US Unemployment Problem - Essay Example

? US Unemployment Problem Introduction Over the years, unemployment problem has been an issue not only in theUnited States economy but also in the entire world. According to the united state bureau of labour statistics, para1, unemployment involves all those people without jobs but have actively looking for a job for the past four months without a success. Connectively, unemployed people include all those people who have been laid of temporarily from their work. Unemployment rate may be determined by taking the number of unemployed people as a fraction of labour force. Whereby, labour force may be obtained by adding the number of unemployed and employed people (Bureau of Labour Statistics, Paras2-5). In 1948, the United States unemployment rate was reported to be 5.81%, this rate decreased up to 2.5% in 1953 (Bureau of Labour Statistics, Paras2-5). Additionally, unemployment rates continued to increase significantly even in 1982, whereby 10.8% unemployment was reported. Additionally, in 2001 the rate of unemployment was reported to be 5.6% and increased up to 6% in 2003(Amadeo, paras 4-8). The rate of unemployment continued to escalate significantly especially during 2008 economic recession. Research indicates that an unemployment rate of 10.2% was reported on October 2008. However, on January 2008, the rate of unemployment among different groups was as follows: 7.0 percent female adults, 6.9 percent male adults, 3.2 percent Asians Amercans, 24.2% teenagers, 9.2 percent Hispanics and 13.3 percent Africans Americans. Currently, unemployement rate was reported to be 7.6 percent on March 2013.Therefore, Understanding unemployment problems is very vital not only to individuals but also to all sectors of the economy. This is because it acts as an economic indicator of whether an economy is developing or not. This may further help the US federal government to identify fiscal and monetary measures to address the problem of unemployment (Woirol, 10-15). US Unemployment Problem The reason why unemployment rate that was reported by the US government could be misleading is because the official unemployment data released by the government does not reflect the true states of affaires on the economy. This is because the rate does not include all the relevant components for computing the rate of unemployment (Hardson, para1). According to economist such as John Williams, the government reported a national unemployment rate of 7.9% and a 9.8% unemployment rate in California as at January 2013. On the contrary, unemployment rate was reported decreased up to 7.7% on March 2013, indicating a 0.2% decline in official unemployment rate (Hardson, para2-3). According to Williams this could be misleading because when making computation the national unemployment excludes the discouraged workers and include only those people have been actively looking for a job within a period of four weeks. This means those people who had given up in looking for a job are not included in unemployment figures. This consequently makes the official unemployment to be significantly lower that the actual unemployment on the ground. In above connection, other economist asserted that the official unemployment do not show any significant improvement and this could be another reason for having a misleading rate of unemployment (Hardson, paras7-10). Additionally, the government does not make reviews to the previous unemployment rates making the official unemployment to have a significant difference from the previous unemployment rates. Connectively, gross domestic product, consumer price index and unemployment figure have been politicised by political leaders for personal gains.. This has consequently led to an increase in cases of misleading unemployment figures. Lack of full disclosure to public on with respect to which data was adjusted in coming up with unemployment rates has contributed an increase cases of misleading rates of unemployment (Hardson, paras10-22). In order to solve unemployment problems, the government may utilize fiscal policies. Fiscal policy utilizes taxes and government spending to increase or reduce aggregate demand. This means that Fiscal policy utilizes contraction and expansionary strategies to solve the problem of unemployment (Arnold, p.256). Normally, contraction policies involve reducing aggregate demand by increasing taxes and reducing government spending. On the other hand, expansionary policies involve increasing aggregate demand in order to increase levels of economic activities such as investments as well as increasing economic wealth. This in turn leads to increase in employment as well as reduction in the rates of unemployment. Therefore, in this case expansionary fiscal polices can be utilize to solve unemployment problems experienced in the United States (Arnold, p.256). The federal government may increase some of its spending in order to increase aggregate demand. Some of the speeding’s that government can use to increase aggregate demand include; Purchasing goods and services for current consumption to satisfy human wants. Additionally, the government may carry out infrastructural construction to aims to create future benefits to the members of the society. On the other hand, federal government may reduce income taxes in order to increase the purchasing power for its people. Additionally, the federal government corporate taxes and investment taxes in order to encourage domestic investments this may consequently lead to an increase in employment. On the contrary, federal government may increase taxes on imports in order to discourage foreign firms and promote growth of local industries. This strategy may help to increase jobs creation because it encourages growth and expansion of domestic industries (Arnold, pp.256-258). The diagram below indicates fiscal expansionary policy that can be carried out to increase aggregate demand and consequently increase GDP as well as reduce unemployment. Price levels AS P2 P1 AD2 AD1 Y1 Y2 Real GDP Source: Pettinger, para1 The diagram above indicates how the expansionary fiscal policies may be carried out to increase aggregate demand and reduce the rate of unemployment. Whereby, an increase in government spending and reduction in taxes causes a shift in aggregate demand curve from point A to point B. This in turn causes a movement of aggregate demand curve from AD1 to AD2. This further causes an increase in economic activities leading to an increase in employment because more firms are willing and able to create jobs (Pettinger, paras2-8). However, unemployment reduction has other impacts in the economy as asserted by economist. The major possible caveat of unemployment reduction may involve increasing the problems of inflation. This is because increase in aggregate demand leads to an increase in amount of money in circulation. Economist utilized the concept of Philips curve to explain the impacts of unemployment reduction in economy (Pettinger, paras2-8). The concept of Philips curve may be summarizes diagrammatically as shown below. Philips Curve Rate of Inflation 10% 8% 6% 4% 2% 0 2% 4% 6% 8% 10% Source: Pettinger, para2 Rate of Unemployment Philips curve above indicates a trade off that exist between inflation and unemployment. Whereby, if the government reduces an employment with a certain proportion, inflation rates increases as shown above. This means that any horizontal movement towards the left leads to a decrease in the rates unemployment leading to an upward vertical movement, that causes an increase in inflation rates This further implies that, decrease in unemployment problems may lead to an increase in inflation rates and vice versa (Pettinger, paras3-5). Summary and Conclusion Unemployment problem has been a critical problem in the entire U.S economy. The United States bureau of labour statistics indicates that unemployment rates have been fluctuating since the quell of Second World War. Higher unemployment rates were reported between 2007 and 2008 due to economic recession. In March 2013 the rates of unemployment were reported to decrease up from 7.9 to 7.6 percent. However, economist asserted that unemployment rates released by the US government can be misleading because they do not reflect the true state of the economy. This is because when computing unemployment rates the government exclude some important figures such as the number of discouraged workers who had given up in looking for job. Additionally, government failure to disclose figure on seasonally adjusted figures had contributed to an increase in cases of misleading data used in computing unemployment rates. In above connection, the study has put forth how the government utilize fiscal expansionary policies to solve the problem of unemployment by increasing aggregate demand via tax reduction and increasing government spending. The concept of Phillips curve has been utilized to explain the consequence of reducing the rates of unemployment. It can be scrutinize that if the government reduces the rate of unemployment by a certain proportion, economy should be ready to face a certain level of inflationary. Therefore, the United State government should not only utilize fiscal expansionary policies to address both unemployment but it should also employ contraction and monetary policies. Works Cited Amadeo.K. Unemployment Rates. About.com US Economy, 5 April.2013.Web. 12 April 2013. . Arnold, Roger A. Macroeconomics. Mason, OH: Thomson South-Western, 2007. Print. Bureau of Labour Statistics. Labour Force Statistics from the Current Population Survey. United States Department of Lobour, 12 April 2013. Hardson.M.Mountain Democrat: Economist Says Government Issued Statistics Misleading.Califonia Oldest News Paper. 22 February 2013.Web. 12 April 2013. Woirol, Gregory R. The Technological Unemployment and Structural Unemployment Debates. Westport, Conn. [u.a.: Greenwood Press, 1996. Print. Pettinger.T.Trade off between Unemployment and Inflation. 21 November 2011.Web.13 April 2013.http://www.economicshelp.org/blog/571/unemployment/trade-off-between-unemployment-and-inflation/. Read More