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Hi tutor,
Could you kindly explain this statement from Kaplan text.
“Supply side policies are therefore largely anti-regulation and anti-government interference. For eg, supply side economist would claim that:
Employment legislation limits risk taking and can lead to over manning of industries.
Thanks.
Supply side policies look at the supply of the factors of production…like material and labour.
The availability of these factors is affected by legislation eg not allowing genetically modified crops will affect food prices and not allowing child labour affects wage rates.
Whereas most people agree that some regulation is desireable, it can be agrued that too much interferes in undesireable ways with the efficient use of resources. So, if there is very strong legislation that more or less forbids dismissing employees for any reason then the potential dangers are:
1 Companies will be reluctant to hire more staff (ie to risk increasing output) because it will be impossible to reverse rhe decision.
2 If there is an economic downturn then because staff have to be kept on, the business becomes over-manned and inefficient and this can lead to business failure.
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