The Issue of Unemployment - Report Example

? Unemployment I. Introduction In the sphere of economics which is an invincible branch of social science, the technique of indicator analysis is oneof the significant factors in determining various parameters which are related with the welfare maximization principles of the society. Economic health of a society or an economy is a crucial indicator in the welfare paradigm. Unemployment is one such major indicator reflecting the economic health of a society and hence adds immensely to the welfare dynamics. The factor of unemployment is also crucial in the determination of the strength of an economy in terms of growth. If the efficiency of the economy is to be maximized, then the all the individuals in the economy would be employed at a certain wage rate. An unemployed person is simultaneously unproductive as well as a huge drain on the resources of the society leading to a huge drop in the aggregate output production in the economy. Psychological impacts of unemployment are also adverse which leads to long run degradation of an economy. The obnoxious characteristics of unemployment is one of the foremost problems in every countries of the world be it a developed or developing and the government of those countries are facing every day challenges and formulating as well as implementing strategies in order to mitigate the problem of unemployment (Griffiths & Rotheim, 2007, p.2). The paper will seek to analyze the historical evolution of unemployment along with the current status of it with various problems faced by the people from time to time and the unemployment rates in different countries. Following this, focus will be entailed on the endeavor adapted by different governments for neutralizing this grave problem. Finally the paper will inject some self assessed recommendations for solving the problem of unemployment. II. Definition of the problem Unemployment Unemployment is the macroeconomic problem which affects people most directly and in a severe manner. For majority of the people in the world (although there is voluntary unemployment and other forms of unemployment which is discussed later in this segment), a loss in job correlates directly with a reduced living standard and immense psychological distress (Mankiw, 2005, p.155). It is one of the central themes of discussions for economists and the politicians round the globe in the identification of different causes of unemployment and simultaneously involves in the improvement of several public policies affecting the unemployed. In this respect, a famous statement by Thomas Carlyle can be mentioned which is as follows: “A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under the sun” (Huebner, 1932, p.49). Now a short insight on different types of unemployment can be provided in order to have a more brief idea of the unemployment arena. Frictional unemployment Within the sphere of unemployment, it has been found that a certain amount of time has been spent within the job tenure of the individuals and finding another employment. The labor market is dynamic market and at a particular point of time there will remain a certain number of unemployed persons and the crux of frictional unemployment leads to acknowledging the fact those adjustments in the employment takes some time which is indeed a harsh reality (Mankiw, 2005, p.603). Structural unemployment This type of unemployment generates when there is wide gap between the skills required by the employers of firms and skills provided by the employees or the labor and this type of unemployment experiences long spells. It has been found in the industry of rocket science there can generate higher or lower unemployment in the submarket rather than the national market. In this industry if the trade agreements are such that it allows for the outsourcing in the other countries, then the labor market for the rocket scientist will perish in the domestic country (Schmitt, J & Warner, 2011, p.1). Voluntary Unemployment The notion of the voluntary unemployment falls under the purview of the frictional unemployment and it generally takes place at a time when people choose not to accept equilibrium or a market clearing wage. The influx of certain amount of pride factor plays within the people which refrains them from being getting employed. A firm or a company may also offer a large number of unemployed people but it is generally below the market clearing wage. There will be a bargaining mechanism in the process of wage fixation between the employers and the employees. The spree of getting jobs varies from person to person which depends on their financial reserves and also will be affected by the welfare programs of the government which provides the unemployed with wage benefits (Perlman & Hughes, 1984, p.36). The nature of unemployment is usually different from countries to countries. Basically the world economy can be fragmented into developed, developing countries and underdeveloped in terms of growth in income and technological advancements. In the developed countries basically the nature of unemployment is cyclical which imply that these economies face temporary phases of lack of demand with the generation of unemployment with time. The frictional and structural unemployment are also evident in the developed nations and are related with the process of industrial changes over time and so they are sometimes regarded as industrial unemployment. In the developing and underdeveloped nations unemployment can be associated with the primary sectors of these nations that is agriculture and the problem of unemployment are long term and they are found to be trapped in a vicious circle of poverty. As a large number of labors are attached with agriculture with the addition of one extra labor will not yield productive result and the output will remain at a constant level and this type of unemployment is regarded as disguised unemployment (Jain et al, n.d., p.59). III. History of the Problem The discussion of unemployment so far in the preceding section has been centered on the developed, developing and underdeveloped economies. So in this segment will center on the unemployment patterns of developed nations and developing nations by taking the example of Australia and India and the government policies by the countries taken to curb down the problem. It is known that country of Australia is one of the developed nations of the world. However the country faced series unemployment problems in its economic history. Unemployment in Australia has been well rising after with the end of post-war boom in the early 1970s. It can be stated that business cycle of boom as well as recession can be said to be a robust reason for the aggravation of the unemployment rates in Australia. Recession was also another reason which enhanced the unemployment rates in Australia and lingered the process of recovery (Richardson, n.d., p.16). The unemployment pattern of Australia from 1960s can be viewed as follows: Fig.1. Australian Unemployment (Richardson, n.d., p.3) In the 1970s, there were mainly two types of macroeconomic shock encountered by Australia. In the 1970s, there was a large shift in the labor supply with adverse effects due to the failure of wages in the adjustment to the decline in the total factor (labor) productivity growth and also due to oil price shocks. Recession also hit the Australian economy very hard (Borland & Mc Donald, 2000, p.10). The potential causes for this unemployment increase was due to the poor policy management, combined with rigid arrangements in the institutions of the labor market , dominance of union power resulted in the sharp increase in the real wages and inflation creeped in. The government took policies of strengthening labor market reforms, reducing union power and various other policies (scope of discussion is limited) which resulted in the recovery of the economy (Maintaining low unemployment in Australia, n.d., pp. 4-5). India was under the realms of colonial expansion under the British rule for around 200 years and when it received its independence, the country went on a planning procedure for sustaining the growth of its economy. It concentrated on the policy of export substitution and avoided the policy of import substitution. The economy was largely inflicted with high poverty and mass scale inequality. The system was controlled on the extensive bureaucratic measures of the public sector institutions and there was rampant corruption and subsidy which worsened the poor condition of the people and aggravated the unemployment rates. From 1980s, the government resorted to reforms in the economic policies with the relaxation of the trade barriers and welcoming private sector investments (Acharya, 2007, p. 2). IV. Current situation It is known that country of Australia is one of the developed nations of the world. In the recent times, the problem of unemployment has been significant in its indigenous industries. The low rate of employment in the indigenous industry was conjectured due to various factors like economic deprivation which can be viewed from perspectives like human capital, location, arrests, discrimination and so on. With respect to human capital angle it was found that the indigenous Australians attained much less education than the other Australians. In the 2006 census it was found that the only 26% of Indigenous Australians have a highest level of school completion of Year 12, compared with 50% of non-Indigenous Australians. According to the location angle it could be said that the majority of the indigenous Australian people used to live in remote areas and they show a pessimistic attitude towards relocating in the areas providing greater employment in the current scenario. In terms of the dimension of arrest, it has been found that the indigenous Australians have been involved majorly in crimes which are one of the reasons of lower employment. Racial discrimination can be also found to be one of the major problems in the employment scenario of indigenous industry in Australia. During the period of 1994-96, there was expansion in the labor market programs with youth training initiative, wages for all trainees and so on intended for the development of the disadvantaged job seekers. In 1998 Job Network program was introduced on the basis of competitive tendering. In 1999 Indigenous Employment Policy/Program (IEP) was introduced with encouragement of the private sector employment. In 2009, policies implemented were directed towards language, literacy training, support for the medium sized employers, targeting of the regional sectors and industries experiencing labor shortage. It has been found that the employment has increased significantly from the period of 1994 to 2008 (Gray et al, 2012, pp.3-7) . Fig. 1 (Gray et al, 2012, p.26) Fig. 1 (Gray et al, 2012, p.26) The above two diagrams represent that after the implementation of the policies by the government the employment in the indigenous sector have been quite enhancing and one of the positive signs is that of the augmentation in the female employment rates. Indian economy saw a good development in the employment platform after liberalization with the removal of tariff barriers in the international trade scenario and led to the penetration of the private sector which accelerated the employment potential country. Agricultural sector increased its productivity with the introduction of the modern technologies and disguised unemployment reduced with the absorption of labor in the industrial and informal sectors. Indian economy is expected to grow by 6.9% in the fiscal year which is sluggish due to weakening industrial growth and rising inflation levels (rise in price levels). Various methods have been adapted by the government in order to curb down the unemployment levels and among the supply side methods emphasis have been given on the education and training, reduction in the power of trade unions , labor market flexibility, employment subsidies and so on ( Economic survey, 2011-2012). V. Potential Solutions The governments of the countries play a major role in reducing unemployment. The policies which the government should adapt are reducing the structural unemployment by providing the right skills among the workers with the implementation of suitable methods and also reducing the occupational immobility. Education should be given top priority along with the provision of employment subsidies and restructuring the tax system, consolidation of the private sector with reduction in corruption and strict vigilance of the implementation of the policies (Bernick, 2005, pp. 25-28). The people often in the countries attach less importance to the problem of unemployment with that of inflation. The people acknowledge the inflationary consequences of any serious attempt to reduce unemployment and attach less value to the policy goal of unemployment. The people have to be conscious and have to support strongly on the notions of cutting excessive unemployment benefits (keeping aside a minimum percentage) as a means of reducing public expenditure rather than becoming sympathetic, cutting the excess on food, industrial subsidies and also suggest for keeping the expenditure on defense low (Alt, 1979, pp. 270-271). The companies will be playing a significant role in the reduction of unemployment. Among various actors the companies can enter into government with the legal contracts which will reduce tax burden which will foster employment and it is sometimes big companies act as political actors. The company also has to provide proper training for the skill development of the labors (Jefferys et al, 2001, p. 12). VI. Proposed Recommendations According to my opinion some of the measures to reduce unemployment are to concentrate on the growth of the private sector, enhancing job training programs among the labor force, reducing corruption, legislation of a high minimum wage which would aggravate employment. VII. Conclusion The paper discussed the concept of unemployment and its varied nature and causes in a developed as well as a developing nation and seeks to analyze that if correct measures are taken then solutions can be achievable. Unemployment can be regarded as a curse to the society. In order to curb the problem of unemployment every individual agents in the society has to be stringent in their policy implication to reduce this. 100% unemployment is not achievable however natural level of unemployment i.e. a threshold level of unemployment regarded as safe limit can be achievable if conscious endeavors are made by the countries and its every rational individual. References 1. Acharya, S, (2007) INDIA’s GROWTH: PAST AND FUTURE, Retrieved on 26 July, 2012, from: http://depot.gdnet.org/cms/conference/papers/acharya_plenary1.pdf 2. Alt, J. E. (1979), The Politics of Economic Decline: Economic Management and Political Behavior in Britain Since 1964, CUP Archive 3. Borland, J & Mc Donald,I, (2000), Cross- Country Studies of Unemployment in Australia, Retrieved on 26 July, 2012, from: http://dtl.unimelb.edu.au/R/G31Y3DE72Q9PLMPEUYB6D47IJTI9TELD7G41VXX38VGNBJMJ9H-03069?func=dbin-jump-full&object_id=65751&local_base=GEN01&pds_handle=GUEST 4. Economic survey, (2011-2012), Retrieved on 26 July, 2012, from: http://pib.nic.in/archieve/esurvey/esurvey2011/eng2011.pdf 5. Gray et al, (2012), Increasing Indigenous employment rates, Retrieved on 26 July, 2012 from: http://www.aihw.gov.au/closingthegap/documents/issues_papers/ctg-ip03.pdf 6. Griffiths & Rotheim, (2007, CLASSICAL AND KEYNESIAN ECONOMI C EXPLANATI ONS FOR UNEMPLOYMENT, Retrieved on 26 July, 2012 from: http://www.inscitia.com/wpcontent/uploads/work/Michael_Griffiths_EC103H_Final_Essay.pdf 7. Huebner, S,S, ( 1932), Unemployment Insurance, American Philosophical Society , 71 (2), pp. 49-71, Retrieved on 26 July, 2012 from: http://www.jstor.org/discover/10.2307/984685?uid=3737496&uid=2129&uid=2&uid=70&uid=4&sid=21100944831753 8. Hughes, J,.J & Perlman, R., (1984), The Economics of Unemployment: A Comparative Analysis of Britain and the United States, Cambridge University Press 9. Jain et al, (n.d.), Development Economics, FK Publications, 10. Jefferys et al, (2001), European Working Lives: Continuities and Change in Management and Industrial Relations in France, Scandinavia, and the UK, Edward Elgar Publishing 11. Maintaining low unemployment in Australia, (n.d.), Retrieved on 26 July, 2012 from: http://www.budget.gov.au/2004-05/bp1/download/bst4.pdf 12. Mankiw, N, G, (2005), Macroeconomics, fifth edition, Harvard University, Worth Publisher 13. Richardson, S. (n.d.), UNEMPLOYMENT IN AUSTRALIA, Retrieved on 26 July, 2012 from: http://www.youth.infoxchange.net.au/news/items/2006/03/71118-upload-00001.pdf 14. Schmitt, J & Warner, K (2011), Deconstructing Structural Unemployment, Retrieved on 26 July, 2012 from: http://www.cepr.net/documents/publications/dws-2011-03.pdf Read More