The objective of this simulation is to illustrate how a combination of different labour market policies can influence an individual's incentive to work.

The policy measures are based on tax and benefit options, these include; income tax rates, tax allowances, national insurance, child benefits and working families tax credit.

The impact of your policies is assessed in terms of the number of hours worked by different income groups.

The labour market models the interaction of the demand for labour by firms and the supply of labour by the individuals. The labour market illustrates the equilibrium wage rate and quantity of labour.

The number of people in the labour force is represented by the supply of labour and is illustrated by the supply of labour curve, where the supply of labour curve is defined as the total number of people who are able to work at the different real wage levels.

The table illustrates trends in the UK labour market (force).

UK Workforce (1989-2001), thousands.

Source: National Statistics

It is evident that the UK labour market has been increasing over the time. The number of people has increased from 28.8 million in 1989 to 29.6 million in 2001. This implies that there are more people willing to supply labour.

Since 1979, the UK government has placed significant emphasis towards reforming the supply side of the economy. These reforms have included improving the efficiency of the labour market. The list of reforms highlights how the UK government have either directly targeted the labour market (i.e. reformed state welfare payments) or indirectly through related markets (i.e. reforming the housing market).

Labour market reforms have included;

• Reducing trade union power
• Shift towards locally orientated wage bargaining
• Reducing the relative level of state welfare benefits
• Repealing social legislation
• Reducing marginal tax rates
• Changing pension rights
• Training and education

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