Job Finding and Unemployment - Example

Running Head: Job Finding and Unemployment Student’s Name: Institution: Date of Submission: Introduction The repercussion of unemployment remains the most serious problem in the modern world and society in general. In general, unemployment remains one of the major trouble causing various economic challenges internationally and with either the leaders in the international or national levels in the developing economy paying very little or no attention to the ever rising unemployment rates. Every year, international organizations such as International Monetary Fund and World Bank compile levels of unemployment globally and the results turn out to be quite devastating. Such international financial institutions appreciate and acknowledge the fact that unemployment is the major cause of poverty and poor living standards in most societies (Petrongolo & Pissarides, 2008). This is because it is a well-known fact that most employed people earn salary that help them buy the goods and services they desire and hence access other services such as healthcare and education. Most unemployed individuals find it very difficult to provide for their families and those depending on them and this situation may lead to many unforeseen or rather unwanted problems such as malnutrition, poor health services, and poor education. At extreme levels, unemployed individuals may try to engage themselves in criminal activities to earn money for their families or even feel distressed and commit suicide (Steven, Jason & John 2006). This therefore means that unemployment and job finding is a factor that touches both economic and social aspects of a society. In every society, it is not a surprising thing to find people who are jobless despite the fact that they may have qualified skills and expertise in various fields. This reason of unemployment bases its foundation and reason on the fact that most individuals view job finding as a stressful and tiresome activity that is unlikely to bear good fruits (Robert, 2012). On the other hand, unemployment is when there are no enough jobs in the society for everyone yet there are jobless people with the greatest willingness of working. This is obviously a negative aspect for the economy of UK and any other country because it has healthy, fit, and skilled people with the ability to work but due to limited vacancies, they have to stay back at home idle. Although they consume, these unemployed individuals do not contribute to the economy of their countries. Typically, five different types of unemployment exist. These types include seasonal unemployment, frictional unemployment, hard-core unemployment, and structural unemployment. For the purpose of this paper, frictional unemployment takes the greatest focus as it results in the situation where people keep on changing jobs from time to time. The reason for individuals changing jobs is when they find their current jobs not satisfying then quit in order to find a more suitable and satisfying job (Steven, Jason & John 2006). For instance, a highly qualified accountant might leave her position in a company to take up a minimal task like making coffee or taking up a laundry work, or a factory artisan may quit because the factory management might not give him time off he requires to attend a certain part time course to improve his skills and qualifications. Such individuals dropping their jobs for one or any other reason may take quite some time before finding a satisfying job (Robert, 2012). During this period of finding a suitable employment position, these individuals will remain unemployed. Why care about unemployment It is important for governments, economic scholars, and other concerned parties to involve themselves in issues concerning unemployment as it has no any positive aspects and is unscrupulous for the production of the economy. This means that governments are wasting their qualified human resources. Instead of using skilled human resource and utilizing it in producing goods and services with, lack of good employment policies meant to create enough job opportunities see these individuals remaining at home with lots of idleness (Smith, 2011). Another devastating effect of unemployment is that individual’s income will vary and this may cause even more financial constraints. Unemployment also has an effect of reducing total taxes and revenues paid to the government. This therefore means that the government continues to lose more money; those few individuals working in the government earn little income that they in turn use to finance the basic needs for the majority unemployed people. This is how governments end up having huge amounts of debt, a serious thing in the economy. Fiscal costs to the government Every other year, high unemployment rates digs deep into government expenditure, taxation and the rates at which the government will depend on borrowed grants and loans from international monetary institutions. As discussed above, an increase in the number of unemployed people means realization of lower tax revenues collected as well as higher benefit payments. This is because, unemployed individuals pay no taxes, yet they receive government benefits to support themselves. Furthermore, unemployed persons always tend to spend less due to little disposable income, as they keep on spending less, it is common knowledge that they contribute very little to government through indirect taxes. Increased government spending coupled with reduced tax revenues results in high public sector net cash requirement, which in turn results in high government borrowing (Alejandro & Claudio, 2011). Deadweight loss of investment in human capital Unemployment has another negative impact through the wastage of the scarce resources used in training workers. Furthermore, qualified and skilled individuals who remain unemployed for long periods find themselves incompetent as their skills become obsolete considering the ever changing job markets (Steven, Jason & John 2006). Most definitely, the chances of such individuals getting employment in the future become minimal hence increasing government spending. Job Displacement/ Lay offs Job displacement is a situation where an employee with a great working experience finds himself or herself displaced from the job or finds the job position removed. This will definitely leave the individual unemployed from that position. Furthermore, displacement occurs when an individual employee finds himself or herself removed from one position and relocated to another position within the same organization. The most striking condition for job displacement is that the job loss from one position is permanent other than temporary (Smith, 2011). The most basic reason for job displacement is shutting down of an organization, or a mass layoff, or in most cases, a major restructuring of an organization by its top management team and owners leading to creation of new job positions and removing the previously existing job positions. Low pay/ no pay cycle Although until the recession, employment in the UK has kept on being relatively high, the low-pay no-pay cycle has been posing some serious problems that need serious considerations. There is abundant evidence that indicate that employees who faced low payments once are likely to earn low payments again in future employments or earn the same low wages when they move back into work after a certain period of unemployment (Robert, 2012). In addition, in the event where low paid employees perceive themselves as not progressing in their careers, they are most likely to quit and find other low paid jobs or definitely accept unemployment. Furthermore, employees moving back to work after a certain period out of work have high chances of facing low payments. This is the low-pay no-pay cycle. Recently, a report by the UK Commission for Employment and Skills that aimed at examining progression opportunities for low skilled, low paid workers had a primary intention of finding the best ways to reduce low-pay no-pay cycle. The report goes in detail to investigate the reasons as to why most employers fancy the progression of low skilled workers who in turn are victims of low-pay employees and the processes they use (Petrongolo &Pissarides, 2008). The report indicates that businesses have a variety of approaches that support progression while some businesses have clearly defined routes that guide the progression. Other businesses showed signs of being more informal or less structured or even both in some other cases. Another important aspect discussed by the report is the mix of experience, qualifications, skills, education, and training among various businesses (Smith, 2011). Some businesses provided linear training programs that enabled employees to climb up the ladder through promotions after improved skills. In other instances, there were opportunities that enabled employees to mover horizontally across the organization playing various roles. This enables employees to gain experience in different roles hence improving their understanding of other business functions and processes in the organization (Shigeru & Garey, 2009). Although few businesses conduct formal evaluation of their progression practices and even formally measure its impacts on the business in a formal way, the report indicates that progression for low skilled individuals is an important factor that comes with many benefits. From the employees’ point of view, the main benefits of employee progression include greater job satisfaction, high rewards, and improved recognition (Smith, 2011). Employees’ confidence also increases with progression. This is because the wider experience gained within a business put employees in a better position to remain always prepared for other job opportunities as they climb up the ladder to higher job position. Unemployment and Vacancies Findings from recent analyses that concern unemployment-vacancy series indicates that aggregate shocks are the basis for experienced unemployment fluctuations as opposed to sectoral shocks. This inference reasons is based on two mainly believed beliefs: one of the beliefs is that sectoral shocks induce only unemployment and vacancy movements that are positive by nature while the other belief is that negative movements of unemployment and vacancy relationship are necessarily the result of aggregate demand shocks in the dynamic market. Therefore, there is need for a model to induce an equilibrium matching with the aim of identifying plausible condition in which neither assumption is correct or favored and finally suggesting that data for unemployment-vacancy are completely inconclusive. Interestingly, the required model’s novel should result from standard features in the contracting literature of most organization and businesses experiencing relative price shocks that force them to negotiate contracts that prescribe temporary layoffs for their workforce. This is even more appealing in the UK since unemployment and vacancy rates vary inversely (Shimer, 2005a). Frictional Unemployment As discussed above, frictional unemployment occurs when individuals leave their employments for better and satisfying job opportunities. However, these unemployed workers may not take up available vacancies or firms may not be willing to hire them for some reasons. First, heterogeneity in individual preferences and skills vary because there is the evolving nature of jobs with the requirement of different skills and qualifications in the market (Jürges, 2007). It also takes time and resources to match individuals and jobs due to imperfect information and mobility, recruiting costs, and training costs. There is also this reason of labor market frictions resulting from ignorance, mobility costs, and mismatch. The Flow Approach to Labor Markets The flow of jobs and workers is the main cause behind the flow approach of labor markets. Three components act as the foundation and basis of flow approach to labor markets; first is the specification of labor demand as it concerns to flows of job creation/destruction, secondly is the process of matching between workers and business organizations, and finally the process of wage determination. In the latter case, wages greatly rely on the labor market prospects of employed workers and firms (Steven, 2006). New data sources and products developed the UK Commission for Employment and Skillslabor markets indicate that close to 8% of job creation and or destruction in the private sector appears per quarter (Olivier, 2005). The report also indicates that worker flows through cyclical hires and separations are more than twice as large. However, the report and data underscores the inconsistent nature of micro-level employment and its profound adjustments. Establishments that shrink by close or even over 10% are responsible for more than two-thirds of job destruction within a quarter. Furthermore, less than one-fifth of job destruction occurs at those establishments that go to zero employment (Elsby, et al, 2008). There is also the most worrying factor of inconsistency in the relationships between worker flows to employment growth and flow of jobs at the micro level. The interactions of these micro relations withmovements for a certain period in the cross-sectional density of growth rates of organizations to produce recurring cyclical patterns in aggregate labor market flows, result in unemployment (Fujita & Ramey, 2009). These cyclical patterns in the layoffs-separation ratio, for instance, and the probability of separated workers the get employment later on reflect distinct micro relations for quits and layoffs. A dominant role for the job-finding rate as a reason for unemployment movements in most cases with job-loss rate comes with severe downturns that reflect distinct micro relations for hires and layoffs in the dynamic labor markets (Nobuhiro & Ricardo, 2004). Conclusion Unemployment is a menace that derails economic growth of any given country. This is because a high rate of unemployment comes with many negative implications on economic and social factors of any given society. Reduced government spending on unemployed people in terms of benefits coupled with less tax revenue collected increases the rate of government borrowing and hence high debts incurred. This idea greatly cripples economic growth rate of any society. Individuals who drop their job opportunities due to failure to attain job satisfaction and move out to look for other satisfying position find it difficult to secure job opportunities and remain unemployed during this period of job hunting. Over the past few years, students and scholars of the labor market believed that recessions in the name of periods of sharply rising unemployment resulting from higher separation rates from jobs coupled with lower job-finding rates. In this view, a recession period resulting to high rates of unemployment begins with a wave of layoffs. As the labor market becomes clogged with qualified and skilled individuals finding jobs, job-finding rates sharply decrease and the duration of individuals remaining unemployed greatly increases. Therefore, job-finding rate contributes up totwo-thirds of the unemployment dynamics in the UK (Shimer, 2012). Reference Alejandro, J & Claudio M 2011, The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the United States and Europe, NBER Chapters, in: NBER International Seminar on Macroeconomics, p. 169-235 Elsby, M., Hobijn, B. & Sahin, A 2008, Unemployment dynamics in the OECD, NBER Working Paper 14617, NBER. Fujita, S. & Ramey, G 2009, The cyclicality of separation and job finding rates, International Economic Review, 50(2), p. 415–430. Jürges, H 2007, Unemployment, life satisfaction and retrospective error, Journal of the Royal Statistical Society Series A, 170(1), p. 43–61. Nobuhiro, K & Ricardo, L 2004, A Model of Job and Worker Flows, CDMA Conference Paper Series 0403, Centre for Dynamic Macroeconomic Analysis. Olivier, B 2005, European Unemployment: The Evolution of Facts and Ideas, NBER Working Papers 11750, National Bureau of Economic Research, Inc. Petrongolo, B & Pissarides, C 2008, The ins and outs of European unemployment, American economic review, 98(2), p. 256–262. Robert, S 2012, Reassessing the Ins and Outs of Unemployment, Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, 15(2), p. 127-148. Shigeru, F & Garey 2009. The Cyclicality of Separation And Job Finding Rates, International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, 50(2), p. 415-430. Shimer, Robert, E 2005a, The Cyclical Behavior of Equilibrium Unemployment and Vacancies, American Economic Review, 95(l), p. 25-34. Smith, J 2011, The ins and outs of UK unemployment, Economic Journal, 121, p. 402–444. Steven, J., Jason, R & John 2006, The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, 20(3), p. 3-26. Read More