Supply-Side Policies

Supply-side policy

Government strategies to improving, long-term, productive potential and economy’s ability to supply goods and services

Market Led approach to Supply-Side policies

Designed to make workers work better and give the private sector more freedom

All types of Supply-Side Policies

• Education + training

• Reducing power in trade unions

• Reducing direct taxes on workers

• Reducing benefits

• Reducing direct taxed on firms

• Privatisation

• Development of infrastructure

Supply side Policy: Education + Training: Benefits

Creates workforces that are more skilled and flexible → leading to productivity → higher supply of g/s.

• Low inflation: higher productivity = more supply = economies of scale = lowered average costs = less pressure on prices

• High employment / Low unemployment: More skills = more job opportunities

• Sustainable economic growth

Supply side Policy: Education + Training: For developing countries

Developing countries tend to lack in consistent economic growth because of a shortage of skilled and educated workers.

→ Less skilled workers = less supply of g/s → less economic growth → gov. has no funds to reinvest into education → workers are less skilled

• Becomes into a cycle

Supply side policy: Reducing power of Trade Unions: What is a trade union?

An organised association of workers formed to protect and further their rights and interests.

→ Gives them confidence, better working conditions, good pay and ability to go on strike.

Supply side policy: Reducing power of Trade Unions: Benefits

Reducing power of trade unions = lowering wages between different workers and regions = makes hiring / firing easier = firm competition = productivity

Supply side policy: Reducing direct taxes on workers: Benefits

Some believe high direct taxes rates = disincentive to engage in productivity (e.g overtime, working for a promotion)

→ This is because even if they earned more, they’d be taxed even more on their earnings.

• Reducing direct taxes can incentivise workers and cause the labour market to work more efficiently.

Supply side policy: Reducing Benefits: Pros

Lowering benefits → encouraging unemployed to take jobs as those on Job Seeker Allowance (JSA) may be forced to take a joke as their current income is likely to fall.

• This however, is rather controversial and may increase relative poverty in the economy.