Unemployment In the United States - Essay Example

US unemployment rate stable at 9.7 This article talks about USA unemployment rate has come to stability at 9.7%. This was much less than what many U.S economist and White House were forecasting. However, whether this was due to the improved economic conditions in the U.S.A or because of any other factor, people were split on the real cause behind this stability. There were around 36,000 job cuts in the market, whereas the economists were expecting this number to be close to 50,000 job cuts. Many people believed that the situation could be worse given the weather conditions in the USA, but the effect was different and fewer jobs cuts were experienced. Many people like Rob Carnell, ING Market Analysts, believed that the number in the report is distorted, but still the USA economy is on its way to recovery and as a result the unemployment is going down. It clearly shows that one of the reasons for the job market to decline was the cyclical unemployment. This type of unemployment occurs as a result of receding demand in the economy. This prompts them to reduce the production. As they reduce production, they need fewer workers and those who continue to work will have to settle on low wages. This type of situation can be explained on a demand and supply diagram. The diagram clearly shows how the reduction of demand from D to D1 has reduced the quantity that was demanded from Q to Q1 and how the prices fell from P to P1. Since, the demand for labor is a derived demand; any reduction in the demand for goods and services is going to decrease the demand for labor. Like the fall in price, the wages of labor will also reduce and at the same time quantity of labor needed will also reduce. We can also assume the same thing will happen in the labor market. Wages will go down from W to W1 and quantity of labor will reduce from Q to Q1. This is one reason why recession affected the employment rate in the U.S economy. This reduction in the demand causes the wages to go down from W to W1 and quantity of labor needed from Q to Q1. This causes cyclical unemployment which comes due to the reduced aggregate demand in the economy. However, the U.S government still believes that the unemployment rate still is unacceptably high and further improvements are needed. At the same time, U.S dollar strengthening against other currencies made the matters worse. Whenever a dollar gains the value, it becomes expensive causing the exports to become expensive and as a result the U.S.A will experience a decline in the international competitiveness. This will cause the exports to fall and imports to rise, meaning that the economy will experience another setback as there will be pressure on U.S current account and export-related industries will experience plummeting demand causing more unemployment in this industries as their output will decrease due to dollar gaining value in the international arena. Again the same theory applies that decline in the demand in the US exporting industry is first going to bring down quantity of supplies down and then it will affect the labor market as much less labor will be needed to produce less output that the U.S export industry is required to produce. However, a higher return on stock markets is good to keep the unemployment low. Higher stock market rate signifies the fact that there is political stability in the country and foreign investment is coming in the economy. This will result in more positive sentiment about USA markets in the world and attracting more investments. Increasing investments will set off accelerator effect in the economy and thus more and more new businesses will setup and productive industries will start their operations. This overall increase of businesses in the U.S economy is going to create jobs and is going to improve the conditions in the U.S markets. This can be shown by following diagram: This shows that increase in the overall demand in the economy is going to first increase the total supply of goods in the economy and in order to maintain high supply in the economy, the employment level will be increased. This may be another reason why unemployment level in the economy did not rise as much as was expected due to increase in the stock market index. The increase in quantity supplied and quantity demanded are shown by a movement from Q to Q1. This higher level of goods production requires more labor to be employed. Many economists also claimed that 2009 was the most challenging year in the U.S history in terms of employment and that the turbulent period is now near its end. This is a good sign and one that tells the masses that recession is now over and they can expect a better and prosperous future ahead. However, during the previous period there was a rise in unemployment benefits. I think this may be one reason why unemployment remained high. When people get these benefits their urgency to find a job reduces and hence they prefer to remain unemployed. Hence, this is a controversial solution to counter unemployment and what I think is that it should be abolished so that people look for the job actively and this will reduce the burden on the government who looks after these people. References: Katie Allen. (2010). US unemployment rate stable at 9.7%. Guardian. http://www.guardian.co.uk/business/2010/mar/05/us-unemployment-rate-stable John Sloman. (2001). Economics. Prentice Read More