Policy options to reduce unemployment: TRYM simulations

Abstract

This paper evaluates different policy options to reduce unemployment by using a version of the TRYM model. For the purpose of this paper, the TRYM model has been modified in several respects, particularly by combining the private business and government trading enterprise sectors. For the long run, the neoclassical model closure means that the unemployment rate converges to an exogenously set NAIRU rate. For the short and medium run, periods well in excess of ten years, policy simulations show that macroeconomic policy changes, wage changes, labour productivity changes, and NAIRU changes affect employment and unemployment. Further, these policy effects are produced whether the model begins in a disequilibrium situation of unemployment above the NAIRU or at the long run equilibrium growth path with unemployment equal to the NAIRU.