Labor Market Policy - Essay Example

Labor Market Policy - Unemployment: Nature, causes, trends and policy During the latter half of the 1980 period the effects of unemployment was relegated to forbidden quarters of the economy of United Kingdom. Though the effects of unemployment were highly visible, yet the nature of unemployment was understood as a regional and local problem and hence was not the prerogative of the government sponsoring the effects of free-market. However, observation made closely suggests that unemployment is a rising phenomenon in the context of United Kingdom for which several families had led their lives in miserable conditions. Historical data reflects that the effects of unemployment in Britain were less severe during the period of 1945 to 1950. Estimates given shows that unemployment levels mostly stayed below the 5 percent level with coming down to nearly 1 percent during 1950. However, the level of unemployment started to rise gradually during the period of 1970 reaching to 8.5 percent during 1991. This reflects a meteoric rise in the nature of unemployment in Britain in regards to other economies of Europe. Estimates reveal that unemployment in Britain rose by 31 percent unlike a rise of only 4 percent in France during the early period of 1990. (McLaughlin, 1992, pp. 1-2) As a solution measure, the right approach to labor policy needs to be determined. It is observed that the nature of unemployment varies along different countries around the world depending on various factors. Factors, which are mainly observed to contribute to the unemployment growth after the 1970 period, can be listed as the different set of ideologies regarding management of wage structure, the pattern of labor elasticity and labor potential of different countries. Differences in the degree of labor potential in the different countries owe its occurrence due to the promotion of open-market economy. Promotion of the open-market economy led to the use of use of exchange rates to different regions of the market. This is taken to be a potential reason for the differences in labor potential in different market economies around the world. The above fact can also be demonstrated in respect of the traded goods area of the German Republic. It is found that the growth in production in the traded goods section of the German economy surpasses the productivity growth in like sector in Britain. The above fact owes its effects from two reasons. The first reason that can be attributed to the above cause is the rise in wages in the traded sector in Germany in comparison with no such wage rise in Britain’s traded goods sector. Germany can also without countering a rise in wages in the traded goods sector can go for raising the sector’s competitive position in the international market. Moreover, the nature of unemployment can also be studied in respect to the rise in the number of unemployed youths in the different countries. It is observed that the rise in the number of unemployed youths had caused problems in countries like Spain, Italy and France. However, in respect of Germany the problem was less striking. In regards to the above discussion, a graphical analysis can be given to show the status of unemployment in regards to change in policy structure of labor wages. The graphical representation shows a labor demand curve, which is given as LD. The demand for labor is given in terms of real wage or wage adjustment made on inflation. The act of trade unions in setting the wage for the labor employed is reflected in the wage-setting curve given as WS. Finally, the supply of labor in case of the real wage situation is shown by the labor factor curve given as LF. It is observed through the graphical analysis that supply of labor tends to be much elastic in times of low real wage. However, with the rise in real wage supply tends to become more inelastic. The labor demand curve LD and the wage-setting curve WS intersect at a certain point E. This point corresponds to another point on the labor factor curve LF as E’. Joining the two points obtained E and E’ the unemployment equilibrium is obtained. However, the equilibrium situation of unemployment is easily disturbed due to a fall in the wage settlement condition. In a sluggish wage market, the unemployment level can rise above the equilibrium level and is shown as point X on the graph. However, such rise is taken to be temporary and is settled through proper wage adjustment by the trade unions. (Lange, 1998, pp.3-5, 46-47) Real wage Employment (Lange, 1998, p.46) In respect to a market economy, it is observed that there are a huge number of factors, which contribute to the growth of unemployment in a region. The cause of rapid technological innovation in a country or region is observed to be a contributing factor to the growth of unemployment. Further, changes in economical conditions due to an effect of inflation and recession can also lead to growth of unemployment. In respect to the conditions of the working class events like disability due to working conditions, change of attitude towards work and employment patterns and malpractices in the workplace like discrimination and harassment can also lead to the growth of unemployment. Moreover, the changes in the economic and marketing environment like alterations in business cycle in an organization owing to decline in demand for goods and services also contribute to making the labor force unemployed. In regards to the above discussion unemployment can be categorized in cyclical, structural and hard-core categories. The Cyclical Unemployment owes its origin to the nature of business cycle, which is affected by changes in demand due to fall in income patterns. Again, it is found that due to technological developments new products are launched in the market. This causes a shift in market demand, which contributes to Structural Unemployment. Disability of the workforce contributes to Hard Core unemployment. (Krugman, 1994. Fritz, 2006) A study made on the trends of unemployment patterns in the context of United Kingdom shows that during the period of 1993 unemployment in the country stood at 10.3 percent of the total labor force. However, a steep downfall of the same is noted in 2002 when unemployment was recorded to be 5.1 percent of the labor force. Historical data shows that unemployment rose from 3 percent in 1973 to about 12 percent in 1986. (Pissarides, 2003, pp.2, 4) Current estimates reveal that the unemployment rate in Britain stands at 7.7 percent. For the women class the current unemployment rate stands out to be 7 percent. Moreover, it is found that people have voluntarily opted for unemployment. These self-unemployed people add to the population of unemployment. (UK Unemployment, 2010; Leonhardt, 2010). The government of United Kingdom has created certain policy initiatives for the unemployed population. Policies like the Job Seeker’s Allowance focus on the unemployed population in the age group of 60 for women and 65 for men. Again, for the youth population the government has designed the New Deal Program. This program mainly focuses on giving training to the youth population pertaining to the age group of above 18 years to above 25 years. It also lends support to the disabled and self-employed population. Moreover, the program on Income Support renders support to the population in the age group of 16 to 59 years who are unable to go for full time employment. Programs like Disability Living Allowance help the disabled workforce and their families. The disabled population is also given rehabilitation benefits to be absorbed in the workforce. Further, special types of tax benefits are also extended to the unemployed population in the form of programs on Tax Credits and Council Tax Benefits. Moreover, United Kingdom is also focusing on the development of regional centers to provide employment information to the unemployed population. (Thompson, 2009; Kuh, Lawrence, Tripp & Creber, 1988. p. 20; Anderton, n.d, p. 597) Thus, in conclusion one may say that unemployment is an increasing population gripping the world economy from time immemorial. It is found that unemployment occurrences in any economy owes to many factors. Several changes in the business cycle due to a shift in consumer demand are found to be one of the contributing factors to unemployment. Moreover, technological innovations in the work force are also tempting to newer goods and production processes which tantamount to the growth of unemployment. Accidents in the workforce or in other areas also contribute to making the working population suddenly affected by unemployment. Economic factors like high trends in inflation and recessionary pressures also contribute to the growth of unemployment. However, the pattern of unemployment shows several variations in its trends depending on various countries. It is because different countries have different economic guidelines, which thereby increases and decreases the unemployment rate. Governments of the world have created certain policy measures to combat the effect of growing unemployment. Several programs have been made to extend financial support to the victims of severe unemployment. References 1. Anderton (n.d.). Economics. Pearson Education India. 2. Fritz, W. (2006). Unemployment-Causes and Solutions. Retrieved on November 19, 2010 from: http://www.intelligent-systems.com.ar/intsyst/unemploy.htm 3. Kuh, D., Lawrence, C., Tripp, J. & G. Creber. (1988). Work and Work Alternatives for Disabled Young People. Disability, Handicap & Society. Vol. 3. No. 1, pp.3-26 4. Krugman, Paul. (1994). Past and Prospective Causes of High Unemployment. Economic Review. Vol. 79, No. 4, pp.49-98 5. Leonhardt, D. (2010). “Unemployment”. The New York Times. 6. Lange, T. (1998). Unemployment in theory and practice. Edward Elgar Publishing. 7. McLaughlin, E. (1992). Understanding unemployment: new perspectives on active labour market policies. Routledge. 8. Pissarides, C. (2003). Unemployment in Britain: A European Success Story. Retrieved on November 19, 2010 from: http://cep.lse.ac.uk/pubs/download/dp0600.pdf 9. Thompson, L. (2009). “Unemployment Benefits Explained”. The Sunday Times. 10. “UK Unemployment”, (2010). hrmguide.co.uk. Retrieved on November 19, 2010 from: http://www.hrmguide.co.uk/jobmarket/unemployment.htm Read More