DP329 Demand- and Supply-Side Policies and Unemployment: Policy Implications of the Insider-Outsider Approach

Author(s): Assar Lindbeck, Dennis J. Snower
Publication Date: August 1989
Keyword(s): Employment, Government Policy, Labour Productivity, Unions, Wages
JEL(s): 822, 824, 825, 831
Programme Areas: Applied Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=329

The paper analyzes a variety of government policies that can stimulate employment when unemployment is generated through the conflicting of interest between insiders and outsiders. It also provides guidelines for identifying policies that may be ineffective. We show how supply side policies can stimulate employment by raising worker productivity or reducing labor costs. Our analysis indicates that when wages and prices are flexible, product demand policies have no significant effect on employment unless these policies stimulate labor productivity, the entry of firms, capital utilization or investment.