IAI Actuarial Core Principles · Business Economics · Supply-side policies and their impact on businesses
A state government subsidises vocational training for workers in the insurance and banking sectors. Which is the most likely benefit to financial services firms, and which risk should policymakers note?
The likely benefit is higher productivity and a better skilled labour pool for financial firms. The risk is government failure: if the training does not match employer needs, taxpayers bear the cost without the expected gain in output. The other options describe effects unrelated to a training subsidy.
- AHigher labour productivity and a better skilled labour pool, but the risk that the cost to taxpayers exceeds the benefit if the training does not match employer needsCorrect
- BLower interest rates on all loans, but the risk of a lower exchange rate
- CImmediate removal of all regulation, but the risk of fewer firms entering
- DHigher marginal tax rates on firms, but the risk of higher profits
- A fall in the demand for all labour, but the risk of rising productivity
Explanation
Training subsidies aim to raise human capital and productivity, helping firms recruit skilled staff. The main weakness is government failure: if courses do not match the skills employers want, public money is wasted and the extra supply is not realised. The other options describe effects that do not follow from a training subsidy.
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