Policies to Increase Labour Market Participation

Labour market participation refers to people of working age who are economically active i.e. either in work or actively looking for work.

These policies could create an incentive for the economically inactive to join the labour market.

1. Increase the Minimum wage

This increases the benefits of working and increases the incentive to join the workforce, rather than stay on benefits. It may encourage housewives to re-enter the labour market. With higher minimum wage they may be able to afford childcare.

However, a higher minimum wage may result in fewer employment opportunities; employers may not be able to afford to pay higher wages. It depends whether firms can afford to pay a higher minimum wage. Some studies suggest that firms can respond to higher minimum wage by increasing labour productivity. See: Pros and cons of raising the minimum wage

2. Better / Subsidised Childcare Provision

A lack of childcare is often an obstacle for women to return to work. Therefore, better childcare enables mothers to return to work and participate in the labour market. However, it is quite expensive for the government to fund universal childcare provision. It may even require higher taxes.

3. Education and Retraining Schemes for the Long term unemployed

This may give the long term unemployed a renewed motivation to return to the labour market. As well as skills it may give confidence that employment is a real possibility. However, those who have been unemployed for a long time, maybe reluctant to undergo training schemes, especially if they are close to retirement.

4. More difficult to get benefits

The number on long term disability benefits has increased in the past two decades. It has been a convenient way to reduce unemployment figures. If it was made more difficult to get these sickness benefits, some of those who were economically inactive may be pushed back into the labour market. However, the concern is whether those who are really incapable of work may be taken off benefits.

5. Protection of part-time workers

Increased labour market flexibility will encourage those out of work to come back to work. To do this the government may need to give greater protection and tax incentives to the long term unemployed.

6. Increased labour market flexibility

Passing legislation which enables people to work from home or work flexible hours. This makes it easier for parents to work and still be able to look after their children.

7. Raise the retirement age

Some professions force early retirement. Raising the retirement age enables people to stay in work for longer.


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