Effects of U.S. Economy in Unemployment - Literature review Example

Running Head: UNEMPLOYMENT IN AMERICA Effects of U.S. Economy in Unemployment Student Name University Professor Subject Effects of U.S. Economy in Unemployment Despite a degree in college and the right skills for a job, many are still facing one of the problems any country faces today, and that is unemployment. In 1956, Vining reported that there was a great deal of unemployment in different areas in the United States (p.51). And until now, there are still trends which showed that unemployment has not been eradicated at all. Unemployment is a problem that roots from different factors such as unstable economy. Since time immemorial, authorities have been searching for solutions to this adamant problem. Programs have been established to help the unemployed and development was made in the economy to boost productivity and offer employments to the thousands of unemployed and underemployed. The government is especially concerned with this problem because it threatens the economy’s condition. Vining (1956) says that in order to make good decisions when it comes to the economic policy, one of the factors that must be considered is unemployment. He adds that “to reduce unemployment or to prevent its increase” (p.60), the country should not concentrate only on price index or level of unemployment. Health DuPage (2003-2005) says that unemployment is a good indicator of a country’s economy and that trends are related to the state of an economy. When economic conditions get worse, employers resort to cutting back employees which, in turn, results to the increasing number of unemployed persons. As in the case in many countries, a weak economy is usually the cause of unemployment. The United States, despite its position as an economically strong country, is not spared from this phenomenon. The country has also suffered the adverse effects of unemployment which, in turn, affected the economy. Unemployment in the United States The BLS (2007) says that the unemployment rate in the United States shows the percentage of the unemployed in the country. Unemployment also indicates the condition of the labor market in the US. It is of interest to note that high unemployment affects interest rates since the Federal Reserve tries to keep unemployment under control. Additionally, unemployment reflects the country’s economy’s production, private consumption, workers’ earnings, and consumer sentiment. If there is lower unemployment rate, people are capable of spending and there is growth in the economy. In the same way, if there is higher unemployment rate, people have lower incomes. Thus, they cannot spend liberally. The economy is also affected. From 1996 to 2000, there was a continuous decrease in the unemployment rates in the United States (see Chart 1). However, unemployment rates started to increase from year 2000 until 2002 (Healthy DuPage, 2003-2005). In a study by Vedder and Gallaway in 1999, they found out that the unemployment rates were used to be higher in the United States. They furthered that the levels of unemployment are affected by several factors such as structural and institutional. These include the size of the involvement of the government. It was also shown that United States’ success in controlling the unemployment can be attributed to the free labor markets and the smaller size of the welfare state. Kane and Grossman (2005) reported that in 2004, the unemployment rate was 5.5 percent, which was considered as an encouraging sign. The unemployment rate was below the average rate when Clinton was the president, and there were more job opportunities. Pessimists assumed that unemployment would become worse again if there were no major gains in payroll employment. However, their assumption was wrong when the payroll number matched the low unemployment rate. When the payroll jobs reached two million, unemployment dipped to 5.2 percent (Kane & Grossman, 2005). Abraham and Shimmer (2002) showed that for the past three decades, unemployment duration was among women and was a result of the increase in women’s labor force attachment. In Valleta’s study in 2005, he argued that the unemployment duration was related to waning job security. The result of his study also showed that any changes in the duration for labor force cannot be attributed to women’s labor force alone. In a report by the Bureau of Labor Statistics (BLS) on October 5, 2007, it showed that the unemployment rate was unchanged at 4.7 percent in September. Certain sectors such as health care, food services and professional and technical services continued to offer jobs while there was a down trend in manufacturing and construction. In a household survey data conducted by the BLS (2007) and the United States Labor Force Statistics, there were 7.2 million unemployed and the unemployment rate was at 4.7 percent. The previous year, there were 6.9 million unemployed and the unemployment rate was 4.6 percent (p.1). There was little or no change in the unemployment rates for adult men, adult women, teenagers, whites, blacks and Hispanics. Phelps (n.d.) believed that the sharp decline of the unemployment rate starting 1995 and the trend-decline in the unemployment rate for the past 10 years is part of a longer trend. He attributed this to the increasing number of those who got college degrees or have some college training. In a 2007 study by Schmitt, he presented statistics on the condition of unemployment in the United States. His study showed that the official unemployment was 8, 149, which is 5.5 per cent of labor force. The subtotal is 24, 229, which is 13.8 per cent of the labor force. The total, including the underemployed, latent job candidates, discouraged workers, marginally attached, and excluded from labor force, is 26, 365. This is 15.2 per cent of the labor force. Economy and Unemployment Roberts’ article (2006) showed that during the past five years, the job growth was the weakest. The US economy got short of providing more than seven million jobs to its growing population. Manufacturing in the US lost 2.9 million jobs, which is about 17 percent of the manufacturing work force. Not just the manufacturing sector lost jobs but other sectors as well, such as communications equipment (43% in its workforce), computers and electronic products (30% decline), electrical equipment and appliances (25%), semiconductors and electronic components (37%), motor vehicles and parts (12%), apparel manufacturers (half of the work force), furniture (17%), textile mills (43%), plastics and rubber products (15%), paper and paper products (one-fifth), and beverages and tobacco products (7%) (Roberts, 2006). Aside from these, the “knowledge” jobs did not appear. These jobs were supposed to take over the lost manufacturing jobs. The wholesale and retail trade lost jobs. The information sector declined 17 percent and the telecommunications work force by 25 percent. Even the managerial and supervisory jobs were 209,000 fewer than five years ago. For five years, US economy was able to come up with only 70,000 jobs in the architecture and engineering sectors. Graduates have found themselves unemployed or underemployed. Even those who were previously employed found themselves among the unemployed. Engineers cannot even be accepted in Wal-Mart because they were over-qualified. Roberts (2006) reported that with this information on the percentages on job declines, US was soaked in unemployment although its economy was the envy among the nations. Roberts added that “labor arbitrage has made the unemployment rate less and less a meaningful indicator.” This was a far cry from the past unemployment which was basically the result of turnovers in the labor force and recession. People then were able to recover by finding jobs. Although unemployed people were provided unemployment benefits, unemployment today became permanent. This was due to the wiped out occupations and industries and other corporations hired foreign employees instead of Americans. Roberts (2006) reported that the US unemployment rate is between 7 percent and 8.5 percent. This implies that Americans will never recover their investment in their university degrees. All of this points out that the United States is suffering from job depression, although economists do not agree to this. However, Kane and Grossman (2005) reported that for April 2005, there have been data showing good results from the Department of Labor. The Department of Labor’s report showed that payrolls increased by 274,000 on March. It was a good indication because there 141.1 million Americans working by April. The report also showed that employment increased to nearly one million in just two months and by 2.5 million over the year. Moreover, there was a decrease in the number of discouraged workers by 393,000 in April. The labor force increased to 148.8 million. In April, it was also reported that there were an additional 47,000 jobs in construction. These results were supposed to boost consumer confidence and optimism. The economy was expected to perform better than in the last months and years (Kane & Grossman, 2005). Effect on Economy As stated at the beginning of this paper, unemployment is an indicator of an economy. Thus, it is right to say that unemployment has a direct effect on the economy of a country. Healthy DuPage (2003-2005) reports that the effects of unemployment are clear. Unemployed persons suffer from financial difficulty; they have less income and can lose their homes. Unemployment has also an effect to other indicators of community health. It can lead to depression or substance abuse. It was also proven that unemployment has a direct relationship with other indicators like high stress levels and physical and mental health impairments. Valletta (2005) reported that unemployment rate may have undesirable implications for social welfare. This happens when the burden of uninsurable labor-income risk on workers is increased (Abraham & Shimmer, 2002, on Valetta, 2005). The economy has also a direct effect on how the government can pursue its policy priorities. The US government must consider the fact that for every additional job and extra point of growth that the private sector provides, the economy becomes stronger and flexible. The government must prioritize programs or plans that target the growth of economy. Any plan or program which seeks to improve the state of the economy will, in turn, also improve the state of unemployment. Furthermore, unemployment may have an effect on aggregate dynamics and monetary policy and can raise or lower the wage pressures linked to a particular unemployment rate. Economists who supported globalization thought that the situation Americans face is a win-win one. Free market economists, in particular, assumed that labor arbitrage was benefiting Americans. But this is not so when employment is shrinking. Roberts (2006) added that a record of 1,054,000 jobs in five years is not an indication of a healthy economy. He also pointed out that the Bush administration’s support in declaring war over Iran will not be the solution to the job depression. References Abraham, K. & Shimer, R. (2002). Changes in Unemployment Duration and Labor Force Attachment. In The Roaring Nineties, edited by Alan Krueger and Robert Solow. New York: Russell Sage Foundation. Bureau of Labor Statistics. (2007, October 5). The employment situation: September 2007. United States Department of Labor. Washington, D.C. Healthy DuPage. (2003-2005). Economy: Unemployment indicator. Retrieved October 16, 2007 from http://www.healthydupage.org/subsections/economy_unemployment.htm Kane, T. & Grossman, A. (2005, May 6). Jobs, growth, and the Washington connection. Retrieved October 16, 2007 from The Heritage Foundation web site: http://www.heritage.org/Research/Economy/wm739.cfm Office of the Press Secretary. (2003, January 7). Fact sheet: President Bush taking action to strengthen America’s economy. Retrived October 16, 2007 from The White House web site: http://www.whitehouse.gov/news/releases/2003/01/20030107.html Phelps, Edmund S. (n.d.). Roundtable on the American economy. Retrieved October 16, 2007 from http://www.econ.yale.edu/alumni/reunion99/phelps.htm Roberts, Paul Craig. (2006, February 11-12). Nuking the economy. Retrieved October 16, 2007 from http://www.counterpunch.org/roberts02112006.html Solow, Robert. (1970). Comment on George L. Perry, Changing labor markets and inflation. Brookings Papers on Economic Activity, 0(3), 411-448. Valletta, Robert G. (2005). Rising unemployment duration in the United States: Causes and consequences. Retrieved October 16, 2007 from www.frbsf.org/economics/economists/rvalletta/RV_duration_5-05_new.pdf Vining, Rutledge. (1956). Economics in the United States of America. Paris, United Nations. Chart 1. Unemployment Rates from 1996-2002 Read More