Unemployment - Research Paper Example

?Rebeca Furniss 7 March Unemployment Over the last few decades, the progressive world economies have, though slowly, recognizedthe complexity and seriousness of growing unemployment issues at last. Extensive research over multiple aspects of unemployment has revealed that the past unemployment results in change of preferences such as prices and constraints, affecting the levels of future unemployment as well. Individuals differ in certain unmeasured variables that, if not properly controlled, have influential impact on levels of unemployment. There exists, however, no universally acceptable definition of unemployment so far because both employed and unemployed people worldwide are measured quite differently. However, various scholars and economic organizations have provided with more generalized definitions of unemployment. The most widely referred definition from the International Labor Organization states that unemployment “occurs when people are without jobs and they have actively looked for work within the past four weeks. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.” According to the Census Bureau, “unemployed persons include those who did not work at all during the survey week, and who were looking for work. Also included are persons who would have been looking for work except that (a) they were temporary ill, (b) they expected to return to a job from which they had been laid off for an indefinite period, or (c) they believed no work was available in their line of work or in the community.” Unemployment can also be defined as, “An economic condition marked by the fact that individuals actively seeking jobs remain un-hired. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances.” (Investor words, 2009). Students, children, retired personnel or people not interested in a paid job are not inclusive, however. Categorized on basis of causes and consequences, there are four major types of unemployment in macroeconomics. Frictional unemployment - People who are re-entering (are between jobs) or entering for the first time or after absence from work usually experience short-term unemployment called frictional unemployment. This kind of unemployment is sometimes considered beneficial as it provides time to individuals, organizations and societies to find better jobs build suitable workforce and improve services respectively. Structural unemployment – Unemployment also occurs if there are both jobs and workers available but the skills required for a job are not matching workers’ experience. This situation often results due to changes in structural economies and lasts for several years (long-term). For example, jobs are available in oil and gas industry and workers have skills with textile industry, there is a mismatch of skills leading to Structural unemployment. Seasonal unemployment – Sometimes, changes in weather, tourist activities or other seasonal factors results in short-term unemployment of related people called Seasonal unemployment. For example, some people experience joblessness as the construction activity slows down during extreme winters. Cyclic unemployment – Due to prolonged periods of recession, production outputs are reduced causing joblessness. Previous employees lose jobs and entrants have fewer openings to search. As business cycle is actively involved, this type of unemployment is called Cyclic unemployment. This is long-term and considered as the most severe kind of unemployment. When joblessness due business cycle is minimized to zero, economists say that we have reached full employment. Rise in level of unemployment is considered among the most worrisome economic problems. Due to gradual adjustments according to the market equilibrium price and quantity over time, there exists no prolonged period of shortage or surplus causing the phenomenon of unemployment. The costs of unemployment include decrease in income of individuals and less production outputs affecting the nation’s economy adversely. As long as individuals are unable to maintain the basic necessities of life efficiently, the reduced consumption of products and assets liquidation at comparatively cheaper rates has a far greater impact on developing economies. In the past few years, the levels of unemployment were highest during the phases of recession and trough of business cycle due to decline in GDP, fall in business profits and less production outputs. For instance, the recession in United States during 2001 resulted in decline of GDP to 0.5% and unemployment rates increased to 5.6%. Statistical analysis reveals that the rate of unemployment should be considered as an important indicator of economic health and an important measure of the economy's strength. Rise in unemployment rates indicates recession and results in fewer working opportunities compared to lower unemployment rates that predict stable economy with more job opportunities. The affects of globalization have greatly influenced the pace of new developments and changing life styles. Therefore, growing number of temporary, contractual and self-employed workers have also contributed a lot in complicating the concepts of unemployment globally. When symptoms of slow economic growth prevail, price inflation can trigger the rates of unemployment at a greater pace. According to the Phillips Curve, the increase in inflation rates is somehow also dependant on the level of unemployment. It asserts that tolerating high inflation rates would result in lower levels of unemployment and tolerating increased unemployment would result in lower price inflation rates. However, various economists have strongly criticized the relationship suggested by the Phillips Curve showing that high levels of unemployment are constantly resulting in high inflation rates in the current scenario. Analysts also argue that if both employers and employees are able to predict the continuous increase in prices, either the labor will demand to keep up their wages with increase in prices or the wage bargains may even exceed the price inflation rates. The supply of labor at the minimum wage increases as it is more desirable for people to work at higher wages. However, the demand of labor decreases because it is undesirable for employers to hire workers at relatively higher wages. Developed countries have far greater ability to cope with unemployment compared to the developing economies. Governments should introduce and ensure the effective implementation of macro-economic stabilization policies in order to fulfill needs of the unemployed. Victims of unemployment because of recession or any other economic factor should be provided with financial assistance and insurance benefits till recovery in the destabilized economy. Taking measures that engage labor market in economic activities effectively will also help control the level of unemployment in fluctuating economies. References Hall, R.E., and Lieberman, M., Macroeconomics: Principles and Applications. Third Edition, South-Western Thomson Learning: USA, 2005. Heckman, J., and G. J. Borjas. “Does Unemployment Cause Future Unemployment: Definitions, Questions, and Answers from a Continuous Time Model of Heterogeneity and State Dependence.” Econometrica 47 (1980): 247–283. “unemployment”. InvestorWords.com. WebFinance, Inc. March 07, 2011. Stewart, Charles. “The Definition of Unemployment.” The Review of Economics and Statistics 32.1 (1950): 55-59 Tucker, I. B. Survey of Economics. St. Paul, EUA: West Publishing, 1995. Treynor, Jack. L. “Unemployment and Inflation.” Financial Analysts Journal 31.3 (1975): 21-23 Read More