Can Supply‐Side Policies Reduce Unemployment? Lessons from North America

Gary Burtless

Australian Economic Review, 2002, vol. 35, issue 1, 3-28

Abstract: North America offers lessons about policies that help sustain low unemployment. This article examines the effects of ‘supply‐side’ policies, which boost the skills of the workforce and improve microeconomic incentives facing workers and employers. Two supply‐side policies were expanded after the mid‐1980s. First, the United States increased earnings supplements, payable to low‐income workers, to encourage adults to find and keep jobs. Second, social assistance programs limited the duration of transfer payments and linked support benefits to workers' participation in job search, occupational training, and community work experience programs. These measures increased job holding among economically disadvantaged adults. In the 1980s and 1990s the United States also maintained strong incentives for employers to create jobs for the hard‐to‐employ. Payroll tax and regulatory burdens on employers were kept low, and the modest legal minimum wage was allowed to fall in real terms. US experience suggests that selective supply‐side policies can boost the employment rates of the hard‐to‐employ and help maintain a low rate of structural unemployment.

Date: 2002
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