Unemployment

By Oleg Kolysnychenko; elkolys@gmail.com ; 2010 Unemployment is a major social and economic problem that is present in some point in all countries worldwide. The unemployment may be defined as state in which, people who does not have a job, and are available for work, and are actively looking for work(International Labour Office's 1998). The prevalence of unemployment is usually measured by the unemployment rate, which is the percentage of those in the labor force who are currently unemployed. It is common among the modern economists to use the unemployment rate as an indication of the underuse of a nation's resources, and to inform on the economic and social hardship that the absence of employment creates. There is a need to stress the fact that the unemployment itself is powerful tool of preventing and (at some point) controlling the inflation. But still, the reasons that lead to the state of unemployment are not agreed by all parties. For instance, Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy, while Classical or Neoclassical economics focuses more on rigidities imposed on the labor market from the outside, such as unionization, minimum wage laws, taxes, and other regulations that may discourage the hiring of workers. Furthermore, the economists not only disagree on the causes of the unemployment, but also how it should be measured. This is mainly due to the fact that there are many different types of unemployment. The most common ones are cyclical unemployment, frictional unemployment, structural unemployment and classical unemployment (Steven M. Sheffrin). Cyclical unemployment occurs when there is not enough aggregate demand in the economy. Cyclical unemployment rises during economic downturns and falls when the economy improves. n this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. Frictional unemployment occurs when a worker moves from one job to another. The time period between jobs is considered frictional unemployment. Structural unemployment occurs when the number of jobs in a labor market are unable to provide substantial jobs for everyone who wants one. Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer (Applia). Finally, Classical unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies(Alain Anderson). Still, the common characteristic that all types of the unemployment have is that all of them have an economic and sociological impact not only on those people who are directly affected, but also on the families of those people, and going further: on the local, the regional economies, and the economy as a whole. Putting it in other words, unemployment causes a waste of scarce economic resources and reduces the long run growth potential of every economy. Next we will examine some areas in which the impact of the unemployment cannot be ignored. Impact of the unemployment on government The rate of the unemployment has a direct impact on the government expenditures, the taxes it impose, and the amount of money it will need to borrow each year to fight restore the economy. If the unemployment rate increases, the government will spend more on all kinds of benefit payments and will receive less taxes revenues. The decrease in the taxes revenue is normal, since people in difficult times spending less – they contribute less in the way of indirect taxation. And since the government revenues will decrease, it will be in necessity to borrow more money. Impact of the unemployment on human capital investments Unemployment wastes some of the scarce resources used in training workers. Furthermore, the workers who are jobless for long enough become de-skilled in a quickly changeable modern competitive job market. This means that those who are long enough unemployed, have an impact on the economic burdening on government and society as a whole. Social cost of unemployment The increase in unemployment rate, as it was shown in a number of studies, has a direct relationship with the rising crime and worsening social dislocations such as increased numbers of divorces, worsening health and lower life expectancy.  The unemployment is also unequally transferred among different groups of people. If we divide all the people according their occupations, it becomes obvious that low-skilled workers have higher unemployment rates than the highly professional workers. Another characteristic that has direct impact on the rates of unemployment, is the age. There is more chances for teenagers to be unemployed in comparison with adults. That is due to number of facts such as: the teenagers have lower skill levels, quite more frequently, are more often fired, and have less geographic mobility than adults. Also, many unemployed teens are new in the labor market, searching for their first job. What was just written is not contradictory to younger adult workers that are more geographically mobile than older employees. This may lead to a risk that areas with above average unemployment will suffer from an ageing potential workforce - making them less attractive as investment locations for new businesses. Race and ethnicity play a major role in determining the rate of unemployment. The rate of unemployment is significantly higher for African-American and Hispanics than whites. This is mainly due the level of education, attainment, greater concentration in a lower-skilled occupations and discrimination in the labor market(McConnell). Gender plays also important role. Many sectors offer jobs only for males (navy, combat forces) while other sectors are preferred by females (nurses). High unemployment rates is not rare to encourage xenophobia and protectionism as there is fear of foreigners who may “steal” the jobs of the native workers. But also, a rising unemployment rate concentrates the oligopsony power of employers by increasing competition amongst workers for scarce employment opportunities. Cost of unemployment to individuals The jobless individuals cannot fulfill all of their financial obligations. Inability to pay the mortgages or rentals may lead to their homelessness or suicides. The state of unemployment lead to malnutrition (because of the illiquidity), illness, mental stress, and loss of self-esteem leading to depression. There is also another opinion which states that the low-income jobs are not really a better option than unemployment, since they repeat many of the unemployment’s disadvantages. But since it is almost impossible to get unemployment insurance benefits while jobless, the jobs with low-income and unemployment are more complementary than substitutes for each other. Summarizing, the unemployment is a major social and economic problem, which shows that we do not use in the most efficient way the available to us scarce resources, technologies, and available workforce. But even though, with all its cons, the unemployment is an “necessary evil” since through use of it, economists preventing the inflation. Although we have many definitions for unemployment, as many types of it too, the economists until today couldn’t agree what exactly are the causes that lead to it and furthermore, which measurement of the unemployment is the most precise. It is part of every economy that exist today, it is unavoidable. The problems it creates to the individuals, groups of the individuals, local communities, whole countries and the whole globalized economic system are enormous, and only hough spendings of the government may decline it effect but not eliminate the phenomenon of unemployment completely, since the full use of scarce resources is impossible to be achieved in a not perfect but still well performing modern global economic systems. References International Labour Office's 1998 Steven M. Sheffrin (2003). “Economics: Principles in action”. Pearson Prentice Hall. p. 330. ISBN 0-13-063085-3. Applia – http://atext.aplia.com/controller/apliaText.aspx'isbn=0324589999&ch=15&mod=198164&sr=structural%20unemployment Alain Anderson, “Economics”. Causeway Press. Fourth edition, 2006 McConnell, Brue, (2008) “Economics”. McGraw- Hill. 17th Edition. ISBN 978-0-07-11043-1 [pic]