University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Unemployment in the United States
Since the end of the Great Recession, the United States economy has created more than 8.3 million jobs with the unemployment rate has falling from 10 percent to 5.7 percent. The labor market is much better today than at any point since the Great Recession. The unemployment rate measures the number of people actively looking for a job as a percentage of the labor force. Unemployment in the United States averaged 5.83 percent from 1948 until 2014. It rose to 10.80 percent in November of 1982. According to a news release by the U.S.A department of labor on December the year 2014, the unemployment rate in the country has declined to 5.6 percent. The total non-farm payroll employment rose by 252,000 in December alone. The highest sectors that had gotten the highest job gain included, professional and business services , food services along with drinking places, construction, health care and manufacturing sectors. The number of unemployed persons has declined to 9.0 million in the month of December. The employment-population ratio was 59.2 percent for the three consecutive months. However, the employment-population ratio is up by 0.6 percentage point over the year. In 2011 president barrack Obama’s administration proposed the American jobs act but it has not been passed by congress. Some economists and academicians believe that, if it had been enacted it could have pushed the unemployment rate below 7 percent.
Categories of unemployment
Most economists, policy makers and academics agree that there are three main categories of unemployment. These are frictional, structural and cyclical unemployment.
Cyclical unemployment occurs when there is no enough demand for goods and services in the economy at large to provide jobs for every job seeker who needs a job.
In accordance to the Keynesian school of thoughts, this result because of the natural booms and bust which are experienced in the business cycles that are most evident in the capitalism nature of economy for instance the US economy. During the recessionary cycle, businesses contract and many workers are laid off. This reflects into raising unemployment rates in any economy. It is caused by the contraction phase of the business cycle period. Demand for the goods and services falls dramatically forcing businesses to lay off large numbers of workers to cut cost. When a large number of people in a certain economy are unemployed, there purchasing power of the consumers in that economy is lower and hence there is less demand for goods and services because there is no money to spend on the same. This will impact on the firms because they want to cut the production cost, they will lay off a significant number of their workers so that they can remain profitable in the market. This leads to businesses contracting even further leading to more and more unemployment due to the frequent layoffs by the firms. Unless an external force intervenes this cycle, for instance the government policy enactment, more and more people will continue to be unemployed owing to the downward spiraling of the situation will never be corrected.
Frictional unemployment occurs when workers leave their old jobs before they secure a new job. Majority of the labor force leave their workplace voluntarily either because they need to move or because they have saved enough money to allow them to look for better jobs. It also occurs when students are looking for their first job or when mothers are returning to the work force. It is short term and a natural part of the job search process. It may also result from employers refraining from hiring or laying off workers for reasons unrelated to the economy. It is good for the economy since it allows workers to move to jobs where they can be more productive.
Structural unemployment is when shifts occur in the economy that create mismatch between the skills workers have and the skills needed by the employers. For instance when an industry fires machinery workers and replaces them with robots.
A long recession can create structural unemployment. This follows the sense that if laborers work for too long in a certain profession or physical work, their skills can become obsolete. Unless they are willing and able to take lesser unskilled employment, they may still remain unemployed even after the economy has recovered, hence structural unemployment can lead to higher rate of natural unemployment.
Other types of unemployment
Causes of unemployment
As it is obvious to many, unemployment comes about when a worker is laid off, quits or is fired by the management when he she is still in need of that job. Or else when a certain individual is willing to work under the prevailing compensation levels but cannot get a job. This is a natural form of unemployment and can even occur in a healthy economy.
1. Rapid change in technology. With the introduction of robots, people are losing jobs and others not able to get new ones. The robots are a better option due to their speed and effectiveness. Technically inventions in technology also reduces manpower required thus rendering some people jobless.
2. Fewer new openings- after the economic depression, the number of new job openings declined below three million jobs although there used to be more than 4.5 million new job openings before the depression. This means about 1.5 million remain unemployed.
Lack of real growth- Real growth can be defined as the measure of change rate that an economy experiences from one fiscal year to the other. The United States has been encompassed by chronic lack of real growth. There were a measly of 36000 jobs that were created in the month of January the year 2004 yet economist along with other research that has been conducted concludes that at least 150, 000 job creation are needed each and every year to keep up with the rising country’s population.
4. Government sector layoffs. In the United States as well as all other countries, the governmental sector jobs are considered the safest of all. But nowadays, these kinds of jobs are becoming more risky as the state and the local government are continually cutting jobs and laying off of workers.
5. Chinese job grab. Owing to the competitive advantage that is experienced in china due to its lower labor cost, China is taking the US jobs in hordes. Many companies are finding it profitable to produce their product in china so that they can enjoy the low cost of production. This takes away the jobs that were otherwise meant for the US citizens. More so, the ever increasing trade deficit is slowly taking up the United states economy as billions of its currency are out-flowing to the rest of the world.
6. High taxes. It is evident that business enterprises in the United States pay more taxes than any other country in the globe. The implication here is that many businesses are each year being pushed out of the country. With businesses which could otherwise be established in the States moving out, jobs to vanish with them.
Solutions of unemployment
Monetary Policy: Applying expansive monetary policy could be not only a powerful tool but also a very effective one. When the government lowers the interest rates, many families will be able to borrow more cheaply to invest and to buy whatever that they need. This will eventually stimulate enough demand that will put the economy back to the track. Lowering the interest rates will also enable both the internal and external investors to borrow funds for less and give them the capital that is required to hire new workers and acquire their production cost to meet the rising demands. By so doing, a lot of jobs will be created and the unemployment rate is reduced significantly.
Fiscal Policy: The other most important tool is the fiscal policy adjustment. If the government cuts on taxes or increase their spending, the economy will be much stimulated. Even though the fiscal policy is a lengthy process in the United States because it will involve the congress and an ascent of the president, it could be a great remedy if effectively executed. By doing so, confidence will be instilled to people that the government will stimulate the economy to make things better in future. When this confidence is instilled to the citizens, they will feel safe to spend now for a better future.
Tax Cuts: owing to Amherst study, the most applied fiscal stimulus across the board, income tax cut is the most effective way of job creation. A one million dollar income tax cut creates more than 10, 779 jobs as only half this amount that the workers received was spent. The rest of the money was used to pay debts or saved for future use.
Funding Reduced Pay. The government of the United States should borrow this from Germany that has kept in place a policy that provides tax credits to the enterprises that reduce the employees working hours rather than laying off or firing the workers. This policy gives to the companies that want to increase their number of workers some ability to fund a fraction of the cost from cutting the working hours of the existing workers with some financial aid from Berlin. If the US federal government employs the same policy, a US company that has like 100 workers could add more 10 if they are offered such terms to keep the employees balance compensation “whole”.
Retrieved 1 March 2014.”Unemployment statistics – Statistics Explained”. Epp.eurostat.ec.europa.eu
19 October 2012.”Tax Cuts for Job Creators”. The New York Times.
February 1, 2014. News release. Us Bureau of labor statistics
Kimberly Amadeo,(2014). Types of unemployment.Newjersy