Economic Policies: GDP, Employment, Inflation, and Redistribution

Posted on Dec 21, 2024 in Economy

Types of GDP Critique

  • Political Critique: Insists that regardless of the size and evolution of the national economy as measured by GDP, the sheer magnitude of the GDP is an important fact.
  • Ecological Critique: Consists of indifference to accounting for the natural environment, taking into account that the economy is human action, and that human life is inevitably dependent on the ecosystem. A disregard for nature in the accounts is very dangerous. Economic growth has environmental costs.
  • Gender Critique: Insists that domestic work is mainly done by women, although the trend towards the incorporation of women into the labor force contributes to a more equitable distribution between the sexes.

Policies Carried Out by Institutions

A policy environment that enables a system of regulations to achieve growth that is not only sustained but sustainable should be established. The following steps should be taken:

  1. Savings: Economic policy can influence the levels of savings in two ways: through a policy of encouraging public savings and private savings.
  2. Countries that spend a greater percentage of national product on investment tend to grow faster: This allows companies of different countries to compete on equal terms.
  3. Maintenance of investment in strategic industries: This is to promote the transition from industrial economies to a service economy.
  4. Intensify effort in R&D: To promote research and development in the public and private sectors.
  5. Health policy to promote human capital: Education is fundamental to the creation of human capital. It is necessary to opt for education over a lifetime. It is not enough to acquire knowledge; it must be upgraded.
  6. Policy reduction in regulation (deregulation): The economic literature suggests that the more free markets are, the greater the productivity and economic growth.

Work

It is a human activity directed at satisfying needs through the production of goods and services. This definition allows us to reflect on three important aspects:

  1. Effort aimed at meeting human needs is a planned activity to achieve an objective. Meeting the needs of individuals involves the mobilization of certain physical and intellectual capabilities to achieve this end.
  2. Work cannot be defined outside the social context in which it is performed. Whether an activity is regarded as work or not depends on a social value of human relations and the material context where it develops. Hence, problems relevant to the economy arise, as only some work situations are considered within the scope of analysis, such as those that are performed in exchange for remuneration, and with the essential purpose of obtaining such compensation.
  3. Work always takes place within some kind of underlying social relationship between those who work and those who benefit from the product.

Types of Unemployment

  • Structural Unemployment: The main cause is the existence of productive activities in decline. This unemployment is caused by:
    1. Changes in demand and technological change
    2. Geographical shifts in economic activity
    3. The mass influx of people from certain geographical areas at a faster pace than job creation

    Structural unemployment is identified with technological unemployment. Two movements offset the loss caused by technological unemployment:

    1. Increase in the service sector that generates employment
    2. The possibility to reduce working hours to ensure higher productivity

    Policies to combat this type of unemployment: technology policy, information policy, recycling policies.

  • Frictional Unemployment: Technological change and changes in demand cause a steady job turnover, i.e., there is an influx of people who leave or lose their jobs and want to join a new job. This type of unemployment is temporary. Policies to combat this type of unemployment: information systems, orienteering.
  • Seasonal Unemployment: Affects activities that are labor-intensive only at certain times of the year (tourism). Policies to combat this type of unemployment: diversifying the production structure.
  • Cyclical Unemployment: In times of crisis, where consumption is reduced, demand drops and therefore also the level of output, causing unemployment. Unemployment is closely linked to economic conditions.

General Reflections on Employment Policies

  • Getting employment levels appropriate to the level of people who want to work: Importance is attached to employment because it is the form of access for most of the population to the income needed to purchase goods and services on the market.
  • Facing the problems of unemployment: Economic policy must aim to reduce unemployment in general and, in particular, to address the problem of youth unemployment, female unemployment, and long-term unemployment.
  • Improve the quality of employment: Improving the quality of employment is related to stability, security, and guaranteeing better working conditions. Ensuring adequate levels of social protection and reducing job insecurity. The aim of employment policies is replaced by the objective of reducing unemployment, with the argument that it is better to suffer precarious employment than to be unemployed.

Relationship Between Unemployment and Inflation

Phillips’s work showed that wages increased with an increasing level of employment or a reduced level of unemployment.

  • Interpretation of a neoclassical Phillips curve: Given the shortage of labor, wages tend to rise. The key element for the adjustment of employment is wage flexibility.
  • Keynesian Interpretation: The increase in wages allows an expansion of consumption and ultimately on the aggregate demand, therefore also in production.

Main Types and Causes of Inflation

  • Demand Inflation: Answers to excess demand. In situations of crisis, companies may respond to an increase in aggregate demand by increasing production. On the contrary, in a situation of full employment, rising aggregate demand will most likely cause inflation. The appropriate policy would be to conduct fiscal and monetary policies.
  • Cost Inflation: Caused by an increase in production costs such as fixed costs and variable costs. The causes of this inflation can be: wages, inflation, and oil profits.
  • Structural Inflation: It is due to intersectoral differences combined with the trend toward homogenization of wages throughout the economy and the poor competitiveness of certain sectors, resulting in inflation.

Functional Distribution

It is necessary to distinguish between income assigned before and after taxes, and otherwise, rents are charged that are not. So it is interesting to introduce the functional distribution of income, to analyze the distribution of available income among the various institutions of the country, banks, public administrations, etc. The functional distribution of income is not the source of income but perceptions of income. If you try to consider the following items:

Economic Growth

Increase sustained over time in levels of production or income of a country. Its main indicator is GDP. Achieving high rates of economic growth is necessary to achieve the highest living standards of the population. However, there are some negative effects, such as those arising in the environment. The social perception of environmental issues in their effects on quality of life and health has led to the emergence of the quest for sustained economic development.

Redistributive Policy Examples

  1. Redistribution of private property and means of production to social ownership aimed at the redistribution of property:
    • Nationalization of companies
    • Land reforms
    • Conference of assets
    • Expropriation
    • Creation of cooperatives
  2. Adjustment of the prices of the factors of production and other fees:
    • Incomes policy (wage restraint, freezing, minimum wages)
    • Agricultural price policy
    • Rent control
  3. Provision of public goods or preferred utilities:
    • Health
    • Housing
    • Education: Public policy education distribution contributes to improving human capital (through production)
    • Social services
    • Culture
  4. Social security system care:
    • Unemployment benefits
    • Pension
    • Invalidity benefits
    • Free health care
  5. Policy affecting the distribution of available income: Tax systems through incentives, exemptions, tax breaks, subsidies, and rebates. The tax system is also the most widespread form of affecting the distribution of property (income tax, donations, and grants).

Other Policies Influencing Income and Wealth Distribution

  1. Public investment policies: In addition to the allocative impact, this policy improves economic efficiency, both spatially.
  2. Promotion of competition: Market regulation and monopoly control, to ensure equal opportunities, are measures to promote upward social mobility of individuals at lower and higher incomes.
  3. Employment policy: Economic growth and the creation of new jobs allow social integration of all individuals, ensuring revenue collection for a growing number of people.