Government intervention in the labour market

Question 1

how can the government intervene to improve education and training??

Answer 1

Investing money into supply side policies to improve human capital by making people better educated and have more access to training.
-subsidising education, a merit good, so demand isn’t determined by ability to pay

Question 2

How does regulation affect the labour market?

Answer 2

• the level of regulation of firms hiring and firing workers will determine how flexible the market is; if there is high levels of regulation then firms may be unable to make workers redundant straight away during recession etc
• minimum wages could cause unemployment due to an excess supply of workers willing to work
• depends on the extent of the regulation

Question 3

What examples are there of the government intervening through transfer payments

Answer 3

• Job seeker allowance
• income support
• child benefits
• state pension

Question 4

How can the government intervene to reduce inequality in the labour market?

Answer 4

• progressive taxes that take a proportionally higher amount of tax from higher earners above a certain threshold
• the taxes can then be used to fund transfer payments ie benefits to lower earners

Question 5

What does the Laffer curve show?

Answer 5

The changes in tax receipts with a change in tax rate

• as income tax increases, the government will receive more tax
• at a certain rate of tax, they will maximise their revenue
• beyond this point, there is an incentive to avoid taxes and workers will relocate to other areas, avoid taxes or do more informal labour to avoid the taxes