Ways in Which the UK Government Policies Impact Upon the Social Benefit System - Essay Example

? WAYS IN WHICH THE UK GOVERNMENT POLICIES IMPACT UPON THE SOCIAL BENEFIT SYSTEM By Lecturer: of Affiliation: and Date: Ways in Which the UK Government Policies Impact Upon the Social Benefit System Introduction The range of impacts upon the social benefit system can be evaluated through focusing upon varied government policies that are established in an economy. Varied researchers have attempted to offer an analytical framework, which is designed with an aim of improving understanding of the relationships between varied measures of government policy impacts upon social benefits system. This is vital because this will help the government to embed social impacts into government decision making process and also construe the policy implications on the comprehensive measures of wellbeing. There are numerous ways of valuing varied social benefits but understanding the role of different governmental polices in an economy is vital. The UK government intervenes in the labor market for varied reasons such as correcting market failure, achieving equitable income and wealth distribution, as well as, improving the performance of the economy. There are varied ways through which the government can intervene in the market and this is through fiscal or monetary policy intervention, labor market policy intervention, competition policy intervention and employing varied regulation or policies. The research project attempts to examine varied ways in which the fiscal or monetary and labor market policies impact upon the social benefit system. Labor Market Policies The labor market is a mechanism through which human labor is bought and sold as a commodity and it is the means through which demand and supply is matched together (Gillespie, 2013, p. 32). Many organizations have made significant efforts of achieving effective business goals through recruiting right people with right skills, work experience and necessary attributes or achieving the demanding needs in the labor market. However, wide ranges of factors where labor market policies are among the factors have impacted the demand and supply of labor. For instance, the government policy such as the level of investment in education and training, industrial policy, wider social policy and employment regulation policy have impacted the ways in which labor force can be employed. The government policies have also affected the supply side especially the changes in the political context, economic restructuring, national and international economic conditions and changes in job skill requirement. The changes in skill requirements result due to development and diffusion of new technology; thus impacting the supply for labor. The labor market policies are often perceived not only as a demanding phenomenon but also as an exclusively supply side phenomenon. However, the orthodox macroeconomic policy as practiced by the central banks in the European markets and IMF requires the monetary policies, which is setting of interest rates to run in accordance with an inflation target in the labor market. The current global economic crisis has significantly challenged this view because when interest rates hits the zero lower bound, monetary policy becomes ineffective; hence impacting social benefits in the labor market. Some progressive commentators now argue that the monetary or fiscal policies are partially to blame for average unemployment level in many countries. This is because some policies set by central banks do not take employment levels into account when setting interest rates because they only target inflation; thus impacting social benefit system. In addition, the orthodox macroeconomic theories presume that in case unemployment exists in the market equilibrium; this must be due to the increased or too high real wages (Gillespie, 2013, p. 73). However, from the Keynesian theory, sometimes it may be possible for unemployment to exist in case wages are too low. This is because of insufficient aggregate demand in an economy of which wages are the main component; thus impacting social benefit system. Despite the rate of unemployment level, the UK labor market seems to be performing much better in the current economic recession than it did in the previous years. This is because of less working hours attributed by increased labor union laws and temporary short-time working arrangements by firms as a response to the decrease in demand for commodities in an economy. The government intervention in the free market can also impact upon the social benefit system. For instance, the government may chose to intervene in the free market through implementing price mechanism policies largely on the ground of wanting to alter the resource allocation and achieve what they perceive to be advancement in an economic and social welfare (Gillespie, 2013, p. 67). The government can intervene in the economy in order to influence distribution for scarce resources amongst the competing uses; hence impacting upon social benefit system. The labor markets market depends on marketing conditions such availability of jobs, entry requirements skills and among others. Therefore, the government may intervene by putting minimum wages and this will therefore interfere with the market mechanisms. The main reasons for governmental intervention in the labor market is correct market failure, achieve impartial revenues and offer equitable wealth distribution and improve the economic performance (Gillespie (2013, p. 99). The author attempts to reveal varied reasons that contribute to the failure or success of some business in the contemporary business world. He also attempts to offer clear understandings of economic issues, some of which are crucial towards making successful business decisions in the world of business. Labor market activation programs can lessen the number of workforce on the benefits directly through the impact of their services but others may prefer to quit the job instead of complying with program requirements. For instance, intensive training programs and recruitment services may create relatively favorable impacts on labor force participation or promote earnings progression. The microeconomic evidence reveals that long-term labor market programs such as job creation and training employees can often have little or negative short-tem effect on outcomes (Gillespie (2013, p. 201). However, enforced participation in long-term programs can create a motivation effect; thus encouraging people to find employment before program participation starts. Therefore, intensive recruitment services, mixed strategies with selective referrals to long-term labor market programs tend to create the largest impacts on social benefit system. The UK labor market policies are significant for a strong recovery of an economy from the current economic crisis. The UK labor market policies are quite flexible and this is vital because efficient and flexible labor market policies implies an economy, which is fairer, and more competitive, as well as, productive. Gillespie (2013, p. 52) points out that an economy is able to respond to change in case they have flexible and efficient labor market policies. Flexible labor market are the ones that exhibit a good equilibrium such as a low rate of structural employments and also has institutional feature, which allows wages and employment to adjust effectively in relation to demand and supply. The research study indicates that globalization is one of the influential factors that have influenced and shaped the contemporary UK labor market for the past three decades. The growth of global financial networks, production and markets systems have contributed to significant interconnectedness among national and regional labor markets; hence need for flexible labor market policies. Fiscal Policies Fiscal policy is a planned adjustment made by the government on government spending, borrowing and taxation activities with an aim of achieving desirable economic goals (Gillespie (2013, p. 42). Fiscal policy works through altering the level or composition of aggregate demand and this policy has an impact upon social benefits system. One of the ways through which the UK government policies impact upon social benefit system is through implementation of fiscal policies such as the taxation, borrowing and government spending. For instance, the public expenditure can be used in stimulating the macro-economy during the low and negative economic growth and this works through increasing the aggregate demand level. This can be compensated for failings in other components of aggregate demand especially the fall in household demand on consumer products and in corporate spending on capital commodities (Gillespie (2013, p. 267). Public spending is advantageous because it can improve infrastructure in an economy, which in turn can help in improving competiveness and economic growth. Government spending can also generate positive externalities in an economy. For instance, government expenditure on infrastructure, education and healthcare system can offer external benefits to the rest of the economy. Fiscal policy has been traditionally viewed as an instrument of demand management and this means that changes in government spending and taxation can be used in smoothening of the volatility of national output. This is mostly preferable when an economy has experienced an external shock and is in a stage of economic depression or recession. The Keynesian argues that fiscal policy is significant because it can create a powerful effect on demand for commodities, output and also create employment level in an economy. This occur when a country is operating below full capacity; thus a need to offer demand stimulus in order to boost productivity in an economy (Gillespie (2013, p. 97). According to Gillespie (2013, p. 241), the macroeconomist believe that fiscal policy only create a temporary impact on aggregate demand , employment and output; thus employing fiscal and monetary policy tools is vital in controlling inflation, as well as, maintaining macroeconomic stability. Another way through which fiscal policy intervention can impact social benefits is through change of demanding level, which might create employment impacts in an economy. The fiscal policy can be employed in changing the demanding level for varied products and also for altering the pattern of demand or consumption of different products within an economy. The government may employ indirect taxes policy, or use of subsidies, tax relief or make changes to taxation or welfare payments. Market failures usually result from customers suffering from lack of information about the costs and benefits of the products existing in the market (Gillespie (2013, p. 88). Therefore, the government can play significant role in improving information assisting customers and manufacturers to value the clear benefits of services. The programs or actions taken may not necessarily change the perceived costs or benefits of consumption of products or have direct impact on market prices, but rather seek to influence demand or consumption in the long-run. The UK government has adopted a prudent and disciplined approach that can enable them to deliver effective services to the economy. One of the prudent approaches is by maintaining a lean government and this is through spending on essentials such as infrastructure, education, and healthcare among other social aspects by keeping the total government spending below 20 percent of the gross domestic product. This is vital because it can reduce the overall burden on an economy; thereby, allowing the government to progressively reduce tax rates. Although there is more pressure on public expenditures such as healthcare and other significant social needs, the UK government has made significant efforts of investing in its economic infrastructure and security with an aim of creating attractive environment for increased investment. Another prudent approach employed by the UK government is keeping the budget balanced consistently. Gillespie (2013, p. 123), argue that maintaining a conservative fiscal policy, spending within the country’s means and aiming for a modest budget surplus over a business cycle is crucial. Moreover, given the revenue needs by the government, the tax system should employ effective taxing system in order to generate the required government revenue. Therefore, there is a need for shifting from direct taxation to indirect taxation in order to maintain income taxes and corporation taxes as low as possible. The taxing system employed in a given country can create an effect on social benefit system; thus the tax regimes should be effective in determining how attractive a nation invests. Although shifting from direct to indirect tax system can reduce the progressivity of the tax system, maintaining a progressive tax system is crucial (Gillespie (2013, p. 55). The tax burden is levied on income and consumption of products with an aim of generating high revenues. Employing effective taxing system can contribute to a more and better paying jobs; hence meeting social demanding needs of the public effectively. Conclusion In conclusion, the research project attempted to examine varied ways in which the fiscal or monetary and labor market policies impact upon the social benefit system. One of the policies that the researcher evaluated is the labor market policy, which is often perceived not only as a demanding phenomenon but also as an exclusively supply side phenomenon. The researcher argued that the orthodox macroeconomic models presumes that in case unemployment exists in the market equilibrium; this must be due to the increased or too high real wages. It was also revealed that the government intervention in the free market can also impact upon the social benefit system. Labor market activation programs can also lessen the number of workforce on the benefits directly through the impact of their services. Another policy that was evaluated is the fiscal policy, which works by altering the level or composition of aggregate demand and this policy has an impact upon social benefits system. Fiscal policy intervention can impact social benefits through change of demanding level, and this might create employment impacts in an economy. Bibliography Gillespie, A. E. (2013). Business economics. Oxford: Oxford University Press. Read More