IAI Actuarial Core Principles · Business Economics · Supply-side policies and their impact on businesses
Which of the following is a market-based supply-side policy that would most directly affect the flexibility of the labour market facing a firm?
Reducing trade union power and relaxing hiring and dismissal restrictions is the market-based option, because it makes the labour market more flexible by letting wages and employment respond to market conditions. Apprenticeships, infrastructure, subsidies and higher minimum wages involve state spending or intervention instead.
- AGovernment funding of a national apprenticeship scheme
- BReducing the power of trade unions and relaxing restrictions on hiring and dismissalCorrect
- CPublic investment in a new rail network
- DIntroducing a higher minimum wage to raise worker productivity
- Subsidising research in public universities
Explanation
Market-based policies free markets from restrictions. Weakening union power and easing hiring and dismissal rules make wages and employment more responsive to conditions. The other options involve government spending, subsidy or intervention, which are interventionist supply-side measures, or a wage floor that reduces flexibility.
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