A government is reviewing two policies to improve employment in a former mining area: a payroll-tax reduction for new employers and subsidised technical cou...
Question 1 Report
A government is reviewing two policies to improve employment in a former mining area: a payroll-tax reduction for new employers and subsidised technical courses for young workers. Local firms currently say that both labour costs and skill shortages restrict expansion.
(a) Which policy is more likely to reduce a firm's labour costs immediately? [1]
(b) Explain how the technical courses could reduce structural unemployment. [3]
(c) Analyse one possible disadvantage of the payroll-tax reduction for government finances. [2]
(d) Assess which policy is more likely to provide a lasting economic benefit for the area. [2]
Answer Details
(a) A payroll-tax reduction is more likely to reduce a firm’s labour costs immediately. [1]
(b) Structural unemployment occurs when workers’ skills or locations do not match the jobs available. Technical courses provide young workers with skills required by local firms. This improves the match between workers and vacancies, so workers are more likely to obtain employment and structural unemployment falls. [3]
(c) A payroll-tax reduction means the government receives less payroll-tax revenue. It may therefore need to reduce spending on public services, raise other taxes, or borrow more. [2]
(d) Subsidised technical courses are likely to provide a more lasting benefit because the skills gained can improve workers’ productivity and employability over time. However, a justified conclusion that the payroll-tax reduction is preferable is also acceptable if high labour costs are the main obstacle and the tax cut creates sustainable jobs. The strongest judgement uses the evidence that both skills shortages and labour costs restrict expansion. [2]
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