Unemployment Levels in Wales and the UK - Essay Example

Unemployment Unemployment levels in Wales and the U.K Unemployment is the of a person who is out of work, and actively looking for a job. 1 In July 1992, Wales had an unemployment rate of 9.7 per cent compared to 9.8 per cent for the U.K. In July 1993, the Welsh unemployment rate was 9.9 per cent as compared to 10.2 per cent for the U.K.2 Thereafter unemployment rates declined steadily in both Wales and the U.K to stand at an average of 3.7 per cent and 3.1 per cent of the workforce respectively in 2002. By April 2003 the rate dropped marginally for Wales (3.5 per cent) but remained the same (3.1 per cent) for the U.K.3 In 2005, the Unemployment rate in Wales was lower than in the U.K for the first time (4.1 per cent in Wales, 4.7 per cent in the U.K).4 Manufacturing plays a more prominent role in the Welsh economy than it does in the U.K economy as a whole; it accounts for 27.8 per cent of Welsh GDP compared to 20.8 per cent of U.K GDP.5 Secretary of State for Wales, Peter Hain said on 22nd March 2006: “There are 118,000 more people in jobs in Wales since 1997; the unemployment level is almost 40 per cent lower than in 1997; and the 34 per cent growth in exports between 1999 and 2005 has outperformed the U.K average of 25.6 per cent.”6 Comparative unemployment levels in Europe and the World Between 1980 and 1993, average expenditure on labour market policies in Europe increased by only 3 per cent in response to a near doubling of average unemployment from 6 to 11 per cent.7 In 2005, the unemployment rate in Wales was 4.1 per cent as against 4.7 per cent in the U.K. These rates compare favourably with unemployment rates in most parts of Europe and the world in 2005. Note: All unemployment rate figures mentioned below are in 2005 and to be read as ‘per cent’. Western Europe: The Welsh unemployment rate of 4.1 was lower only to Switzerland’s 3.8. Next came Norway and Ireland, both 4.2, followed by U.K 4.7, Luxembourg 4.9, Denmark 5.5, Sweden 6, the Netherlands 6.5, and Portugal 7.3. Italy and Finland both 7.9, Belgium 8.4, France 10, Spain 10.1, Greece 10.8 and Germany 11.6. Eastern Europe: Poland posted 18.3, Bulgaria 11.5, Slovakia 11.4, Slovenia 9.8, Estonia 9.2, Czech Republic 9.1, Latvia 8.8, Russia 7.6, Romania 5.5 and Lithuania 5.3. North and South America: Mexico recorded 3.6, U.S.A 5.1, Canada 6.8, Chile and Bolivia both 8, Panama 8.7, Brazil 9.9, Columbia 10.2, Argentina 11.1, Venezuela 12.3, Uruguay 12.5 and Paraguay 16. Asia: Thailand recorded 1.4, Bangladesh 2.5, Singapore 3.3, Malaysia 3.6, Taiwan 4.2, Burma 5, Sri Lanka 8.4, India 9.9, Indonesia 10.9 and the Philippines 12.2. Middle East and Africa: Nigeria recorded 2.9, Israel 8.9, Egypt 10, Morocco 10.5, Tunisia 13.5, Bahrain 15, Algeria 22.5, South Africa 25.2, Iraq 30, and Zimbabwe 80. Other areas: Australia recorded 5.2, New Zealand 4 and Japan 4.3. 8 Political strategies that have been put in place and their likely success A global review of government policies to reduce unemployment shows that they are based upon the types and causes of unemployment. Real Wage Unemployment (labour market fails to respond to demand): Governments combat it by reducing trade union powers, increasing companies’ abilities to change wages, and encouraging short- term contracts. Frictional Unemployment (ncomplete information in the labour market): Governments increasing knowledge of vacancies through ‘job centres’, and increasing the incentive to search for jobs (e.g. by reducing unemployment benefits; lowering taxes on wages). Keynesian unemployment (over the economic cycle demand changes, unemployment will rise or fall): Governments increase spending, and reduce tax and interest rates. Geographical unemployment (inability of people to relocate from areas of low demand for labour to areas of high demand): Governments provide regional incentives for new businesses to locate in high unemployment areas, and reduce barriers to free movement of workers. Structural unemployment (inability of workers to change the kind of job they do {e.g. from IT to engineering}): Governments by provide incentives to retrain, and reduce geographical immobility (facilitating workers movement to areas where their skills are in high demand).9 In the United Kingdom during the early 1990s under the Tories, there were 3 million people unemployed. Since 1997, 2 million were helped back to work under Labour’s New Deal programme.10 This programme was significant because of its conditionality: those who refuse to participate lost part of their benefits. Young people out of work between the age of 18 and 24 were offered one of 4 choices: a subsidised ‘job’ in the private sector, voluntary work, a place on an environmental taskforce, or a return to education.11 The Labour government restructured the previous passive labour market policy by terminating the Unemployment Insurance Benefits scheme.12 Many studies had identified the work disincentive affect of Unemployment Insurance Benefits. The risks of labour-market participation are reduced by the existence of Unemployment Insurance Benefits. This employment-increasing effect can offset the disincentive effect, with the net impact on employment becoming an empirical issue.13 Unemployment Insurance Benefits was replaced by the flat-rate Job Seeker’s Allowance (JSA), an amount paid only on condition that claimants demonstrate active job search.14 Switching emphasis from ‘passive’ benefit payment towards promoting participation in ‘active’ programmes of labour market integration are widely understood as a product of liberalism, individualism, and increasing labour market flexibility, introducing a degree of workfare into the overall structure of unemployment support.15 The basic amount of the JSA is £ 48 ($ 78) per week for a single person. Further incentives for the unemployed to resume work include a premium of £ 200 ($ 325) and weekly income support of £ 50 ($ 81).16 The U.K, like many other European nations, have regulations in place preventing companies from laying off employees during hard financial times for the companies. The Employment Committee of the House of Commons in the U.K has requested memoranda from social scientists concerning the psychological impact of unemployment in order to help them make appropriate decisions.17 Chancellor of the Exchequer Gordon Brown declared on 6th April 2005: “British unemployment has halved since 1997 – and it is half that of Germany and France – and lower than that of the United States of America.”18 (Unemployment figures in 2005 are: Britain 4.7 per cent, Germany 11.6 per cent, France 10 per cent and U.S.A 5.1 per cent).19 The Labour Party has a specific set of measures in mind during a third term. Attacking the Tories’ proposal to cut £ 41 billion ($ 67 billion) from public services by 2011 – or spend £ 41 billion ($ 67 billion) lesser than Labour through cutting waste, Labour insists the Tory plan would contain a huge economic risk as it proposed cutting help for the unemployed, raised unemployment and cut public services. Instead, Labour proposed to: extend New Deal to cover 900,000 claimants of incapacity benefits; offer unemployed 16- and 17-year olds transitional help in return for a commitment to enter training or work; extend to new areas the £ 2000 ($ 3250) first year return-to-work bonus for lone parents; Establish new centres for vocational qualifications and entrepreneurship in areas of high ethnic minority unemployment.20 Social and economic impact of unemployment Unemployment is a major incentive to economic action in a market economy. However, it brings about many negative social and economic consequences as well.21The larger and longer the unemployment, the deeper and more complicated are the social and economic problems it causes to society.22 Economic effects of unemployment Negative impact on GDP. Those who are unemployed are unable to add towards GDP.23A country’s full level of production is not reached. If full employment could be reached, the production could be significantly increased.24 Global demand shocks are proxied by the difference between inflation and unemployment, and global supply shocks are proxied by the sum of inflation and unemployment, often called the misery index. A rise in global demand raises the GDP growth rate. Global supply shocks, like the two oil crises, raises both inflation and unemployment and hurts GDP.25 No increase in wages. The elasticity of effective labour supply is a hybrid concept, combining the effect of wages on participation rates for low-skilled workers and the effect of low-skilled wages on unemployment at all other skill levels.26 High unemployment means there is an excess supply of jobs, it is easier for employers to find labour, and are therefore unlikely to increase wages to attract labour. Decline in labour market skills. Those who are regularly unemployed tend to lose valuable skills.27 For society, this means a loss of economic and gains and no return of investment made.28 Increased cost burden on the government. High and persistent unemployment has presented a major challenge from two directions. First, it has eroded the funding base and second, it has increased the demands on welfare programmes because of the consequences of poverty and inequality resulting from unemployment.29 Social effects of unemployment Fall in the standard of living. Unemployment results in a lowering of the current standard of living of the jobless person and his/her family. Further, a deterioration of skills and work habits while he/she is not working may adversely affect earnings on his/her next job and thereby reduce his/hear future standard of living.30 Unemployment results in increased crime rates, domestic violence, health problems and negative psychological effects.31 Research discovered that in post-war England and Wales, unemployment rates significantly affected imprisonment rate, holding constant age composition, crime and conviction rates.32 The 1980 National Bureau of Economic Research Inner City Youth Survey found that youth who believed that they ‘make more on the street than on a legitimate job’, were more likely to engage in crime than others, and that estimated differences in income from crime and legitimate work also significantly affected crime behaviour.33 Those exposed to 6 months or more unemployment had rates of psychiatric disorder that were 1.5 to 5.4 times higher than those not exposed to unemployment.34 Socio-economic events are known to produce important fluctuations in suicide mortality. Unemployment, in particular, seems related to suicide risk along direct and indirect pathways.35 Ethnic tension. Unemployment affects compact ethnic groups and brings about a deep ethnic division in society, thus causing ethnic tensions and undermining the national integration.36 Endnotes: 1 = http://encarta.msn.com/encyclopedia_761559696/unemployment.html 2 = Alden, Grzegorz Gorzelak. “Regional Development Studies: A European Perspective”. 3 = http://www.wales.gov.uk/keypubstatisticsforwales/content publication/economy/2003/sb53/sb53-2003.htm 4 = http://www.walesoffice.gov.uk/2005/pn_20050316.html 5 = Keating, Michael & Dunning, John H. “Culture, Institutions & Economic Development: A Study of Eight European Nations”. 6 = http://www.walesoffice.gov.uk/2006/pn_20060322.html 7 = Pierson, Paul. “The New Politics of the Welfare State”. 8 = http://www.cia.gov/cia/publications/factbook/fields/2129.html 9= http://en.wikibooks.org/wiki/Macroeconomics/ Policies_to_reduce_Unemployment 10= http://washtimes.com/upi-breaking/20050407-120257-7494r.htm 11= Geddes, Andrew P & Tonge, Jonathan. “Labour’s Second Landslide: The British General Election 2001”. 12= http://www.reformmonitor.org/index.php3?mode=status 13= Hamermesh, Daniel S. “Entitlement effects, Unemployment Insurance & Employment Decisions.” 14= http://www.reformmonitor.org/index.php3?mode=status 15= Clasen, Jochen & Clegg, Daniel. “Unemployment Protection & Labour Market Reform in France & Great Britain in the 1990s: Solidarity Versus Activation?” 16= http://www.reformmonitor.org/index.php3?mode=status 17= Lester, D & Yang, B. “Unemployment & Suicide Behaviour”. 18= http://washtimes.com/upi-breaking/20050407-120257-7494r.htm 19= http://www.cia.gov/cia/publications/factbook/fields/2129.html 20= Strange, Hannah K. “Economy dominates UK Campaign Battle”. 21= http://alex.edfac.usyd.edu.au/Methods/HSIE/Ashley%20Brown/ Untitled/unemployment.htm 22= http://www.unesco.org/most/p86doc3.htm 23= http://alex.edfac.usyd.edu.au/Methods/HSIE/Ashley%20Brown/ Untitled/unemployment.htm 24= Anon. ”Tallying the Economic & Social Costs of Employment”. 25= Lindert, Peter H. “Growing Public: Social Spending & Economic Growth since the Eighteenth Century”. 26= Snower, Dennis J & Dehesa, Guillermo de la. “Unemployment Policy: Government Options for the Labour Market”. 27= http://alex.edfac.usyd.edu.au/Methods/HSIE/Ashley%20Brown/ Untitled/unemployment.htm 28= http://www.unesco.org/most/p86doc3.htm 29= http://www.sprc.unsw.edu.au/dp/DP118.pdf 30= O’Boyle, Edward J. “Personalist Economics: Moral Convictions, Economic Realities & Social Action”. 31= http://alex.edfac.usyd.edu.au/Methods/HSIE/Ashley%20Brown/ Untitled/unemployment.htm 32= Liska, Allen E. “Social Threat & Social Control”. 33= Entorf, Horst & Spangler, Hannes. “Crime in Europe: Causes & Consequences.” 34= Fergusson, D.M, Horwood, L.J & Lynskey, M.T. “The effects of Unemployment on Psychiatric Illness during young Adulthood.” 35= Preti, A. “Unemployment & Suicide.” 36= http://www.unesco.org/most/p86doc3.htm References used: Alden, Grzegorz Gorzelak. (1996). Regional Development Studies: A European Perspective. U.K: Jessica Kingsley Publishers. Anon. (2003, May 29). Claimant Count Trends. Retrieved May 5, 2006 from Bwletin Ystadegol Statistical Bulletin. Web site: http://www.wales.gov.uk/keypubstatisticsforwales/content/ publication/economy/2003/sb53-2003/sb53-2003.htm Anon. (No date). Effects of Unemployment – Economic & Social Costs. Retrieved May 6, 2006 from Usyd.edu.au. Web site: http://alex.edfac.usyd.edu.au/Methods/HSIE/Ashley%20Brown/Untitled/unemployment.htm Anon. (2006, April 20). Field Listing – Unemployment Rate. Retrieved May 5, 2006 from CIA – The World Factbook. Web site: http://www.cia.gov/cia/publications/factbook/fields/2129.html Anon. (No date). Labour Market Policy (United Kingdom). Retrieved May 5, 2006 from International Reform Monitor. Web site: http://www.reformmonitor.org/index.php3?mode=status Anon. (2006, March 23). Macroeconomics/Policies to reduce Unemployment. In Wikipedia.. Retrieved May 5, 2006. Web site: http://en.wikibooks.org/wiki/Macroeconomics/ Policies_to_reduce_Unemployment Anon. (2005, March 16). New Job figures make for a winning week for Wales, says Peter Hain. Retrieved May 5, 2006 from Wales Office Bulletin. Web site: http://www.walesoffice.gov.uk/2005/pn_20050316.html Anon. (1996). Tallying the Economic & Social Costs of Employment. Applied Research Bulletin (Summer-Fall 1996) 2 (2) 11. Anon. (2006, March 22). Today’s Budget is ‘great for business, great for Wales’, says Peter Hain. Retrieved May 6, 2006 from Wales Office Bulletin. Web site: http://www.walesoffice.gov.uk/2006/pn_20060322.html Anon. (No date). Unemployment. In MSN Encarta. Retrieved May 5, 2006. Web site: http://encarta.msn.com/encyclopedia_761559696/ unemployment.html Beleva, Iskra. (No date). Long-term Unemployment as Social Exclusion. Retrieved May 7, 2006 from UNESCO. Web site: http://www.unesco.org/most/p86doc3.htm Clasen, Jochen & Clegg, Daniel. (2003, July). Unemployment Protection & Labour Market Reform in France & Great Britain in the 1990s: Solidarity Versus Activation? Cambridge Journal of Social Policy 32 (3) 361-381. Entorf, Horst & Spangler, Hannes. (2002). Crime in Europe: Causes & Consequences. Germany: Springer-Verlag Berlin-Heidelberg. Fergusson, D.M, Horwood, L.J & Lynskey, M.T. (1997, March). The effects of Unemployment on Psychiatric Illness during young Adulthood. Cambridge Psychological Medical Journal 27 (2) 371-381. Geddes, Andrew P & Tonge, Jonathan. (2001). Labour’s Second Landslide: The British General Election 2001. U.K: Manchester University Press. Hamermesh, Daniel S. (1979, July). Entitlement effects, Unemployment Insurance & Employment Decisions. Oxford Economic Enquiry Journal XVII (3) 317-332 Keating, Michael & Dunning, John H. (2003). Culture, Institutions & Economic Development: A Study of Eight European Nations. U.K: Edward Edgar Publishing Ltd. Lester, D & Yang, B. (2003). Unemployment & Suicide Behaviour. BMJ Journal of Epidemiology & Community Health 57, 558-559. Lindert, Peter H. (2004). Growing Public: Social Spending & Economic Growth since the Eighteenth Century. U.K: Cambridge University Press. Liska, Allen E. (1992). Social Threat & Social Control. USA: State University of New York Press. O’Boyle, Edward J. (1998). Personalist Economics: Moral Convictions, Economic Realities & Social Action. USA: Kluwer Academic Publishers. Pierson, Paul. (2001). The New Politics of the Welfare State. U.K: Oxford University Press. Preti, A. (2003). Unemployment & Suicide. BMJ Journal of Epidemiology & Community Health 57, 557-558. Saunders, Peter. (No date). The Direct & Indirect effects of Unemployment on Poverty and Inequality. Retrieved May 7, 2006 from Social Policy Research Centre. Web site: http://www.sprc.unsw.edu.au/dp/DP118.pdf Snower, Dennis J & Dehesa, Guillermo de la. (1997). Unemployment Policy: Government Options for the Labour Market. U.K: Cambridge University Press. Strange, Hannah K. (2005, April 7). Economy dominates UK Campaign Battle. The Washington Times: United Press International. Retrieved May 7, 2006. Web site: http://washtimes.com/upi-breaking/20050407-120257-7494r.htm Read More