Employment is one of the factors that influence the rate of economic growth. Countries that record high levels of employment have accelerated economic growth. Creating employment positively impacts the economy by improving the gross domestic product (GDP). Therefore, the government has to design and implement appropriate policies that can increase employment. The government stimulates a rise in employment by implementing both fiscal and monetary policies.
The fiscal policies that the government employs to increase employment levels include tax reduction, high government spending, and transfer payments. Tax reductions can lower the cost of starting and operating a business (Shaheen, 2019). Consequently, businesses can expand operations, creating new jobs for the unemployed. Equally, tax reduction indirectly increases the level of employment since individuals get more disposable income, consuming more goods and services. This factor stimulates increased demand for labor to meet the consumers’ needs. Increased government spending on various projects such as infrastructural improvement can generate jobs for the unemployed (Shaheen, 2019). The aggregate demand and consumption rise, necessitating more production and increasing employment. The transfer of payments can further stimulate a rise in employment by increasing the demand for goods and services.
The monetary policy that the government adopts to raise employment levels involves increasing the money supply and lowering interest rates. With more money circulating in the economy, it means that consumers have additional money to spend and production has to increase to the demand (Li et al., 2021). Equally, lower interest rates can encourage businesses to borrow to expand their operations and new entrants in the market. As a result, more individuals get employed, and they get more money to spend, further increasing the demand for goods and services and creating additional jobs.
References
Li, Y., Sun, Y., & Chen, M. (2021). An evaluation of the impact of monetary easing policies in times of a pandemic. Frontiers in Public Health, 8, 1–13. Web.
Shaheen, R. (2019). Impact of fiscal policy on consumption and labor supply under a time-varying structural VAR model. Economies, 7(2), 1–15. Web.