Macroeconomics in Unemployment and Factors Cause It - Essay Example

? MACROECONIMCS IN UNEMPLOYMENT [Task] MACROECONOMICS IN UNEMPLOYMENT Unemployment, also called joblessness, is an economic state in which competent and skilled persons seeking job opportunities fail to get any. High rate of unemployment is characteristic of a struggling economy. Countries that have a high rate of unemployment are said to under utilize their resources. As the world’s population grows, job opportunities continue to shrink. This situation is getting worse by the day, as countries that have demonstrated their ability to eradicate unemployment have fallen into it again. For instance, in 2011, the United States plunged into its worst unemployment rate in decades, 7% (Domino, 2011). Unemployment is caused by a combination of numerous factors. Despite desperate attempts to curb it, it has persisted. According to Symes, poor government policy on unemployment is the principal cause of unemployment (1995). She also sites high unemployment compensation as a reason for unemployment (p. 173). When unemployed people receive compensation equivalent to what others on employment in other countries earn, they tend to be reluctant in job searching. After all, why search for a job when the government can foot your bills? Minimum wage legislation is also another cause of unemployment. By enacting the minimum wage legislation, the government made it alsmost impossible for small and medium size businesses to hire qualified persons. It is irrational to hire employees when your business cannot pay their salaries. High salaries is against business operation principle of maintaining the lowest possible level of expenditure to maximize profits. Surprisingly, discrimination is still among the factors causing unemployment. Some employers discriminate job seekers based on their race, religion, age, residence, physique, gender, or even political ideologies. Landy claims that, “Hundreds of thousands not yet old, not yet voluntarily retired find themselves jobless because of arbitrary age discrimination…” (2005). This is a solid evidence of age discrimination in employment. Whatever the reason, job discrimination is not justified at all. Besides the major causes of unemployment, many local factors cause unemployment. Such factors may include the location of the unemployed person, transport flexibility, cost, and availability, and commitment to job searching. Symes (1995) laid a scathing attack on government policies on unemployment terming the policies as the principal cause of unemployment (p. 9). This statement may be debated. However, government policies certainly play a role in influencing unemployment. Some of the government policies that influence unemployment are discussed below. Employment policy Even though commitments may vary, all governments attempt to stimulate employment. The US government for instance has tried to encourage business efficiency by bailing out firms adversely affected by the 2008/2009 economic depression to avoid massive layoffs. The UK government, on the other, hand introduced “The New Deal,” a programme that offers training and development to the unemployed to enhance their chances of securing jobs. Taxation policy The government may also use taxation, as a primary fiscal policy, to control unemployment. By cutting taxes, the government stimulates economic growth while at the same time reducing the rate of unemployment. This works in two ways. First, tax cuts increases consumers’ income, which means their purchasing power is increased. From the second perspective, businesses earn more money, as consumers buy more. The increased income leads to expansion, which consequently leads to hiring. Government Spending Government’s expenditure is not arbitrary, but well calculated. The government’s spending can influence unemployment significantly. For instance, by funding new programmes such as road construction, the government creates direct jobs to the workers involved in the construction. Additionally, there are indirect jobs in the private sector, which completion of the project attracts. Education and training policy The role of education and training in employment cannot be ignored. Employers want well-trained and skilled workers. In fact, some people lack employment because of poor training or lack of it at all. By investing in educational programmes, the government increases its citizen’s knowledge, thereby increasing their chances of securing employment. International policy The policies adopted by the government to regulate international business also influence unemployment. For example, by setting import quota, the government discourages imported goods, which intern increases consumption of local products. The consumption of local products certainly leads to the creation of employment opportunities. The government may also encourage exports by giving subsidies to achieve the same results. Frustrations of joblessness are a characteristic feature of today’s world. The costs, social and economic, of employment are enormous. First, most unemployed people rely heavily on benefits for survival. These benefits are hardly enough, and it can get worse if one has a family to support. It does not end there. Unemployed persons may have a feeling of rejection, which could result in withdrawal and loss of self-esteem. Moreover, many studies have linked unemployment to health deterioration, crimes, and suicides. There are many types of unemployment as classified by economists. Frictional unemployment When people in employment choose to change jobs, they are considered temporarily out of employment during the transition period. As they take time to prepare for their new duties, they do not take part in active production and are, therefore, considered unemployed. Shifting jobs does not only affect the leaving employee, but also the company they are leaving. The company will have to embark on a recruitment programme, which is both time consuming and expensive. Common causes of frictional unemployment include i. Change of interest in current jobs ii. People who quit employment for starting families rejoining iii. Fresh college graduates waiting to join the work force iv. Job quitting, retrenchment or firing Structural unemployment Structural unemployment is the unemployment that arises from the lack of demand for workers in the market. Structural unemployment is caused by changes in the labor market or the economy at large. Such changes render certain skills irrelevant leading to layoffs. Generally, structural unemployment results from a mismatch between the labor market and skills available in the economy. It is a classical example of immobility of labor. Specialization in one field can render one’s profession obsolete especially when their skills are no longer necessary. Structural unemployment may also occur when vacancies are actually available, but workers in the economy lack the necessary skills. In some cases, the situation is worsened by advancing technology. Seasonal Unemployment The situation where changes in season lead to lose of jobs is known as seasonal unemployment. A good example of seasonal employment is farm jobs. Such jobs are lucrative during harvesting seasons, but soon disappear with changes in weather. Since economic structure changes frequently, many jobs are lost with the changes. Geographical unemployment Geographical unemployment results from the disparity of economic bases in various regions across the country. Rural economy has a difference with urban economy. Areas with generally high unemployment attract low occupational profile. The government policies play a role in this situation. By concentrating many resources in urban areas, the government has rendered many areas almost worthless. Such areas attract little investment, which renders the people in such areas jobless. Businesses are attracted by availability of social amenities, and well developed infrastructure. Without which, investing is futile. Casual unemployment Casual unemployment results from the absence of permanent employment. Casual laborers fall in this category. Whenever the jobs they are committed to ends or the project they are working on is completed, they become technically jobless. This period of waiting for another opportunity is unemployment within unemployment. Cyclical unemployment Cyclical employment is dependent on the business cycle. At times when business is at its peak, cyclical unemployment is low and vice versa. The concept of cyclical unemployment is simple. During recession, there is a reduced demand for goods and services. Customers also spend less since their expenditure margin is reduced. Companies, which have been carrying out full operations, then cut their production to match market demand. As a cost reduction strategy, companies respond to the reduced production by downsizing employment. In this case, the wage rate does not fall to reach equilibrium and unemployment rates in the economy accelerate. Government fuels this by encouraging underutilization of capital goods in the economy. Real wage unemployment Real wage unemployment comes about when the wage requirements exceed the employer’s capacity to pay. This is common in situations where the production level of the employees’ falls below the wage they receive. Such cases may lead to adoption of drastic measures by employers to make up for the income lost. For instance, an employer may decide to maintain the lowest number of employees possible. Another alternative could be keeping the employees, while pushing them to work exceptionally hard to match the amount of money they are paid. In either case, the result is still real wage unemployment. In the first instance, people with skills are not absorbed into the labor market due to layoffs. While in the second case, one employee is tasked to carryout tasks that could be carried out by two or more workers. This eliminates the possibility of hiring new workers. The government has fueled real wage unemployment by creating policies that dictate minimum wage requirements in the labor market. Besides, taxation policies also affect how much employers have at their disposal to pay their workers. In conclusion, unemployment is a major crisis in the world today. We have to acknowledge the effort the government has put in curbing unemployment. However, we have to do more if we have to end the prevailing unemployment and the damning effects associated with it. References Domino, F. J. (2011). The 5-minute clinical consult 2011. Philadelphia, Pa.: Lippincott Williams & Wilkins. Landy, F. J. (2005). Employment discrimination litigation: behavioral, quantitative and legal perspectives. San Francisco: Jossey-Bass. Symes, V. (1995). Unemployment in Europe: problems and policies. London: Routledge. Read More