Cause and Effect of Today’s Unemployment, Essay Example

The situation found in today’s unemployment environment is vast.  Quite honestly it is difficult not to hear about the economy in its present state, due to the recession.  The effects of it are considerable, leading to a number of situations that will hopefully be turned around soon.  At any rate, today’s unemployment situation should be approached carefully in order to gain understanding.

Causes of Today’s Unemployment

The causes of the current unemployment situation have been a subject of much debate.  Criticisms of the government develop along these lines as the public and media likes to point fingers.  While there is not likely a simple explanation, there are some valid considerations given by economics, as well as some practical considerations to take into account.

Economic theory has a wealth of explanations for the state of unemployment.  Insufficient effect and demand for goods and services can be found in Keynesian economics.  Structural insufficiencies are often blamed in respect to labor markets, where disruptive technologies can mismatch those who are not accustomed to a particular line of work.  These represent some of many various economic theories to attempt to describe the state of unemployment.

In classical economics, other elements of the labor market are drawn upon.  Items like takes, unionization, and minimum wage laws are focused on that does not equate to workers being hired.  In other theories, such as behavioral economics, efficiency and sticky wages are pointed towards to explain causes of unemployment.

The current unemployment situation can make use of some of these theories, though this is much outside the scope of the current analysis.  However, there are a few dynamics that may be pointed to in order to relate the late 2000s recession in the United States to the current unemployment situation.  These are inextricably linked.

The recession is perhaps the most direct cause of today’s unemployment situation.  Without disregarding the previous theories, we can look at the recession to help explain the dynamics of the recession and its link to unemployment.  Initially, the subprime mortgage crisis collapsed the United States housing industry.  The assets in the industry inevitably led to a financial crisis where oil and food prices rose quickly.

This led to a more widespread situation.  Some of the largest financial institutions in the United States went out of business, or went quite close to this point.  The automobile industry was in panic with a wide range of problems of its own.  In response to the development of the recession, the government brought about a $700 billion bank bailout and $787 billion fiscal stimulus package.

By the middle of 2009, economists believed the recession had ended.  Unemployment continued to rise however, although economists note that this occurs at the end of a recession.  It is important to link the recession as a cause to the state of unemployment in this case.  In many ways, the recession led to the current state of unemployment in the United States.

Effects of Today’s Unemployment

From the lingering present effects of the recession in the United States, we see the effects of today’s unemployment situation.  The general effects of unemployment can largely be applied to the current situation in the recession.  However, it will have some unique effects, at least in speculation.

The primary effects of unemployment are straightforward.  As unemployment figures rise, individuals are less able to spend money.  This is an important part of the economy, in which it is stimulated by money being spent.

As consumers are less able to spend money, the economy suffers.  The supply of goods being produced will be driven down, resulting in more workers being laid off.  Thus we see the vicious cycle inherent in unemployment.

Today this can have some repercussions within the economy.  We have already seen a number of businesses have difficulties in today’s economy, especially in the banking and automobile industries in the United States.  Ultimately, although we are nearing the end of the recession, it may take time for unemployment figures to become more normal.  It will be interesting to see how the government’s actions help to curb the momentum of the recession.

Conclusion

Today’s unemployment situation has a number of dangerous causes and effects linked to it.  Economists have presented a number of theories to account for the situation.  Additionally, the economic nature of unemployment in its effects is related in the dangerous cycle of the situation as well.

The primary cause of today’s unemployment situation is the recession.  The mortgage crisis and the state of the financial, automobile, and housing industries in some failures can be blamed.  Reacting to these causes, the government responded quickly with large efforts.

The effects of today’s unemployment are the dangerous cyclical nature of the economy.  As the recession ends, unemployment number will hopefully catch up as spending normalizes, to which the latter is the primary cause of unemployment.  Of course the unemployment situation has many more effects, both in the public and to some of these businesses that are in trouble.