Focus has been made on three regulations to combat unemployment (ibid). The first regulation is to increase public sector investment. Private sector investment would then be increased in order to stimulate employment. The second regulation refers to urging the European central bank to decrease the rate of interest and thus attract private sector investment to increase the demand for labour. The third policy works its way to increase work motives (to firms and workers) as a means to improve employment.
With regard to the second regulation, it should be recognized that if firms are currently operating with considerable excess capacity, increasing employment by the way of private sector investment may not be the greatest short-run strategy. Suppose that most of the firms are operating with overcapacity, and that the encouragement of a new investment will require larger profits in the short-term, the best strategy is the one that increases deficit spending and thus real profits. The proposal to improve public sector investment seems to be a motive for further hiring in the short-term. Thus, more workers will be hired by firms as their short-run profit anticipations increase. Nevertheless, lowering interest rates will not encourage them to commit to a new investment - at least until some optimism has been created. The last will take place only after short-run profits stimulate an upward change of long-run profit anticipations resulting in the time lag problem and the policy becomes ineffective.
Another efficient way for governments to resolve the high level of unemployment would be either to increase the number of jobs for individuals or offer early retirement to older individuals who are close to retirement. With regard to the first option, creating new jobs seems to be a reliable remedy. In fact, a programme of straight job creation in the form of public jobs would achieve actual full employment (i.e. zero involuntary unemployment).
However, government needs time to create new jobs and this might take many years. Considering the second remedy, there is an extra cost involved in paying the retirement expenditures. However, it may be counterbalanced by the savings from not having to pay benefits for unemployed people and the extra tax revenues the hired workers will pay; resulting in the greater multiple effects their money would have on the total economy.
