Discuss the effectiveness of supply side policies in reducing unemployment.

Supply Side Policy (SSP) refers to measures governments take to increase the availability or
affordability of goods and services, along with generous tax reform, which refers to tax cuts and
changes in tax laws that may encourage or discourage productive behavior. Unemployment,
according to the OECD, is people above a specified age not being in paid employment or
self-employment but currently available for work during the reference period.

To analyze the phenomena, we can understand it using the help of this graph.

Suppose an economy is initially at equilibrium producing output at y1, and the government
imposes certain policies and reduces taxes, forcing the economy to push to y2. It increases
government expenditure, increases in training and education and increase in capital goods.
These policies result in an increase in AD in the long run and help the overall economy improve.

Another common supply side policy is the labor market reform, which aim to increase labor
market flexibility and thus reduce structural unemployment making it easier to fire people by
removing minimum wage laws.

So, an economy cannot educate its way out of unemployment and must create more jobs to
increase the demand. So, to conclude, most supply side policies reduce unemployment in the
long run, however, in the short run, it is important to remember that some labor market reforms
can cause a lot of issues and problems if not executed properly. Also, there needs to be mor job
creation rather than just investing in human capital.