Controlling or reducing unemployment

Societies try a number of different measures to get as many people as possible into work, and various societies have experienced close tofull employment for extended periods, particularly during the Post-World War II economic expansion. The United Kingdom in the 1950s and 60s averaged 1.6% unemployment, while in Australia the 1945 White Paper on Full Employment in Australia established a government policy of full employment, which policy lasted until the 1970s when the government ran out of money.

However, mainstream economic discussions of full employment since the 1970s suggest that attempts to reduce the level of unemployment below the natural rate of unemployment will fail, resulting only in less output and more inflation.

Demand side solutions

United States Families on Relief (in 1,000's)^]

	1936	1937	1938	1939	1940	1941
Workers employed
WPA	1,995	2,227	1,932	2,911	1,971	1,638
CCC and NYA	712	801	643	793	877	919
Other federal work projects	554	663	452	488	468	681
Cases on public assistance
Social security programs	602	1,306	1,852	2,132	2,308	2,517
General relief	2,946	1,484	1,611	1,647	1,570	1,206
Totals
Total families helped	5,886	5,660	5,474	6,751	5,860	5,167
Unemployed workers (BLS)	9,030	7,700	10,390	9,480	8,120	5,560
Coverage (cases/unemployed)	65%	74%	53%	71%	72%	93%

Many countries aid the unemployed through social welfare programs. These unemployment benefits include unemployment insurance, unemployment compensation, welfare and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a job.

Government unemployment office with job listings, Berlin, Germany.

A direct demand-side solution to unemployment is government-funded employment of the able-bodied poor. This was notably implemented in Britain from the 17th century until 1948 in the institution of the work house, which provided jobs for the unemployed with harsh conditions and poor wages to dissuade their use. A modern alternative is a job guarantee, where the government guarantees work at a living wage. Temporary measures can include public works programs such as the Works Progress Administration. Government-funded employment is not widely advocated as a solution to unemployment, except in times of crisis; this is attributed to the public sector jobs' existence depending directly on the tax receipts from private sector employment.

In the U.S. the unemployment insurance allowance one receives is based solely on previous income (not time worked, family size, etc.) and usually compensates for one-third of one's previous income. To qualify, one must reside in their respective state for at least a year and, of course, work. The system was established by the Social Security Act of 1935. Although 90% of citizens are covered by unemployment insurance, less than 40% apply for and receive benefits. However, the number applying for and receiving benefits increases during recessions. In cases of highly seasonal industries the system provides income to workers during the off seasons, thus encouraging them to stay attached to the industry.

According to classical economic theory, markets reach equilibrium where supply equals demand; everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labour market this is classical unemployment. Increases in the demand for labour will move the economy along the demand curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand for goods and services in the economy increases, the demand for labour will increase, increasing employment and wages. Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment.

Supply-side solutions

However, the labour market is not 100% efficient: it does not clear, though it may be more efficient than bureaucracy. Some argue that minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. This assumes perfect competition exists in the labour market, specifically that no single entity is large enough to affect wage levels. Advocates of supply-side policies believe those policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions. Supply-siders argue the reforms increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply-side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment. Other supply-side policies include education to make workers more attractive to employers.

However, recent meta-analyzes involving many studies refute that there is any statistically significant, negative impact of minimum wages on unemployment. Further, a number of scholars argue that the predicted negative impact is based on incoherent or simplistic logic that ignores mitigating environmental factors, such as non-minimum wage labour markets including farm, service and self employed workers. They argue that the benefits of minimum wage laws outweigh the supposed but unproven costs.