Economic Growth, Unemployment and Inflation: Question 5
Syllabus 4.6
A government wants to reduce structural unemployment among factory workers whose jobs disappeared after their factories automated production. These workers' existing skills no longer match the skills that employers in the country's expanding industries now require.
Which policy is most likely to directly address this specific cause of unemployment?
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Worked solution
Step 1: Identify the specific cause of unemployment
The question describes structural unemployment: factories have automated, and the workers who lost their jobs have skills that no longer match what expanding industries need. The root cause is a mismatch between workers’ existing skills and the skills currently in demand.
Step 2: Match the cause to the right policy
To reduce unemployment caused by a skills mismatch, a policy needs to directly close that gap by giving workers the skills employers now want.
- Retraining and skills programmes teach redundant workers the specific skills that growing industries require, directly removing the mismatch that is causing their unemployment.
Step 3: Why the other options are wrong
- A (cutting interest rates): this is a monetary policy aimed at boosting total demand, which mainly tackles cyclical unemployment (caused by a downturn in the whole economy), not a permanent skills mismatch in one part of the economy.
- B (lowering the minimum wage): this reduces the cost of hiring workers, but it does not give the redundant workers any new skills. Employers in the expanding industries may still be unwilling or unable to use them productively without training.
- D (increasing unemployment benefits): this provides income support to the unemployed while they are out of work, but it does not address why they are unemployed in the first place, so it does not reduce structural unemployment itself.
Final answer
- The policy that most directly targets this cause is retraining and skills programmes, option C.