Evaluate the view that a reduction in UK unemployment is best achieved through the use of supply-side policies.

Intro:
UK unemployment currently at 4.4%, a four-decade low, question remains how to lower it further with growth forecasts falling and business confidence faltering.

Para 1:
A traditional approach would be to employ expansionary fiscal policy, increasing government spending and decreasing tax rates. This should increase aggregate demand (AD) and, therefore, increase employment as businesses seek to meet demand. However, with unemployment at 4.4%, it would seem the economy is near capacity & natural unemployment rate. In such a scenario raising AD will only create inflationary pressure without impacting on employment. With inflation above target at 3% this is undesirable. Also, the government is intent on maintaining the budget in surplus, and is therefore unlikely to increase spending and reduce taxes. Fiscal policy may, however, be successful in raising the quality of employment. Since the recession zero-hour contracts have seen a marked increase in popularity, (from c200,000 in 08 to 900,000 in 16) and may indicate that the economy is not as close to capacity as the unemployment rate may suggest.

Para 2:
If it is assumed the Economy is near capacity, then pushing long run aggregate supply outwards will increase employment and ease inflationary pressures. This could be done by easing corporation tax or through state investment in infrastructure or business. A current example is the National productivity fund which will invest £31bn throughout its duration in R&D and infrastructure. This may raise short term demand, improving the poor quality of employment aforementioned. It may also have a positive impact on UK productivity, 15.7% lower than the G7 average in 2015. Additionally, government support would come as a welcome boost amidst Brexit uncertainty. However, supply side policies are expensive, and with the budget only just recently returning to surplus, the government is unlikely to employ such a scheme extensively.

Para 3:
A policy of expansionary monetary policy may achieve the same result at no cost to the government. Lowering interest rates may encourage consumer spending, raising AD, but also business investment, which would raise AD short term and AS long term. Whilst the theory presents the perfect solution, easing inflationary pressures whilst providing a short and long term boost to the economy which will positively impact on unemployment, the Bank of England seems to have reached the liquidity trap. With interest at 0.5%, only recently increased from 0.25%, it not been higher since 2009. Since the interest rate can barely be lowered further, and presumably at no great impact, this cannot be relied upon as a policy for further unemployment reduction.

Conclusion:
To guarantee future growth the government should employ a marked increase in investment schemes. Interest rates should remain low to support the effort. Whilst this will be detrimental to the budget, the private sector cannot be relied upon amidst all of the economic uncertainty surrounding Brexit.