Solutions for Reducing Unemployment

Demand-side policies affect the aggregate demand of the market. These policies aim to increase consumer expenditure in order to stimulate the market.

For example, let's take a look at demand-deficient or cyclical unemployment. In the graph of demand-deficient unemployment, the aggregate demand falls from DL1 to DL2. This fall in demand almost always ensues the income fall. Because supply of labor stays constant, L2-L1 amount of unemployment occurs. Before the demand fall, there was L1 amount of employees working at a wage of W1. But now, there are L3 amount of people working at a wage of W2 (less employed people in less wage). 

The government is likely to intervene and pull up the aggregate demand back to where it was, to restore minimum wage for the employees and re-increase the employment from L3 to L1. The government might do this by reducing tax or interest rates thus leaving a room in households to spend in other things.

Supply-side policies affect the aggregate supply of the market. These policies aim to increase the number of qualified labor thus make employers to hire more people. Supply-side pertains to long-term solution.

Recall Willie from the stories you've read below. Willie's company broke because its products were out of date, and Willie couldn't be hired to any other technology companies because his technology skills were now obsolete. The companies that produces high technology products were suffering too, because they couldn't get people who had adequate skills and knowledge to apply to new products. 

Here, the government can intervene and provide educations to people who are willing to be qualified - the government can offer free job trainings and prepare the unemployed people to get another job. This would of course take longer time than demand-side policies, but it is necessary to benefit both the unemployed people and the company that is willing to hire qualified people.