A government hiring freeze would directly impact the factor market aspect of the circular flow model in a mixed economy. This is because the factor market is where households supply factors of production such as labor to businesses and the government. A hiring freeze reduces government demand for labor, leading to fewer jobs and income for households from government employment
. More specifically:
- The government, as a buyer in the factor market, would stop hiring new employees, causing a decrease in labor demand.
- This reduces the income households receive from government jobs, which in turn lowers household spending in the product market.
- Consequently, the overall flow of income and expenditure in the economy slows down, affecting businesses and households.
- The freeze can also increase vacancies and workload for current employees, but no new labor income is injected via government hiring
Thus, the government hiring freeze interrupts the flow of money from the government sector to households through wages and salaries, which is a key injection into the circular flow of income in a mixed economy
. In summary, the hiring freeze primarily disrupts the factor market by limiting government employment and the associated income flow to households, which then impacts the broader circular flow of income and expenditure.
