Macroeconomics in unemployment - Research Paper Example

? Macroeconomics in Unemployment Macroeconomics in Unemployment Macroeconomics is a branch of economics that deals with the overall aspects of the economy. The main concepts encompassed in macroeconomics have been used to give an analysis of the economy as well as a basis for future predictions on the performance of the economy. They include interest rates, gross domestic product, consumer price levels, and employment indicators. Also included are policy instruments of government spending, taxes and the money supply. These factors have their independent effects on each other and on members of the society and they interact with each other to determine microeconomic conditions. Unemployment, for example, determines ability to save and spend as well as an economy’s overall productivity. I, in this paper, have discussed how these aspects in macroeconomics have influenced unemployment. Unemployment refers to existence of a section of the population that is not actively doing productive work. Its rate is expressed as the number of people without jobs as a percentage of the labour force where the labour force only includes individuals who are actively seeking for jobs. Sections of the unemployed population who are already discouraged and are no longer seeking jobs are not part of the labour force. Several types of unemployment exist but four are majorly explored. The first one is seasonal unemployment that occurs due to differing needs of the hiring industries. Firms will hire employees during peak seasons when more production is required and retrench some of their employees during low seasons. The second type of unemployment is frictional employment and arises due to shifting of jobs by workers. It is also referred to as search unemployment because it normally takes time for an individual to secure a job after quitting one or after finishing their studies. Structural unemployment is another type and is caused by changes in technology and the structure of the economy. The fourth unemployment type is referred to as cyclical unemployment and results from changes in business environments (Boyes & Melvin, 2010). The macroeconomic scope in unemployment involves interactions between unemployment and other macroeconomic indicators. Unemployment is for example dependent on interest rates that influences levels of economic activities. Low interest rates encourage borrowings for investments and private use. This further increases consumption and facilitates investment as firms are encouraged explore investment opportunities. This “redirect output towards its full –employment potential” (Stoup, Sobel, & Macpherson, 2009, p. 227). High interest rates from factors such as inflation or increased demand for financial services make investment expensive. The overall impact of the increased interest rates is therefore a contracted economy with lost employment opportunities towards higher unemployment rates (Stoup, Sobel, & Macpherson, 2009). There also exists a significant association between unemployment and an economy’s gross domestic product. The gross domestic product refers to the measure of all goods and services produced by an economy within a period, normally a year. Changes in the GDP will therefore reflect conditions of the labour market because the labour force generates realized productions. A fall in gross domestic product indicates a rise in the rate of unemployment, whether real or virtual. This occurs because if businesses resort to producing fewer goods and services, then some of the workers lose their jobs hence rise in unemployment. An increase in gross domestic product however associated with increased activity levels that further indicate lower unemployment rates (Mankiw, 2012). Unemployment also relates to consumer price index, a measure of the change in price of goods and services that are bought by individual consumers. The index also keeps track of changes in the cost of living. Low unemployment rates increase average economic potentials and this changes the consumer price index that further has consequences on the macroeconomic environment. A rise in consumer price index raises the amount of money that is spent on goods and services to facilitate social utility in living standards. This increases prices of goods and services, causes inflation, and means that a consumer has to spend more to maintain the same level of satisfaction from the goods and services as before the rise in prices. Unemployment is also influenced by monetary policies and fiscal policies, macroeconomic tools that that have been used to regulate economies’ performances. If the level of supply of goods and services in an economy is low and the unemployment level is rising, governments can intervene and increase total demand for output by expansionary monetary and fiscal policies. This intervention will lead to an increase in the gross domestic product to increase employment levels. Similarly, inflation that is mostly caused by increase in total demand that exceeds the total supply of goods and services in the economy can be averted by governments’ fiscal and monetary policies that may have adverse effects on unemployment rate. Examples are increased interest rates and trade barriers (Carbaugh, 2011). Government policies to regulate the minimum amount of money to be paid for certain jobs have also caused most firms to lay off employees as cost management strategies. Unemployment has also been a factor of the general shift in economies from manufacturing industries to service industries, a trend that has initiated employees’ lay off. Most of the workers who were semi skilled could not cope with the changes in technology hence they lost their jobs. The unemployment rate is mostly concentrated on workers with low education and skills. It is important for an economy to maintain low rates of unemployment. The most important reason for this is economic consequences of unemployment such as the measure of the lost goods and services that the unemployed population could be contributing to the economy had they been employed. This “economic cost” (Lieberman & Hall, p. 157) is borne by the society although some group may bear greater burden than others may. Benefits given to the unemployed by some governments have naturally increased the rate of workers not in active employment and search for employment opportunities. Higher incentives given to the people for being out of work reduces the burden they have to bear when they are unemployed they take time to find for themselves jobs (Lieberman & Hall, 2009). Macroeconomics in unemployment also includes effects of unemployment on the society. Change in unemployment rates lead to corresponding changes in people’s potentials and values. Increased unemployment rates means lost income opportunities and the society’s potential to its needs reduces. An economy with high unemployment rates will for example lack the capacity to meet health care need and to ensure quality education to its citizens, especially if the economy is capitalistic. Lack of potential to meet needs also induces long-term effects of slowing down, or even paralyzing, the society potentials to economic growth. Unemployment has also been associated with level of social challenges as the society fails to meet its needs due to limited resources (Welch & Welch, 2009). Conclusion Macroeconomics is a branch of economics that deals in wide scope economic aspects that affect an entire economy. Its indicators include unemployment, interest rates, gross domestic product, consumer price index, and monetary policies, factors that exhibit interdependence and interact to influence the society. Different types of unemployment such as frictional unemployment, seasonal unemployment, structural unemployment, and cyclical unemployment and each type has adverse effects on the society. Unemployment rates are also volatile and the other macroeconomic indicators play significant roles. Unemployment is therefore a macroeconomic factor that is highly determined by other macroeconomic factors and its effects are widely felt across an economy. The scope of unemployment therefore identifies wide scoped initiatives such as governments’ monetary and fiscal policies to influence economic activities and other macroeconomic indicators towards sustainable employments rates. References Boyes, W., & Melvin, M. (2010) Macroeconomics. Mason, OH: Cengage Learning. Carlberg, M. Unemployment and inflation in economic crises. Berlin: Springer. Lieberman, M., & Hall, R. (2009) Macroeconomics principles and applications. Mason, OH: Cengage Learning. Mankew, G. (2012) Principles of economics. Mason, OH: Cengage Learning. Stoup, R., Sobel, R., & Macpherson, A. (2009) Economics: Private and public choice. Mason, OH: Cengage Learning. Welch, P., & Welch, G. (2009). Economics: Theory and practice. Danvers, MA: John Wiley & Sons. Read More