The global economy has become volatile. The new year began, and financial markets became erratic. People started to be wary about the United States’ economy after seeing a dip in China’s economy and prices for assets fall. Additionally, oil prices are decreasing sharply, leaving the country to worry that credit markets will fall. The International Monetary Fund has been keeping a close watch on the global economy, and they have come to the conclusion that, in order to lower the amount of unemployed people in the world, taxes on employment must be lowered and public spending must increase.
If implemented, these would be highly controversial changes. Higher public spending to help unemployed people find work is ideal, of course, however cutting unemployment benefits would be met with a lot of resistance. In the International Monetary Fund’s opinion, this would be an incentive for unemployed individuals to take lower paying jobs, however this shift in policy would have short-term ramifications for those already employed. It is expected that, if it were implemented, cushions would be in place to offset the short-term consequences.
Long term, however, these reforms would be expected to lower unemployment drastically, and repair the global economy overall. It would be easier for firms to enter different industries, and therefore increase necessary hired labor. Historically, many of theses changes have been put in place to combat unemployment. The result has been positive, with effects such as increased private investments and hiring. When employment protection legislation is altered, additionally, companies become more willing to keep the employees they already have while continuing to hire new ones.
If there is a time to introduce new reforms into the labor market, this is it. The volatile global economy is increasing the amount of unemployed people, and it is difficult for said people to get back into the job market when they are out. Of course, these changes will have to be executed the right way in order to have the positive effects for which we hope. It is crucial to understand what incentives will be the most effective, and which ones must be pushed through their short term detriments to reach long term success.
For example, fiscal stimulus is the single most valuable incentive. It should be implemented in the labor market as soon as possible to start lowering unemployment. However, narrowing unemployment benefits will have short term detriments that must be offset with other policies until the long term is reached.
Overall, the International Monetary Fund has looked at history to decide what reforms need to be made in order to lower unemployment. Whether or not these historically effective policies will work now remains to be seen.
