Unemployment in the UK - Essay Example

Assignment: UK employment peaks were recorded in 1968, 1978 or 1989 by economic pundits and analysts. Indeed, the unemployment increased considerablyduring early 1990s due to economic contraction, however, the problem was tackled in 1993 and UK government observed a continuous decline in the unemployment rates. Indeed, this can be attributed to economic and business friendly policies that resulted in greater trade volume, strengthening of currency and creation of new business opportunities and trade ties. The size of market also increased substantially because of rise in population and increment in consumer purchasing power (Gregg and Wadsworth, 2010). It is worthwhile to mention the fact that employment and business outlook aggravated in 2007 – 2008 after collapse of housing sector or property market and ‘bursting of speculative financial sector’ that resulted in financial difficulties and a credit crunch like situation. Indeed, the bankruptcies of various small and large financial institutions followed by closures of manufacturing and services sector organisations led to rapid surge in unemployment and economic contraction. In simple worlds, the aggregate demand and supply reduced that in turn resulted in a decrease in productive activities and new employment opportunities for general public. The weakness in economy, consumer buying power and real incomes also adversely impacted relatively strong sectors such as heavy machinery, engineering, arms, information technology, airline industry, electronics and others etc. because of fall in demand from all consumers. Hence, these strong sectors were unable to sustain their business volume and cut down their employees thereby contributing in unemployment across UK. (Gregg and Wadsworth, 2010) Economists have provided an explanation that the weaknesses in financial system were actually the major reason behind UK economic collapse. Indeed, the dependence of consumers on plastic money (such as credit cards, debit, visa etc.) for spending and purchasing goods and services and decrease in circulation of monetary units is itself noxious for sustainable development and smooth functioning of the economy. Secondly, the role of financial institutions in subsequent growth of non-productive business sectors such as mutual funds, leasing, mortgage, securities and bonds obviously could benefit in short-term growth and expansion of money and financial markets. Indeed, contribution of manufacturing sector in Gross Domestic Product of United Kingdom is barely above 20% whereas services account for more than 70%. Obviously, the growth in population results in greater increase in amount of UK workforce and manufacturing sector is, indeed, the most appropriate option that could meet with rising demand in labour markets. However, this growth is services sector not at all the perfect substitute of productive or manufacturing related sectors that create more employment opportunities. Another reason behind present state of unemployment across UK is outsourcing of jobs to Asian and other developing nations. In simple words, the labour wage rates are extremely higher in UK in comparison to developed and developing European, American, Asian and African economies respectively. Hence, it is not feasible for producers and service providers to supply cheaper products in the market because of high costs of doing business. Manufacturers and suppliers, however, have found a solution that they could outsource IT, financial, production, correspondence and other business jobs to nations that host the specialised pool of talented workers who could meet the demands and requirements of foreign buyers. In addition, the UK enterprise owners are involved in contracting and subcontracting agreements that although fulfil their needs, but obviously destructive for UK employment prospects. Because of extremely low wage rates in developing nations such as India, Ireland, Pakistan, Philippines and other economies, a great number of UK jobs were outsourced. Indeed, that was also the case in United States that outsourced its 1.5 million jobs. Similarly, the job market across UK is frozen because of mechanisation in UK industries. In explanation, the business enterprises are focusing to attain productive efficiency and effectiveness to save their costs, enhance profit margins and restore competitiveness in the marketplace where foreign producers are flourishing because of their competitive pricing strategies for quality products. For instance, the use of sophisticated machinery, state-of-the-art production plants, information technology and automated processes by manufacturing businesses have reduced the demand of human resources. As a result, new jobs are not creating at the similar pace likewise they were created by same entities in past few decades. On the contrary, manufacturing businesses have increased their marginal productivity per labour and profitability after employment of modernised technology and automation. (Stewart, 2005) Blanchflower and Shadforth (2009) have explained another reason behind unemployment in United Kingdom which is the fact that overseas workers migrate every year in large amounts for whom no real employment opportunities are available. They either end up with menial jobs or remained unemployed thus depend on money they receive in the name of unemployment benefits. (Manning, 2005) Above all, the unemployment issue is not only an outcome of economic turmoil and downturn but also of outsourcing and employment of information, communication and production technology. Secondly, there had been greater focus on development of relatively non-productive sectors by concerned authorities that are vulnerable to any global economic meltdown and crises. As far as social costs of unemployment in UK are concerned, it should be pointed out that job losses result in distress and psychological diseases among personnel who do not find adequate work projects. In fact, this not only impacts the mental well-being and health of individuals but also may lead to untimely deaths. Dorling (2009) has pinpointed the fact that decrease in unemployment could save more than 2500 premature deaths per annum. In addition, increase in unemployment may lead to commencement of civil disobedience movements that in turn result in law and order crises. For instance, the outcomes of such movements include political uncertainty, rebellion and unrest in the society that later affects economic growth rate and expansion. Nevertheless, unemployment forces women to get involved in prostitution, while it also compels men to indulge in organ trading and other illicit activities. As a result, incurable diseases such as HIV / Aids, cancer and other sexually transmitted diseases spread in a society. As far as the economic costs are concerned, it should be emphasised that unemployment across UK is an outcome of slump in aggregate consumption and demand of goods and services that compel businesses to dismiss additional workers. As a result, business activities come to a halt thereby reducing taxable incomes and corporate earnings of entities. In short, the tax revenue received by the UK government authorities declines. An associated social cost with fall in tax revenues is the reduction in government over community, social welfare and infrastructure projects that directly facilitate citizens in a society. In addition, surge in unemployment leads to severe health issues that force government and concerned authorities to increase their health budgets. Consequently, this adds to the financial burden over government that already has to cope with societal issues of poverty, unrest, instability and lack of confidence among investors and business personnel. (Stewart, 2005) As far as government policies regarding the issue of unemployment are concerned, it is worthwhile to mention the fact that UK government has to devise a fiscal policy that is business friendly and that helps employers in reducing aggregate costs. UK government could reduce number of taxes on corporate and commercial sectors followed by low tax rates on individuals. In this way, entities will benefit from reduction in business costs and could offer low priced products to consumers. Similarly, low income taxes on individuals will increase their savings and real purchasing power in present and future that in turn trigger increased consumer spending on goods and services. The aggregate demand will increase while businesses also increase production to meet greater demand. Consequently, new business and employment opportunities will be created. Similarly, Federal Bank has to play its important role by easing monetary policy through open market operations. These purchases will increase the money supply in the market that would then eradicate the issue of credit crunch and liquidity. The aggregate consumption of goods and services will increase, at least, in the short run that will boost the confidence among business personnel. In addition, State Bank has to reduce discount (interest) rate so that costs of doing business diminish and UK companies could restore their competitiveness against firms from China, South Korea, Malaysia and Japan etc. that either compete on price or quality or on both. Nevertheless, there is a dire need to control unnecessary immigration across United Kingdom that has resulted in an imbalance of available resources to total population. It has become evident that UK can’t control outsourcing and mechanisation, however, government can devise strategies to encourage manufacturing sector. In conclusion, there are ways to grapple with the monster of unemployment across UK through rationalisation of monetary and fiscal policies. Similarly, it is now mandatory to create jobs from expansion in manufacturing rather just growth in services sector. Bibliography: Dorling, D. (2009). Unemployment and health: Health benefits vary according to the method of reducing unemployment. BMJ, 338, b829. Gregg, Paul and Jonathan Wadsworth (2010) “The UK Labour Market and the 2008 – 2009 Recession” Centre for Economic Performance Bentolila, Samuel and Andrea Ichino (2006) “Unemployment and Consumption Near and Far Away from the Mediterranean” Stewart, Mark (2005) “The Inter-related Dynamics of Unemployment and Low-Wage Employment” WARWICK ECONOMIC RESEARCH PAPERS Blanchflower, David and Chris Shadforth (2009) “Fear, Unemployment and Migration” The Economic Journal, 119 Blackwell Publishing Manning, Alan (2005) “You Can’t Always Get What You Want: The Impact of the UK Jobseeker’s Allowance” Centre for Economic Performance Read More