Unemployment Increase essay

Introduction: U.S. Unemployment Figures

High unemployment level is one of the U.S. most pressing social and economic issues. The United States is the country that had its labour market was significantly weakened following 2008 when worldwide financial markets almost collapsed (IEEE, 2010). Indeed, the increase in unemployment rate has been dramatic: by the calculations of IMF, the rise in the rate of unemployment in the countries with advanced economies (the United States among them) was from 5.4% back in 2007 up to 9.6-9.8% in 2010 (IMF, 2009 in Bell & Blanchflower, 2010). Analysis of OECD Economic Outlook data (2011) helps to find out a small decline trend in unemployment across the States in the years  following 2010, when unemployment was at its highest – 9.6% by the end of the year. Specifically, in 2011 and 2012 the figures of unemployment were 8.8% and 7.9% respectively (OECD, 2011, p.6). By other sources, the unemployment rate in the United States peaked in October 2009 at 10.00% as a result of the housing bubble burst (15,382,000 people unemployed). Since that time, the lowest point was fixed in April 2013, with 7.6% (11,659, 000 people unemployed). However, in May 2013 the increase in unemployment was already 0.1% (has grown by 101, 000) (See Figure 1) (Department of Numbers, 2013).

 

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This paper explores the nature and causes of high unemployment level in the United States within the last 5 years and examines how and why efforts to reduce the high level of unemployment have been unsatisfactory. Next, it identifies and describes possible consequences that will affect the country once the United States fail to fix this problem.  Lastly, the paper discusses possible effective and lasting solution to the chosen problem. 

U.S. Unemployment: Nature, Causes, and Efforts

The recession that affected the world after the financial and mortgage crisis of 2008 was a direct cause of increase in unemployment in world economies. The United States along with Spain and Ireland was one the most affected countries with the largest increases in the rate of unemployment. Exploring the nature of unemployment in the United States, one should mention that the term unemployed people usually applies either to people who have been laid off, or voluntarily have left their positions, and are currently looking for work; or to people who enter or re-enter the work force. The first typically account for 60% (50% of those who have been laid off and 10% of those who quitted themselves), whereas the second account for the remaining 40% (CBO, 2012). It is worth noting that during recession the share of the unemployed who have been laid off increases.

Demographically, populations that suffered the most were those who had least skilled occupations and those who were least educated. In addition, the minorities and immigrants were dramatically impacted by the outcomes of the crisis due to the drop in demand. For instance, in the United States, in August 2009, the unemployment rates of the African American population were as high as 15.1 %, while Hispanic population 13.0%. To compare, for the white U.S. population the unemployment   rate was 8.9%. With relevance to education levels, high school dropouts had the highest level of unemployment, which was 15.6% (to compare, it was 9.7% for high school graduates and 4.7% for people with a college or higher degree) (Bell & Blanchflower, 2010, p. 4). In addition, it has been found that unemployment rates for men were higher than those for women (Bell & Blanchflower, 2010, p. 7). In terms of age, the likelihood of being unemployed is the biggest for those aged 16, especially young black people (Blanchflower, 2010, p.8). The Congressional Budget Office study says that jobless people disproportionately represent the following social groups: people who have at most a high school diploma; people who are married; African Americans; construction workers; and people aged under 25 (CBO, 2012, p.2).

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Geographically, the highest level of unemployment was fixed in the West of the country. Predominantly the states mostly affected by the mortgage crisis suffer the most (California – 11%, Nevada – 13%, and Florida – 10%); also, problems in the automobile industry have greatly affected the unemployment rate (Michigan – 9%). Conversely,  the states that were not affected by these hardships suffered less: Iowa (6%), Virginia (6%), and Hawaii (7%). Those states in which oil industry is booming suffered even less: North Dakota (3%), South Dakota (4%), and Wyoming (6%).

As for a more detailed view of causes of increase in unemployment in the last 5 years, it may be summarized from the perspectives offered in the latest media and scholarly articles. Depending on the type of unemployment, reasons differ. Specifically, structural unemployment is a result of obstacles that emerge in the worker-to-job matching: mismatches, composition of the jobless, and specifics of labor market institutions. On the other hand, cyclical unemployment is a result of the economy experiencing a decrease in the current demand for services and goods. Adjusting to the downturn, employers temporarily (for a given business cycle) lay off the workforce. Once they start feeling confident that the recession is over, they recall the sacked workforce (Levine, 2013, p. 2).

The following causes of unemployment have been listed by America’s Debt Help Organization: frictional unemployment  (when workers make temporary transitions looking for other jobs), cyclical (insufficient demand causes lay-offs), and structural (based on demographic and other mismatches) (Debt.org, 2013). Further, Price in his article “What causes unemployment?” focuses on the most obvious factors: minimum wage acts as a powerful job deterrent; taxes on companies make them outsource workforce and move companies;  reform regulatory as well as licensure laws act as a big barrier to job creation (Price, 2010). Jacob (2011) in his article “Top Five Reasons for High Unemployment in the US” names the following causes: fewer new job openings post crisis, lack of real growth of economy, layoffs in the government sector, and the so-called “Chinese job grab”, and high taxes. EconomyWatch (2010) adds the following causes: rapid changes in modern technology, inflation, recession, disability, willingness to work, employee values, discrimination at work, undulating business cycles, ability to seek employment, and changes in customer tastes plus changes in climatic conditions, which may lead to decrease in demand for certain services and goods.

Back in 2011, the Administration of Barack Obama developed the American Jobs Act, which, if enacted was believed to be able to push the extant unemployment rate below 7%. Yet, the Act was not passed by the U.S. Congress. This lack of unanimity poses great obstacles, as is widely believed (Debt.org, 2013).  Failure to combat unemployment is also a result of governmental measures that are wrongly directed.  Specifically, government should have focused on reducing the marginal cost of adding new employees to businesses. This would have included reductions in employee payroll taxes, increased aid to the jobless, and provided more refundable tax credits for middle-income and lower-income households. Instead, the policies only brought a small incentive to hire employees since they impacted the companies’ cash flow above all (CBO, 2012, p.14). Thus, the efforts to combat unemployment have been quite superficial and not carefully structured.

Consequences of U.S. Unemployment

Just as unemployment is recognized a stressful life event it undeniably makes people unhappy. Bell & Blanchflower observe that “increases in the unemployment rate lower the happiness of everyone, not just the unemployed.” (Bell & Blanchflower, 2010, p. 12 ) The fear of being laid off in the future spoils people’s subjective wellbeing (Di Tella, McCulloch, and Oswald, 2001 in Bell & Blanchflower, 2010, p. 12). Next, unemployment leads to an increase in susceptibility to malnutrition, sickness, mental stress, as well as loss of self-esteem, which causes depression (Veum & Darity, 1997 in Bell & Blanchflower, 2010, p. 12). Young people are less likely to be employed in the future; youth unemployment has a scarring effect on their subsequent earnings as well (Arulampalam et al, 2001 in Bell & Blanchflower, 2010, p. 12). CBO 2012 report lists the following effects of unemployment: reduced earnings after the loss of a job; lower earnings for entering workforce, adverse health effects; and family stresses (CBO, 2012, p. 7)

Solutions

Under the circumstances of rising inflation, weak economic recovery, and drifting anti-unemployment measures should be self-sustained and quite broad based. Structurally held policy should play the key role based on U.S. needs. Adequate reforms, as is stated in the report by OECD (2011), will boost the potential growth of the country, promote fiscal consolidation, as well as effectively ease the extant pace of monetary policy normalization.  The following policy measures should be taken:

1) Reducing the marginal cost of adding new employees to businesses. This will have the biggest effect on employment through reductions in employee payroll taxes, increased aid to the jobless, and provision of more refundable tax credits for middle-income and lower-income households (CBO, 2012)

2) Maintaining and boosting aggregate demand (Bell & Benchflower, 2010)

3) Focusing on assistance to the young through active labor market programs, expansion of education, providing subsidies to private firms to hire young people

4) Offering more apprenticeships to employees through subsidies to firms

5) Offering more practical help to jobless people through tailored support

6) Ensuring the educational system teaches relevant skills

7) Improving labor mobility (EconomyWatch, 2010);

8) Adjusting legislation so that it boosts the demand for workers (CBO, 2012);

9) Modifying unemployment insurance;

10) Facilitating transitions to future employment. 

Conclusion

The rate of unemployment remains high in the United States. Its unsteady position and constant flows (in May, the unemployment figures rose again) prompt immediate action. The policy based on the country’s specific needs should be implemented which will entail measures ranging from broad-scale fiscal and legislative reforms to practical and educational assistance developed with reference to the economy’s needs demands. Otherwise, the nation risks facing an extremely high unemployment level and lose its position in the world economy and politics, and risks subjecting people to malnutrition, stresses, and overall unhappiness.