Unemployment, Research Paper Example

Introduction

In the past decade, America has witnessed first-hand the dramatic effects of economic decline and its correlation with unemployment.  Factors such as terrorist attacks and oil battles sent the economy in a whirlwind, leaving hundreds of thousands jobless.  For any individual, losing their job can have devastating psychological and financial affects as well.  The government plays a vital role in the stabilizing and revitalizing the job market.  Directly advising and guiding the displaced workers to new careers, in the quickest time possible.

The rate of unemployment within a country is a perfect yardstick to use the measure the success or failure of the government in power, because it has the financial resources, the authority, and responsibility to develop, and implement strategies, policies, laws and procedures that can lead to job creations on a consistent basis.

Unemployment can be defined as the condition and state of joblessness in any economy.  This is measured by the terms of the unemployment rate.  This is simply calculated from the rate of employed workers versus those who are unemployed.  Hence, unemployment is simply the state of not having a job and is often referred to as being unemployed or without a job.

The economy functions like a Ferris wheel.  Employees work, make money, and then spend their money – which keeps the economy thriving.  If an individual is unemployed, they do have the means to spend money.  This in turn hurts both the market and the labor market because they are not making money, therefore need fewer employees to function.  “Economic growth must go hand in hand with a high level of employment and sustainable development … People must be able to have a job and enjoy a healthy environment and good quality of life all at the same time “(European Commission 1999).

In addition to less jobs and a much more rigid market, inflation can then play a big role as well.  Need to make a certain amount of money to remain profitable, a merchant may decide to raise their prices to offset the lack of normal traffic and income. However, this can also play a detrimental role if the products or services are not necessary.  Inflation can deter an individual from spending their money or help them determine they can do without it. “We derive the relation between inflation and unemployment and discuss how it is influenced by the presence of labor market frictions and real wage rigidities. We show the nature of the trade between inflation and unemployment stabilization, and its dependence on labor market characteristics. We draw the implications for optimal monetary policy.” (Blanchard 2010) As a nation, we have seen many companies and organizations fail to withstand the economic crisis.  Bankruptcies and foreclosures have hit even the strongest of companies.  Unemployment directly affects the economy and they go hand-in-hand.  Currently we are seeing the economy on a steadying incline, and unemployment rate is following as well.

Public policy has a significant impact on unemployment rates.  Government protection has significantly increased and social responsibility has been pushed back onto the unemployed individuals.   However, as the economy seems to be in a recession, unemployment benefits have been reviewed and in many cases revised and or extended.  In the event that an individual receives unemployment benefits, they are being required to be actively pursuing employment.  The intent is to take away the ability for unemployed individuals to be content with being dependent on the government to support them.

Another public policy that the United States has utilized was the bail-out.  They gave millions of dollars to financial and insurance companies in order to keep them from collapsing.  The intent was due to the amount of individuals employed as well as the magnitude of money that Americans would lose if these companies collapsed.  Obviously, as we determined early, the government does play a vital role in unemployment as well as the stability of the economy.  The public policies they use are intended to prevent unemployment and to consider the best interest of the people.  It may not always have the outcome that the policies were created for, but more likely than not the purpose is to preserve the economy and eliminate unemployment.

Unemployment Defined                                                                            

As defined, unemployment is the state of joblessness within the economy.   To determine that unemployment is only temporary or based on season is to understate the severity of it.

“Until fairly recently it was a common procedure to classify unemployment as seasonal, frictional, cyclical and structural. The distinctions referred to different causes and duration of

unemployment that coexist in varying degrees. With the breakthrough of dynamic general

equilibrium modelling, unemployment has been reduced, in macroeconomic theory at least, to a purely frictional phenomenon. In his theory of economic development Joseph A. Schumpeter explained cyclical, structural and other types of unemployment as effects of one and the same cause, namely creative destruction. This led him to define unemployment in all its manifestations largely as a frictional phenomenon.” (Schettkat 2009)

A field of unemployment that is considered seasonal or marginally temporary, for example purposes, would be construction workers.  During the most frigid months of the year, they are typically not conductive environments to do the jobs necessary, so they determine to lay off their employees till the weather is better.  This is, contrary to most cases, considered seasonal unemployment.  However, this is not the case in most situations.

In theory, it would be ideal to operate with zero unemployment.  This is a very unobtainable goal, and it may not be the most practical for the economy either.  Cyclical unemployment will always occur due to economical changes and employees being laid off.  Refer back to the construction workers; whereas their unemployment is temporary, it is still unemployment by definition.  Frictional unemployment happens when employees change direction or careers.  In order for any person to better themselves, they most likely will have to make a change, and this will result in unemployment, even if it is for a minimal period of time. And finally, there is the structural unemployment.  This happens when the demand for a specific type of employee changes.  For example, as technology improves, many positions are becoming more dependent on computers instead of laborers. This is good for the economy in its own way, however, inevitably leaves employees unemployed.  These forms of unemployment are temporary, but show how zero unemployment will probably never be obtainable.

Effects of Unemployment on the Individual                                                                   

There are psychological issues that can come as a result of being unemployed.   Depression and anxiety were the most common factors the correlate with an individual being jobless.  Individuals begin worrying about how to pay the bills, depressed because of the feeling of being not good enough or unwanted.  Self-esteemed lowered because no matter what level of job they were at, they were disposable.  Stress can also alter a psychological state of any individual as well.  The individual is constantly wondering if they will find a new job, if they will be able to support themselves and their families.  Preventing them from actively looking or afraid they will be turned down again can be overwhelming.  These are more extreme cases, but these are some very real psychological problems that affect individuals as a result of unemployment.

Unemployed individuals also have their financial battles as well. Begin able to support themselves and their families can prove to be impossible when there is not income coming in.  They lose their house, their cars, and much more.  This also directly affects the economy, because the financial institutions lose a lot of money on bankruptcies, repossessions, and foreclosures.

Part of the economical decline in the last decade is a result of subprime lending.  This is an almost self inflicted financial crisis that destroyed not only the people, but the companies that participated in this.  “Despite declaring the economy to be in recession, Volcker wanted high interest rates to keep a rein on the money supply and curb inflation.  The Fed ultimately pushed interest rates to their highest levels in a century, slowing borrowing by businesses and individuals alike, and sending the housing and automobile industries into a decline.”  (Time, 1980a: 50).  This goes back to what was discussed early about increasing prices to offset the loss of clientele.  The same mentality used for getting richer off of poor economical practices.  These practices directly affect unemployment and economical decline as well.

Effects of Unemployment on the Economy as a Whole                                                 

Periods of high unemployment can be directly traced to economical recessions.  This shows true with the trend of unemployment hitting its peak points during the years where the economy took its biggest hits.  “In 1981, inflation hit 12.1 percent and unemployment reached 3.1 percent in 1982, its highest level since 1945.” (Hogan 2010) As we see the job market struggle, we typically see individuals being displaced and some forced into early retirement.  Even though Hogan stated unemployment was at its peak in 1981, Bragegan determined that the estimate for unemployed individuals was much higher than estimated.  “However, many economists believed that the real level of unemployment, including the jobless in training programs, workers forced into early retirement and those who had given up seeking employment, was closer to 16 percent.” (Branegan, 1982: 32).

It is difficult to determine when unemployment is at its lowest point.  The financial market maybe increasing, but the construction market is declining leaving a different type of unemployed market.  “The level of unemployment is different between the initial period, where everybody is employed in the manufacturing sector, and the final period, where a constant share of workers leaves existing service firms to search for work in emerging service sector firms.” (Zagler 2007)  One cannot say that unemployment has reached a low point, however, as the economy increases, unemployment will continue to decline.  This can result in a noticeable change in unemployment, even if this is not classified as a joblessness low.

How Government can help Reduce Unempoyment

“The orthodox view that there is no long-run relationship between inflation and unemployment has implied that the evolution of inflation and unemployment can be adequately modeled by separate economic branches. These branches comply with a vertical PC and the existence of a natural rate of unemployment.” (Karanassou 2010)  As discussed throughout this paper, the government can help regulate unemployment by controlling the amount of inflation allowed.  In addition this will keep the market regulated and prevent excessive highs and lows.

The government can also help reduce unemployment by lowering taxes.  There are taxes on virtually everything, cars, homes, any purchase, and on income. If the government were to lower taxes it would make it more appealing to make that purchase or investment that individuals may have otherwise been on the fence about.   Also consider on multiple occasions, the government has decided to create incentives where they gave a tax break refund to individuals with the intentions to stimulate the economy.  The economy improves, job market does as well.

“True, unemployment turned into long-term unemployment and got more and more concentrated among the low skilled. But what caused this structuring of unemployment? Once path dependence is allowed for (through sorting, skill depreciation and other mechanisms) unemployment may be difficult to reduce after high unemployment has persisted for a certain period. This process, however, is not an argument against a more expansionary policy but it is in favor of it because inactivity will cause high, long-lasting costs.” (Stiglitz 1997)  Creating incentives can help the government in deterring some of these long-lasting high cost that Stiglitz discusses.  In order for an individual to receive unemployment they have to attend classes for resume building and other personal job related tools.  One incentive that the government has provided is paying for continuing education for unemployed individuals who only have a high school level education.  This can be costly; in the long run however it could benefit both the job market and the individual alike.  If the government would utilized more incentives like this, it could help with stimulate the economy as well.

Conclusion                                                                                                                         

The rate of unemployment within a country is a perfect yardstick to use the measure the success or failure of the government in power, because it has the financial resources, the authority, and responsibility to develop, and implement strategies, policies, laws and procedures that can lead to job creations on a consistent basis.

Unemployment is the condition being out of work or not having a job.  Unemployment and the status of the economy are directly related and the government has the tools and responsibilities to monitor this.  Because of the psychological and financial ramifications that can occur as a result of being unemployed, it is important that the government remains involved.

The effects of unemployment on an individual and on the economy as a whole can be very negative. ”We first documented that unemployment is positively related to inflation and interest rates in the low-frequency data.” (Berentsen 20110)  The economy tries to recover from the decline in consumer spending them increasing their prices and interest rates.  The consumers, potentially unemployed, do not have the means to spend money on the increased prices so the business suffers.  It’s a vicious cycle on the economy if it is not regulated correctly.

The effects of public policy on unemployment rates can determine how well the job market and economy recovers.  The government has the ability to instill programs to stimulate jobs as well as improve how well the economy is doing.

No matter how you define it unemployment is a difficult state to be in. It affects so many areas. Personally, it has financial and psychological affects on the individual and their families. The government needs to be involved and regulate the economy in any way they can.  Utilizing tax breaks and incentives will help in stimulating the market, which will increase jobs as well.  They also need to be involved in monitoring companies that use inflation as a means of coping with economical difficulties. The government and consumers all are directly important in keeping unemployment down and the economy always improving.

Bibliography

Berentsen, A., Menzio, G., Wright, R. “Inflation and Unemployment in the Long Run.”  American Economic Review.  101.1. (2011): 371-398.  Print.

Blanchard, O., Gali, J. “Labor Markets and Monetary Policy: A New Keynsian Model with Unemployment.”  American Economic Journal: Macroeconomics. 2.2. (2010): 1-30. Print.

Boianovsky, M., Trautwein, H-M. “Schumpeter on Unemployment.” Journal of Evolutionary Economics. 20.2. (2010): 233-263. Print.

Branegan, B. C. (1982) ‘Why Bankers Have the Jitters.’ Time Magazine, 20 September, 120(12), p. 32.

European Commission 1999, EU focus on green jobs, European Commission, Luxembourg.

Hogan, J. “Economic Crises and Policy Change in the Early 1980s: A Four Country Comparison.”  Journal of Australian Political Economy.  Winter 2010. 65 (2010): 107-138. Print.

Karanassou, M., Sala, H., Snower, D. J. “Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective.” Journal of Economic Surveys. 24.1. (2010): 1-51. Print.

Schettkat, R., Sun, R.  “Monetary Policy and European Unemployment.” Oxford Review of Economic Policy.  25.1. (2009). 94-108.

Tangian, A. “Multi-criteria Optimization of Regional Employment Policy: A Simulation Analysis for Germany.” Review of Urban and Regional Development Studies. 20.2. (2008): 103-122. Print.

Time (1980a) ‘Business: Recession: Long and Deep.’ Time, 16 June, 115(24), p. 48-52.

Zagler, M. “Growth and Unemployment: Theory, Evidence and Policy.”  International Journal of Economic Perspectives. 1.4. (2007): 228-242.