Economic Policy Recommendation Unemployment - Essay Example

? Running head: ECONOMIC POLICY RECOMMENDATION Economic Policy Recommendation – Unemployment There are several economic problems prevailing in the US and in the entire world. Poverty, unemployment, inflation, loss of aggregate output from the current flows of economic activities have been disturbing economic structures of all the countries of the world. The developed countries, such as USA, UK, Japan, Australia etc. are also suffering from these broad economic problems. In the face of global financial crises of 2007-08 and 2010-11, those economic problems are getting augmented and countries all over the world are suffering from severe financial and monetary problems (Katz, 2010, p. 1). This paper is aimed at describing the problem of growing level of unemployment in the US. The paper is aimed at producing the possible causes of this economic problem and in providing economic policy recommendations to get rid of the crisis. The rising level of unemployment in the US: The level of unemployment and loss of jobs are increasing at rapid speed in America. Most of the private companies are firing workers and the rate at which workers are getting fired by their companies are also increasing at rapid speed in the country. Not only companies in the private sector are reducing their workforce by firing employees, but also public companies are firing workers. The crisis situation started during the financial crisis of 2007. With the announcement of bankruptcy of Merrill Lynch and Lehman Brothers the financial crisis situation started in 2007. These two companies were the largest financial corporations in the world during this period of time and with the shocking announcement by these two companies that there are going to call themselves as bankrupt have intensified the critical financial and economic future of the United States of America. This announcement has only adversely affected the American economic conditions and scenarios but has also negatively affected the related economic conditions of other countries of the world, such as UK and most of the countries of the European Union, Japan, Russia, India, China and many more (Artis, 2010, pp. 101-102). The financial crisis situation in the USA became more intense when the American government failed to take drastic steps to save the American economy and hence to reduce the intensity of the growing unemployment and inflation in the country. The government failed to help these companies and other small and medium sized financial corporations in the country through financial assistances. The American government could not achieve the success of financial stability in the country during this time and this drawback of the American government reflected in the case of severe financial crisis in the country during this time (Katz, 2010, pp. 2-5). The crisis situation of the time emerged when the financial sector of the country and of the developed countries of the world have lost lot of money and financial assets in the market. This crisis situation caused the financial intermediaries of the world, in general, and large financial banks of America, in particular, to suffer from loss of their financial stability and financial assets in the market. In this crisis situation the loss the hedge fund in the share market of the country, which is still considered as the biggest and most financially powerful share market in the whole world, caused most of the large financial corporations to reduce their level of spending in order to raise the level of asset in the financial market. In this financial crisis situation the large financial business organisations, such as Merrill Lynch and Lehman Brothers, adopted the business strategy of reducing the work force of the company and to reduce the level of national as well as international investments. These financial business organisations started to sack as many people as possible within few months time to increase the potentiality of earning greater volume of money in favour of making the financial structure of the company more stable. The policy of reducing the work force did not get limited to America only, but these companies started to lay off workers across the globe. But the most important impact was felt in America by the people of America. Most of the managers and business development executive were sacked during this time (mainly in the end part of 2007) by these companies in the country. People who were working in two of the biggest financial companies of the world were facing severe unemployment situation in their lives. These people were not alone. People from other companies which were associated with these two major financial business corporations of the world were also losing their jobs. The crisis situation deepened the level of macroeconomic problems in the country. The share market lost its power in the world market and companies started to reduce the level of working force throughout the country. Most of these were best recruiters of human resources in the world. But due to greater intensity of the financial crisis situation during this time these companies were forced to lay off workers in the country (Katz, 2010, pp. 4-5). During the period of intense global recession of 2007 and upto the period of little improvement in the level of economic activities in the world economies, more than 8 million American has lost their jobs. This steep decline in the level of economic loss of employment in the country (which was estimated at more than 6 percent of overall loss of employment including only American citizens), has raised many questions regarding the policies of the government. The Payroll Department of the country estimated a more than 6 percent of loss of jobs in the country between 2007 and 2010. During this time the various researchers have found that more than 160 percent of overall growth of employment would have been needed in the country to increase the level of economic activities in the country at per with a growth rate of a developed countries of the world. Economic policymakers and researchers have suggested that the American government need to increase the level of employment in the country by almost 2.5 percent between 2007 and 2010 to let the country’s economy grow at per with its historical rate of growth. This rate of increase in the creation of new jobs in the country was also needed to match the increased level of population under the given condition that the rate of growth population remains same in the country within the given period of time. But the economic policymakers have failed considerably to increase the level of employment and hence boost up the growth rate of economic activities in the country to a significant level (Verdun, 2011, p. 497). Due to this failure of the government in respect to creation of new jobs in the country during the period of end of 2010 and at the beginning of 2011 the level of deficit of jobs in the country has been increased to a historically highest level of almost 11 million (Katz, 2010, pp. 5-6). Social effects of the problem of unemployment: There were various social effects of the unemployment problem which started with great intensity during the period of 2007 and 2008 and still continuing at large in the country. The massive intensity of the unemployment problem emerged with the advent of financial crisis of the time of 2007 and 2008, and it is still at large in the country. This problem has been creating huge long-term problems in the country. The huge unemployment problem not only increasing the level of economic depreciation of output and income at the aggregate level, but also creating long-term negative effects on the level of future employment scenario. The mounting level of employment deficit and job-loss is creating negative effects on economic as well as social problems in the country. The deterioration of the labor market in the country has greatly affected the future of American workers (Kitov, 2006, pp. 78-79). According to Katz (2010, p.2), ‘unemployment increases in the Great Recession have disproportionately affected men, workers from goods producing industries, young workers, and non-college workers’. In the presence of severe economic downturn which was prevailing in the country during the time, the rising level of unemployment affected every society and every part of country in a severe manner. People from all over the country have been losing their jobs and many of them have been trying to shift to other jobs with low level of salary compared to their previous jobs. This high level of unemployment negatively affected the level of substantial unemployment in the country and also negatively affected the rate of real and nominal wages obtained by American workers (Mankiew, 2011, pp. 74-78). One of the most important features of the high level of unemployment which was prevailing during time in the country was that not salespersons and lower-level workers have lost their jobs, but also high-level workers, such as business executives and managers, also have lost their jobs. This phenomenon greatly affected the social and economic perspective of the country. On one hand the loss of jobs of high-level workers have reduced the level of demand for goods and services in the economy, mainly aggregate demand for luxury goods and services (because these high-level workers were the most important source of these products and services). On the other hand, the reduction of level of employment of these workers has reduced the level of social recognition of these workers in the country and also at the global level. The sharp decline in the level of employment in the country during this time of global recession has also caused many financial companies to completely shut down their operation in the country which has created great financial tension among the workers of all level. Under this crisis situation workers started to take extreme steps. Few workers, including both high-level and low-level workers, either attempted or committed suicide after getting frustrated with their unemployed life. These phenomena have reduced the rate of social development of the country (Dornbush and Fischer, 2011, pp. 98-101). Policy recommendations and rising unemployment: Various economic policies have been implemented by the American government during this time in the country. The government at first implemented the policy of allocating huge amounts of money (almost $740 million) for generating new employment in the country. Both private and public sector businesses have been assigned under this plan of action. While in public sector businesses the government directly created significant job opportunities for American people, the government also advised private sector business to gradually increase their level of employment in the country. But due to the presence of global economic downturn during the period of 2007 and 2009, these policies of the American government did not work at the expected level and the level of employment in the country could not be increased to the desired level. In fact, “November [2011] had the best employment figures since 2009. A one-time affair?” (Hackett and Westfall, 2011, p.58) This failure of the government to raise the level of employment in the country also increased the rate of growth of unemployment in the country (Boumal and Blinder, 2011, pp. 45-47). Various policies have been suggested by economists and researchers in recent times which can be applied by the American government to increase the level of employment in the country (Kahan and Wentworth, 2011, p. 17). “According to the New America Foundation, a public-policy think tank, the share of middle-income jobs in the U.S. fell from 52% in 1980 to 42% in 2010” (Foroohar, 2011, p. 28). The most important policy recommendation is that the government needs to increase its role in all economic activities and businesses in the country. According to these researchers the government needs to reduce the level of dependency of the American economy on free market conditions. This school of thought (including mainly the Chicago School of Economic Thought) as argued that in this way the government can increase the level of employment which can be less affected by global meltdown. In this context the important feature of this policy of incorporating market conditions into direct control of the government is that in this way the government can reduce the level of effect of these global crises on economic as well as social aspects. In this context the role of the government has been defined as the direct controller of the American economy which is aimed at controlling decisions of the businesses, mainly financial business, operated by the private sector agents. This is further aimed as the main instrument of controlling the economic conditions of the economy of the country, in this context to control the rising level of unemployment in the country (McEahcern, 2011, p. 120). Another important policy recommendation that has been suggested by economists is that the level of employment can also be increased in other countries, such as India and China, which were the least affected nations in the world by global economic downturn (Rist, 2011, p. 100). The government of America, under the Presidency of Barrack Obama, signed a deal with the Indian government to increase atleast 50, 000 jobs in the Indian soil within 2013. American government has also been suggested by economists to increase the level of financial stability of business organisations in the country with appropriate monetary and fiscal policies which will help the country to grow at faster rates by providing greater employment securities for American workers (Boumal and Blinder, 2011, pp. 57-59). Some other economists, including Joseph Stiglitz, have argued that the American government has failed considerably to create employment opportunities in the country. Hence, according to these economists the most important policy recommendation for the American government would be to directly involve into the production of various goods and services which are produced in the American economy. The most important sector has been suggested by these economists is the financial services sector which needs to be given more emphasis in the government plans, as the crisis in this sector has been the main culprit in creating the global recession. Economsts have also sugested that the American government needs to implement stricter moneatry policies, such as higher interest rates on loans and invetsment portfolios, and also stricter fiscal policies, such as lowreing thelevel of government expenditures on wars and providing aids and grants to governments of other countries (Musgrave and musgrave, 2011, pp. 259-260). If these policies are followed by the American government, then the level of unemployment can be reduced to a significant level (Boumal and Blinder, 2011, pp. 198-201). Conclusion: It is evident from various facts and figures that the American economy is in a grave danger in terms of various economic as well as financial crises. The rate of growth of economy has fallen at historical low level. Various economic problems have been disturbing the future growth of the economy and the rising level of unemployment has been described as one of the most important problem in the country’s economic progress. The problem of rising level of unemployment started with the economic curse of 2007, the global financial crisis and it is still hampering the future growth of the economy. The American government has implemented various economic policies to reduce the intensity of the problem of rising unemployment. But these policies could not achieve the desired success and hence the problem of unemployment could not be reduced to the desired level. If the american government can take stricter monetary and fiscal policies and can take greater control of the financial sector of the market in the country, then the problem of rising level of unemployment can be reduced and hence the economy can again achieve its higher income growth rates. References: Artis, M. J. (2010), The Unemployment Problem, Oxford Review of Economic Policy, 14(3), 98-109 Boumal, W. J. and Blinder, A. S. (2011), Macroeconomics: Principles and Policy, USA: Cengage Learning Dornbusch, R and Fischer, S. (2010), Macroeconomics, USA: McGraw-Hill Dornbusch, R, Fischer, S. and Startz, R. (2011), Macroeconomics, USA: McGraw-Hill Foroohar, R. (2011), Whatever Happened to Upward Mobility Time 178(19), 26-34 Hackett, L. & S.S. Westfall, (2011), There are Brighter days ahead, People 76(26), 58-64 Kahan, K. & G. Wentworth (2011), Out of Work and Out of Luck, Nation 294(1), 17-19 Katz, l. F. (April, 29, 2010), Long-Term Unemployment in the Great Recession, Testimony for the Joint Economic Committee U.S. Congress, retrieved on February, 11, 2012 from http://www.economics.harvard.edu/faculty/katz/files/jec_testimony_katz_042910.pdf Kitov, I. O. (2006), Inflation, unemployment, labor force change in the USA, ECINEQ, retrieved on Febuary 11, 2012 from http://www.ecineq.org/milano/WP/ECINEQ2006-28.pdf Mankiew, N. G. (2011), Macroeconomics, USA: McGraw-Hill McEahcern, W. A. (2011), Economics: A Contemporary Introduction, USA: Cengage Learning Musgrave, R and Musgrave, P. (2011), Public Finance: In Theory and Practice, USA: McGraw Rist, R. C. (2011), Policy Studies Review Annual: Volume 8, USA: Transaction Publishers Verdun, A. (2010), Britain and Canada and their large neighboring monetary unions, USA: Nova Publishers Read More