals are often very difficult to implement.
Simulations by Guy Debelle and James Vickery (1998) for the Australian labor
market are suggestive of manageable wage cuts only if the unemployment target
is not set too low. Such advice is not very encouraging. Moreover, many
researchers believe that the levels of economic growth required to make a major
difference to the unemployment problem are unlikely to be sustained by most
economies.
The United States and other countries could take other approaches
to help reduce their unemployment rates (Ottosen and Thompson 1996). First, the
methods of accumulation and dissemination of information on available jobs and
workers could be improved. Ottosen and Thompson have suggested following the
Swedish model, in which job centers have a nationwide, integrated database of
jobs, employers, and available employees. This type of database could reduce
the time spent by an average worker on the unemployment roll and thus reduce
the unemployment rate. Second, unemployment agencies could tighten their job
search and job acceptance requirements. Third, there could be improvements to
the education and training provided to young people, with a greater focus on
vocational skills. Finally, countries need to ensure that their welfare systems
do not provide disincentives to work. Australia, for example, has strengthened
the "Mutual Obligation" requirements (e.g., taking part in Work for
the Dole projects) that eligible job seekers must meet in order to avoid loss
of part of their income support.
There may also be a role for unemployment programs that target
various groups of jobless persons. Carol West (1994) surveyed the unemployment
programs aimed at reducing cyclical, frictional, seasonal, and structural
unemployment in the United States. Some of these programs aim to change people
to match existing jobs while others create jobs to match existing worker
skills. The change in focus over time and the short duration of many programs
make evaluation difficult. Many programs appear to do little more than reorder
the line of unemployed people, though obviously they have the potential to
fulfill an equity function in the labor market. John Piggot and Bruce Chapman
(1995) suggest that labor market programs can be a cost-effective means of
managing the pool of unemployment.
A number of other solutions to the unemployment problem have been
advanced in the literature. For example, work sharing, early retirement, and
reduced migration have been discussed. These policies affect the labor market
by reducing the supply of labor. However, they have not won a great deal of
support among economists.
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