Unemployment - Causes and Solutions
Unemployment levels are increasing dramatically in many parts of the world. Why is this, and
can it be avoided? The permanently unemployed have no income, and many choose the
alternative of income by crime. Would you rather live in a country with no unemployment? Here
is a sure way to eliminate unemployment!!
Unemployment is an unbalance between the supply and the demand of working hours.
We all know that the efficiency of all types of machines is increasing yearly. We need fewer
people to produce the same goods. Work time has been reduced in the past 200 years from about
12 hours a day to less then 8 hours per day and the working week from 7 days to 5.
Historic working hours
1802 - In the english textile industry, they try to reduce
the working hours of apprentices to 12 hours.
1847 - The legal workday in England is 10 hours.
1848 - In Germany, work time is reduced to 12 hrs. as
against the previous 14 to 16 hours per day.
1890 - In the USA , the AFL wants an 8 hour day.
1891 - In Germany, the new working hours for female
factory workers is 11 hours per day.
Continuing with our reasoning, we also know that what is abundant has low value. You may ask:
So
what?
The main reason for the high level of unemployment is technological progress. Don't get me
wrong; progress is good and it makes life easier. But if every year we produce the same amount
of goods with fewer people -- in a few years far less working hours are needed to produce all the
goods that are required. The historical trend has been to use less and less working hours per
week. If we do not continue this trend, the supply of working hours is greater than the demand.
An oversupply of working hours means they are worth less, wages and salaries get reduced.
Also many persons are out of work; their working hours are no longer needed. Those that are out
of work have no income and therefore the demand for goods goes down. With fewer sales, less
gets produced, more persons are laid off. This is a vicious circle that accelerates unemployment
and produces crime; because some will turn to crime to obtain income .
The way to stop this and have everybody working, is to continue the historical trend; is to
distribute the available work between all persons that want to work. This we can do if each
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person works fewer hours per week. The Government could level a tax on overtime, be it paid or
voluntary, and on hours worked above a certain level per week. If there is, say, 9%
unemployment, this level should be 9% less hours per week, than what is worked at present.
Would the enterprises agree to this? By paying no overtime, the labor costs are lower. By having
an increased demand for goods, sales and production would be higher. By working many shifts
per day, seven days a week, the machines would work always and investment would be lower.
Certainly costs would be lower and profits higher.


This assumes that employee benefits are in relation to the total amount paid for salaries or
wages. If hiring more persons means higher costs for employee benfits, then the
corresponding laws would have to be changed.
Investment:
The life of a machine and related amortization costs, are related to the amount of time the
machine was running. Or said differently, they are related to the amount of parts
produced. After a certain amount of parts, the machine has to be replaced.
If you are running three shifts instead of one, you need about on third the amount of
machines (for the same daily production). So with equal profits per part, your investment
costs
and
interest
on
investment
is
about
one
third.
It is true, that after making a certain amount of parts the machine has to be replaced
(Working three shifts, it has to be replaced in one third the time). But when the machine
has produced all the parts it can, its replacement cost is covered by the profits obtained
for the amount of parts produced. Monthly profits per machineare three times higher;
replacement
costs
per
machine
are
also
three
times
higher.
Since replacement costs are only part of the profits, net profits are higher.
Would the people agree to this? Working night hours and weekend hours is not pleasant. But by
working fewer hours per week, more hours are available to be with the family, for entertainment,
sports and hobbies. Wages and salaries would be higher since there would be no oversupply of
working hours. In summary, finally everybody could reap the benefits of technological progress
and have more free time.

NOTE: When there is much unemployment the enterprises pay low wages. When the
enterprises need employees, and there are many more persons that need work, than open
positions, the enterprises select those persons that request the lowest salaries.
Furthermore, at least in Argentina, they require their personnel to work unpaid overtime.
If this is not accepted, the person gets fired, and the enterprise hires other persons that
work for a low salary and agree to work long hours.
When there is a shortage of available persons, the enterprises need to offer higher wages,
so
that
they
can
get
the
people
they
need.
In conclusion, when there is a high unemployment, salaries and wages are low.
But what happens to the salary of the persons that work less hours, so that the
unemployed
can
find
work?
At first, they receive a lower salary, since they work less hours. But as a result of working
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less hours, there is a shortage of available persons. So the enterprises have to raise
salaries to get the personnel they need. Historically, this raise is much higher then the loss
due to working less hours per week.
Some say that by increasing exports we can generate a greater need for working hours. If
increased exports are balanced by increased imports, nothing is gained. Hours gained by exports
are
lost
by
imports
that
replace
local
products.
If exports are not balanced, a local oversupply of foreign currency results, changing the currency
relations in the long run, which in turn balances the value of exports with imports.
Some say, create more jobs by creating new products. But people can only buy new products if
they have money, and to have more money there must be low unemployment and high salaries.
So you see, these "solutions" do not help in the long run
Causes of unemployment
In a modern economy unemployment has a variety of causes. Some of them relate to the general
level of economic activity, others are the result of a failure of the labour market in an economy to
work optimally.
Among the main types of unemployment we can consider:





Real wage unemployment
Demand deficient unemployment
Frictional unemployment
Structural unemployment
Hidden unemployment
Real wage (classical) unemployment
Real wage unemployment is a form of dis-equilibrium unemployment that occurs when real
wages for jobs are forced above the market clearing level.
Traditionally, trade unions and wages councils are seen as the institutions causing this type of
unemployment although the importance of trade unions in the UK labour market has diminished
significantly over recent years and this has not stopped unemployment reaching nearly three
million twice in the last twenty years.
Classical unemployment is thought to be the result of real wages being above their market
clearing level leading to an excess supply of labour. Some economists believe that the
introduction of the national minimum wage may create some classical unemployment in
industries where average wage rates are closer to the NMW level and where international
competition from low-labour cost producers is severe
Demand deficient (or cyclical) unemployment
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Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for
goods and services. This is also known as Keynesian "demand deficient" unemployment and is
associated with the transition of the economy through the business cycle. When there is an
economic recession we expect to see a rising level of unemployment because of plant closures
and worker lay-offs. This is due to a fall in demand leading to a contraction in output across
many industries.
Although demand deficient unemployment is usually associated with economic recessions it can
also exist in the long run when the economy is constantly run below capacity. As the economy
recovers from a downturn, we expect to see the problem of cyclical unemployment decline. This
has certainly been the case in the UK over recent years as the recovery of output from the early
1990s recession gathered momentum. Nine years of sustained economic growth has led to the
lowest recorded unemployment levels since the end of 1985. Unemployment fell below one
million (using the claimant count measure) in February 2001
Frictional unemployment
Frictional unemployment is transitional unemployment due to people moving between jobs: For
example, newly redundant workers or workers entering the labour market (such as university
graduates) may take time to find appropriate jobs at wage rates they are prepared to accept.
Many are unemployed for a short time whilst involved in job search. Imperfect information in
the labour market may make frictional unemployment worse if the jobless are unaware of the
available employment opportunities.
Some of the frictionally unemployed may opt not to accept jobs if they believe the tax and
benefit system will reduce significantly the net increase in income from taking paid work. When
this happens there are dis-incentives for the unemployed to accept work.
Structural unemployment
Structural unemployment occurs when people are made unemployed because of capital-labour
substitution (which reduces the demand for labour) or when there is a long run decline in demand
in their particular industry. Structural unemployment exists where there is a mismatch between
their skills and the requirements of the new job opportunities. Many of the unemployed from
heavy manufacturing industry (e.g. in coal, steel and heavy engineering) have found it difficult to
gain re-employment without an investment in re-training. This problem is one of occupational
immobility. The Labour Government's New Deal programme has focused attempts to reduce
long-term unemployment by increasing the human capital of the unemployed and improving
their employability in the eyes of potential employers.
Hidden unemployment
Whatever the published figures for unemployment, there are bound to be people who are
interested in taking paid work but who, for one reason or another, are not classified as
unemployed.
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An example of this is discouraged workers - people who have effectively given up active
search for jobs perhaps because they have been out of work for a long time and have lost both
the motivation to apply for jobs and also the skills required.
The poverty trap can also act to increase hidden unemployment. Jobless workers may not apply
for jobs because of financial disincentives created by the interaction of the income tax and state
benefits system.
Unemployment
Unemployment occurs when a person is available to work and currently seeking work, but the
person is without work.[1] The prevalence of unemployment is usually measured using the
unemployment rate, which is defined as the percentage of those in the labor force who are
unemployed. The unemployment rate is also used in economic studies and economic indexes
such as the United States' Conference Board's Index of Leading Indicators as a measure of the
state of the macroeconomics.
There are a variety of different causes of unemployment, and disagreement on which causes are
most important. Different schools of economic thought suggest different policies to address
unemployment. Monetarists for example, believe that controlling inflation to facilitate growth
and investment is more important, and will lead to increased employment in the long run.
Keynesians on the other hand emphasize the smoothing out of business cycles by manipulating
aggregate demand. There is also disagreement on how exactly to measure unemployment.
Different countries experience different levels of unemployment; as of February 2009 the USA
unemployment levels exceed those in the European Union and it also changes over time (e.g. the
Great depression) throughout economic cycles.
Unemployment rate as a percentage of the labor force in the United States according to the U.S.
Bureau of Labor Statistics.
According to economist Edmond Malinvaud, the type of unemployment that occurs depends on
the situation at the goods market, rather than that they belong to opposing economic theories.[2] If
the market for goods is a buyers' market (i.e.: sales are restricted by demand), Keynesian
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unemployment may ensue while a limiting production capacity is more consistent with classical
unemployment.
Frictional Unemployment
Frictional unemployment occurs when a worker moves from one job to another. While he
searches for a job he is experiencing frictional unemployment. This applies for fresh graduates
looking for employment as well. This is a productive part of the economy, increasing both the
worker's long term welfare and economic efficiency. It is a result of imperfect information in the
labor market, because if job seekers knew that they would be employed for a particular job
vacancy, almost no time would be lost in getting a new job, eliminating this form of
unemployment.
Classical unemployment
Classical or real-wage unemployment occurs when real wages for a job are set above the marketclearing level. This is often ascribed to government intervention, as with the minimum wage, or
labour unions. Some, such as Murray Rothbard,[3] suggest that even social taboos can prevent
wages from falling to the market clearing level.
Structural unemployment
Structural unemployment is caused by a mismatch between jobs offered by employers and
potential workers. This may pertain to geographical location, skills, and many other factors. If
such a mismatch exists, frictional unemployment is likely to be more significant as well.
For example, in the late 1990s there was a tech bubble, creating demand for computer specialists.
In 2000-2001 this bubble collapsed. A housing bubble soon formed, creating demand for real
estate workers, and many computer workers had to retrain to find employment.
Seasonal unemployment occurs when an occupation is not in demand at certain seasons.
Cyclical or Keynesian unemployment
Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs
when there is not enough aggregate demand in the economy. This is caused by a business cycle
recession, and wages not falling to meet the equilibrium rate.
Causes
There is considerable debate among economists as to the causes of unemployment. Keynesian
economics emphasizes unemployment resulting from insufficient effective demand for goods
and services in the economy (cyclical unemployment). Others point to structural problems,
inefficiencies, inherent in labour markets (structural unemployment). Classical or neoclassical
economics tends to reject these explanations, and focuses more on rigidities imposed on the labor
market from the outside, such as minimum wage laws, taxes, and other regulations that may
6
discourage the hiring of workers (classical unemployment). Yet others see unemployment as
largely due to voluntary choices by the unemployed (frictional unemployment).
Though there have been several definitions of voluntary and involuntary unemployment in the
economics literature, a simple distinction is often applied. Voluntary unemployment is attributed
to the individual's decisions, whereas involuntary unemployment exists because of the socioeconomic environment (including the market structure, government intervention, and the level of
aggregate demand) in which individuals operate. In these terms, much or most of frictional
unemployment is voluntary, since it reflects individual search behavior. On the other hand,
cyclical unemployment, structural unemployment, and classical unemployment, are largely
involuntary in nature. However, the existence of structural unemployment may reflect choices
made by the unemployed in the past, while classical unemployment may result from the
legislative and economic choices made by labor unions and/or political parties. So in practice,
the distinction between voluntary and involuntary unemployment is hard to draw. The clearest
cases of involuntary unemployment are those where there are fewer job vacancies than
unemployed workers even when wages are allowed to adjust, so that even if all vacancies were
to be filled, there would be unemployed workers. This is the case of cyclical unemployment, for
which macroeconomic forces lead to microeconomic unemployment. See also: unemployment
types
Open unemployment is generally associated with capitalist economies. In this view,
unemployment is not an aberration of capitalism, indicating any sort of systemic malfunction.
Rather, unemployment is a necessary structural feature of capitalism, intended to discipline the
workforce. If unemployment is too low, workers make wage demands that either cuts into profits
to an extent that jeopardize future investment, or are passed on to consumers, thus generating
inflationary instability. David Schweickart suggests, "Capitalism cannot be a full-employment
economy, except in the very short term. For unemployment is the "invisible hand" -- carrying a
stick -- that keeps the workforce in line."[4].
Classical economists dispute this, arguing that when there is too high a supply of labour,
providing unions and Government have no prevented wage changes, the wage rate should fall,
returning the economy to its long run efficient position at full employment.
Libertarian thinkers like F.A. Hayek claimed that unemployment increases the more the
government intervenes into the economy to try to improve the rights of those with jobs. For
example, he asserted that minimum wages raise the cost of labour to above the market
equilibrium, resulting in people who wish to work at the going rate but cannot as the wages are
higher than their worth to business; unemployment.[5][6] They believed that laws restricting
layoffs made businesses less likely to hire in the first place leaving many young people
unemployed and unable to find work.[6]
This school (the Austrian School) argued that the results of both actions lead to less productivity
and are claimed to incur a higher cost on society as a whole. The results lead to not just higher
unemployment but may increase poverty. The narrative continued by saying that the welfare
state then responds with various benefits that are paid for by the middle and upper class which
reduces their ability to consume and reduces the incentive to work hard and innovate for all
7
sections of society, as the poor have income without working and the rich see their reward for
work reduced.[7] Economists like Ludwig Von Mises, Milton Friedman, Friedrich Von Hayek not
only believe that the welfare of society decreases with this kind of intervention[8] but that these
economic policies are not sustainable.[citation needed]
One of the explanations behind (structural unemployment) and a warning that this kind of
unemployment could be permanent in modern society, came from economist and philosopher
André Gorz.The microchip revolution and the explosion in computer science and robotising of
work even in less developed industrialized countries is the main reason.
He therefore argues that the idea of `working less so everyone can work and that an basic income
for all must be the solution,and he explains: "The connection between more and better has been
broken; our needs for many products and services are already more than adequately met, and
many of our as-yet- unsatisfied needs will be met not by producing more, but by producing
differently, producing other things, or even producing less. This is especially true as regards our
needs for air, water, space, silence, beauty, time and human contact...
"From the point where it takes only 1,000 hours per year or 20,000 to 30,000 hours per lifetime
to create an amount of wealth equal to or greater than the amount we create at the present time in
1,600 hours per year or 40,000 to 50,000 hours in a working life, we must all be able to obtain a
real income equal to or higher than our current salaries in exchange for a greatly reduced
quantity of work...
"Neither is it true any longer that the more each individual works, the better off everyone will be.
The present crisis has stimulated technological change of an unprecedented scale and speed: `the
microchip revolution'. The object and indeed the effect of this revolution has been to make
rapidly increasing savings in labour, in the industrial, administrative and service sectors.
Increasing production is secured in these sectors by decreasing amounts of labour. As a result,
the social process of production no longer needs everyone to work in it on a full-time basis. The
work ethic ceases to be viable in such a situation and workbased society is thrown into crisis,"
André Gorz, Critique of Economic Reason,Gallié, 1989.
Okun's Law
Okun's law states that for every 2% GDP falls relative to potential GDP, unemployment rises 1%
(of the total workforce). When the economy operates at productive capacity, it will experience
the natural rate of unemployment. [9]
U= ^u-h[100(y/yn)-100]
Solutions
Societies try a number of different measures to get as many people as possible into work.
However, attempts to reduce the level of unemployment beyond the Natural rate of
unemployment generally fail, resulting only in less output and more inflation[citation needed].
8
Demand side
Normal markets reach equilibrium, where supply equals demand; everyone who wants to sell at
the market price can. Those who do not want to sell at this price do not; in the labour market this
is classical unemployment. Increases in the demand for labour will move the economy along the
demand curve, increasing wages and employment. The demand for labour in an economy is
derived from the demand for goods and services. As such, if the demand for goods and services
in the economy increases, the demand for labour will increase, increasing employment and
wages.
Monetary policy and fiscal policy can both be used to increase short-term growth in the
economy, increasing the demand for labour and decreasing unemployment.
Supply side
However, the labour market is not efficient: it doesn't clear. Minimum wages and union activity
keep wages from falling, which means too many people want to sell their labour at the going
price but cannot. Supply-side policies can solve this by making the labour market more flexible.
These include removing the minimum wage and reducing the power of unions, which act as a
labour cartel. Other supply side policies include education to make workers more attractive to
employers.
Supply side reforms also increase long-term growth. This increased supply of goods and services
requires more workers, increasing employment. It is argued that supply side policies, which
include cutting taxes on businesses and reducing regulation, create jobs and reduce
unemployment.
Tax-related
One structural solution to unemployment proposed was a graduated retail tax, or "jobs levy", to
firms where labor is more expensive than capital. This method will shift tax burden to capital
intensive firms and away from labor intensive firms. In theory this will make firms shift
operations to a more politically desired balance between labor intensive and capital intensive
production. The excess tax revenue from the jobs levy would finance labor intensive public
projects.[10] However, by raising the value of labour artificially above capital, this would
discourage capital investment, the source of economic growth. With less growth, long-run
employment would fall.
Costs of unemployment
Individual
9
An 1837 political cartoon about unemployment in the United States.
Unemployed individuals are unable to earn money to meet financial obligations. Failure to pay
mortgage payments or to pay rent may lead to homelessness through foreclosure or eviction.
Unemployment increases susceptibility to malnutrition, illness, mental stress, and loss of selfesteem, leading to depression. According to a study published in Social Indicator Research, even
those who tend to be optimistic find it difficult to look on the bright side of things when
unemployed. Using interviews and data from German participants aged 16 to 94 – including
individuals coping with the stresses of real life and not just a volunteering student population –
the researchers determined that even optimists struggled with being unemployed.[11]
Dr. M. Brenner conducted a study in 1979 on the "Influence of the Social Environment on
Psychology." Brenner found that for every 10% increase in the number of unemployed there is a
1.2% in total mortality, a 1.7% increase in cardiovascular disease, 1.3% more cirrhosis cases,
1.7% more suicides, 0.4% more arrests, and 0.8% more assaults reported to the police.[12] A more
recent study by Christopher Ruhm[13] on the effect of recessions on health found that several
measures of health actually improve during recessions. As for the impact of an economic
downturn on crime, during the Great Depression the crime rate did not decrease. Because
unemployment insurance in the U.S. typically does not replace 50% of the income one received
on the job (and one cannot receive it forever), the unemployed often end up tapping welfare
programs such as Food Stamps or accumulating debt. Higher government transfer payments in
the form of welfare and food stamps decrease spending on productive economic goods,
decreasing GDP.[citation needed]
Some hold that many of the low-income jobs are not really a better option than unemployment
with a welfare state (with its unemployment insurance benefits). But since it is difficult or
impossible to get unemployment insurance benefits without having worked in the past, these jobs
and unemployment are more complementary than they are substitutes. (These jobs are often held
short-term, either by students or by those trying to gain experience; turnover in most low-paying
jobs is high) Unemployment insurance keeps an available supply of workers for the low-paying
jobs, while the employers' choice of management techniques (low wages and benefits, few
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chances for advancement) is made with the existence of unemployment insurance in mind. This
combination promotes the existence of one kind of unemployment, frictional
unemployment.[citation needed]
Another cost for the unemployed is that the combination of unemployment, lack of financial
resources, and social responsibilities may push unemployed workers to take jobs that do not fit
their skills or allow them to use their talents. Unemployment can cause underemployment.
The fear of job loss can spur psychological anxiety.
Society
An economy with high unemployment is not using all of the resources, i.e. labour, available to it.
Since it is operating below its production possibility frontier, it could have higher output if all the
workforce were usefully employed. However, there is a trade off between economic efficiency
and unemployment: if the frictionally unemployed accepted the first job they were offered, they
would be likely to be operating at below their skill level, reducing the economy's efficiency.[14]
It is estimated that, during the Great Depression, unemployment due to sticky wages cost the US
economy about $4 trillion.[citation needed] This is many times larger than losses due to monopolies,
cartels and tariffs.[citation needed]
During a long period of unemployment, workers can lose their skills, causing a loss of human
capital. Being unemployed can also reduce the life expectancy of workers by about 7 years [15]
High unemployment can encourage xenophobia and protectionism as workers fear that
foreigners are stealing their jobs.[citation needed] Efforts to preserve existing jobs of domestic and
native workers include legal barriers against "outsiders" who want jobs, obstacles to
immigration, and/or tariffs and similar trade barriers against foreign competitors.
Finally, a rising unemployment rate concentrates the oligopsony power of employers by
increasing competition amongst workers for scarce employment opportunities.[citation needed].
Historical unemployment
Preliterate communities treat their members as parts of an extended family and thus do not allow
unemployment.[citation needed] In precapitalist societies such as European feudalism, the serfs were
never "unemployed" because they had direct access to the land, and the needed tools, and could
thus work to produce crops. Just as on the American frontier during the nineteenth century, there
were day laborers and subsistence farmers on poor land, whose position in society was somewhat
analogous to the unemployed of today. But they were not truly unemployed, since they could
find work and support themselves on the land.[citation needed]
The decade of the 1930s saw the Great Depression in the United States and many other
countries. In 1929, the U.S. unemployment rate averaged 3%.[16] In 1933, 25% of all American
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workers and 37% of all nonfarm workers were unemployed.[17] In Cleveland, Ohio, the
unemployment rate was 60%; in Toledo, Ohio, 80%.[18] Unemployment in Canada reached 27%
at the depth of the Depression in 1933.[19] In some towns and cities in the north east of England,
unemployment reached as high as 70%.[20] In Germany the unemployment rate reached nearly
25% in 1932.[21] One Soviet trading corporation in New York averaged 350 applications a day
from Americans seeking jobs in the Soviet Union.[22] There were two million homeless people
migrating across the United States. One Arkansas man walked 900 miles looking for work.[18]
Under both ancient and modern systems of slave-labor, slave-owners never let their property be
unemployed for long. (If anything, they would sell the unneeded laborer.) Planned economies
such as the old Soviet Union or today's Cuba typically provide occupation for everyone, using
substantial overstaffing if necessary. (This is called "hidden unemployment," which is sometimes
seen as a kind of underemployment, definition 3.)[citation needed] Workers' cooperatives—such as
those producing plywood in the U.S. Pacific Northwest—do not let their members become
unemployed unless the co-op itself goes bankrupt.[citation needed]
Measurement
Though many people care about the number of unemployed, economists typically focus on the
unemployment rate. This corrects for the normal increase in the number of people employed due
to increases in population and increases in the labor force relative to the population. The
unemployment rate is expressed as a percentage, and is calculated as follows:
As defined by the International Labour Organization, "unemployed workers" are those who are
currently not working but are willing and able to work for pay, currently available to work, and
have actively searched for work.[23]
Since not all unemployment may be "open" and counted by government agencies, official
statistics on unemployment may not be accurate[24].
The ILO describes 4 different methods to calculate the unemployment rate:[25]



Labour Force Sample Surveys are the most preferred method of unemployment rate
calculation since they give the most comprehensive results and enables calculation of
unemployment by different group categories such as race and gender. This method is the
most internationally comparable.
Official Estimates are determined by a combination of information from one or more of
the other three methods. The use of this method has been declining in favor of Labour
Surveys.
Social Insurance Statistics such as unemployment benefits, are computed base on the
number of persons insured representing the total labour force and the number of persons
who are insured that are collecting benefits. This method has been heavily criticized due
to the expiration of benefits before the person finds work.
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
Employment Office Statistics are the least effective being that they only include a
monthly tally of unemployed persons who enter employment offices. This method also
includes unemployed who are not unemployed per the ILO definition.
UNEMPLOYMENT
There are four main causes of unemployment. Some results from the seasonality of agriculture &
its effects on agribusiness. The most serious unemployment in terms of both amount and
duration is called cyclical unemployment. It is due to the irregular ups and downs of aggregate
economic activity in modern market economies. A third type of unemployment is called
structural unemployment. It is due to the fact that change is continuous in wants, resources,
and technologies in market economies, and that sometimes increases jobs in some sectors of the
economies and reduces the number of jobs in other sectors, and labor does not move quickly or
easily from where jobs are disappearing to where they are more available. Temporarily they are
unemployed. Reemployment may require either geographical reallocation or learning a new trade
or both. A fourth type of unemployment is sometimes called hard core unemployment. Some in
this category are considered unemployable either because they are too disabled in one way or
another or for other reasons. Some are employed at times but cannot seem to hold a job
satisfactorily for very long so are unemployed most of the time. This is not large amount. It used
to be considered that about 3% of the labor force would be unemployed at any one time
normally, even when there was no cyclical unemployment. That 3% was continuously changing
in composition--it was not that the same 3% was continuously unemployed. Some seasonal
unemployment is remediable, but some is not. At one time the automobile industry changed
models seasonally and in the process laid off many employees for a time. They have reduced the
amount of such seasonal unemployment. Seasonal unemployment is neither prolonged nor large
in amount. How much it can be reduced further is uncertain. In agribusiness, unemployment
insurance can help tide the unemployed over. There is no economic policy to deal with the hardcore unemployed. Perhaps social workers can help some of them develop better work habits or
do other things to make themselves more employable.
Structural unemployment might be reduced by any measures that could improve labor mobility,
either geographically or by more or subsidized retraining programs.
Cyclical unemployment is a serious problem and one that needs to be dealt with by government
economic policies. To begin with, prolonged unemployment is of course a big economic problem
for most workers and their families. In addition, the longer such unemployment lasts the more
the toll on a workers skills, work habits, and morale. The first recourse is unemployment
insurance, introduced in the Great Depression, but designed to tide over short term seasonal
unemployment, and not even now extended to cover all the long term unemployment of some
recessions or depressions. The main helpful government policy besides that is what is called
macro-economic stabilization policy. It involves an easy money low interest rate policy on the
part of the Federal Reserve monetary authorities and deficit spending by the federal government
until the economy recovers. For a long time the latter policy upset many people, especially
Republicans, who contended erroneously that a federal government deficit was as bad or worse
than a household not knowing enough to balance its budget normally. But a federal deficit can
offset the reduction in business investment that causes declines in the downswing of the business
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cycle and thus can maintain employment at higher levels than would otherwise prevail. That no
longer seems to worry many people, even Republican who now create big budget deficits with
impunity for their own purposes.
A last resort would be to have government become employer of last resort--if unemployment
became too serious a problem, government could employ those without jobs and put them to
work doing socially useful work. More than incidentally, it could pay a so-called living wage,
and that would induce industry to do the same when it was ready to employ the labor again. In
the Great Depression of the 1930s without any such declared policy, the Federal government
hired artists who had no chance of employment for quite some time, and put them to work
painting picture for many public buildings. It even kept some musicians skills intact by paying
them to put on symphony concerts. It was derided at the time as a terrible waste of money, but it
alone kept many artists & musicians in shape for the jobs they got when the economy revived.
Unemployment Causes and Consequences
How does unemployment affect the society? What are the causes and consequences of
unemployment?
Considering the unpredictable nature of economy today, unemployment is something any of
us may have to face at almost any point of time in our careers. The inflating world
population, if characterized by a decline in its educated lot, can leave a huge number of
people unemployed. The economic imbalance in society is one of the important causes of
unemployment. The consequences of unemployment are many. Apart from adding to the
economic imbalance of society, unemployment results in dissatisfied and frustrated
individuals
who
are
forced
by
circumstances
to
remain
unproductive.
Unemployment
Causes
and
Consequences
According to the Keynesian economic theory, unemployment results from insufficient
effective demand for goods and services in an economy. Some believe that structural
problems and inefficiencies in the labor market cause unemployment. Others believe that
regulations like minimum wage laws imposed on the labor market lead to unemployment.
Some thinkers believe that unemployment is a result of the law of demand and supply not
being applied in case of employing people. A decline in the demand for products or services
of a company does not result in the decrease in wages of the company employees. And this
may
strike
an
imbalance
in
the
economy.
Unemployed individuals have to go through a tight economic crunch. They are unable to
meet their financial obligations. This may lead to a decline in their standard of living. Lack of
funds is sure to have a deep impact on their expenses. The consequences of employment
can be as grave as homelessness due to failure of the unemployed individuals to repay
home loans or pay house rents. Underemployment is one of the serious consequences of
unemployment. On losing jobs, people are forced to take up jobs that do not befit their skills,
experience and educational qualification. The other major consequence of unemployment is
anxiety in the minds of the unemployed people. Unemployed individuals become
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pessimistic about life and may have to face psychological problems resulting from mental
stress.
Unemployment hampers the economic as well as the social status of society.
Unemployment benefits serve as a strong support during the period of one’s
unemployment. An individual can claim the unemployment benefits if he/she has been
forced to quit the job. To know more about this, read about applying for unemployment
benefits. Unemployment benefits are a temporary relief from unemployment. The real
solution to unemployment needs to be found out by carefully analyzing its causes. The
causes of unemployment need to be analyzed carefully to find a solution to this calamity
called unemployment, which eclipses life.
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