General - Unemployment

Unemployment is very closely linked to the level of economic growth. If the economy is growing well, then there will be jobs created to satisfy this demand. However, if growth falters and firms need to reduce output, then they will lay people off. So when trying to achieve your unemployment targets and keep unemployment as low as possible, you need to watch the level of economic growth carefully. Economic growth tends to be cyclical (goes up and down in cycles over a period of time), and unemployment will also behave in this way. In periods of recession, there will be higher unemployment, and in times of economic boom, it will be lower. Your aim, in running the Virtual Economy should be to create a reasonable and stable level of growth.

The increased unemployment caused by a downturn in the trade cycle is called cyclical unemployment as it varies with the cycle of economic activity. There are also other types of unemployment, though there is less that you can do directly to change these in the Virtual Economy. However, you do always need to ensure that people have the incentive to work. If you put taxes up too much, then people may not want to work so hard, so try to keep the level of income tax down. This will encourage risk-taking and hard work and so should help the economy to be more productive. Also make sure that there is always a sufficient gap between the level of earnings that people can earn in work and the amount they get on benefits. You can do this by making sure that you keep the lower rate of tax down and the level of personal allowances up. This will help keep people on lower levels of earnings out of the 'tax net'.

Why not try some of these policies on the Virtual Economy? Click either on the 4th floor in the side panel or on the 'Model' in the top navigation bar to get to the model. Have a look at the present forecasts for the economy and decide what you think would be the most appropriate policies. Don't boost the economy too much though - you may cause inflation and, once there, it is very difficult to get rid of!

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