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Unemployment is defined as an economic condition where able-bodied individuals search for employment in their sector of expertise but remain unemployed. Many factors determine the rate of unemployment, one of such factors being the region’s economic conditions. Unemployment is expressed as a percentage of the total workforce. In recent times, we have seen a rise in unemployment. The world is healing from an economic recession that saw many skilled workers laid-off because firms could not accommodate all of them. Sadly, but it had to be done in order to minimize the cost of operation of the firms and increase their economies of scale. My goal in this paper is to discuss the contentious topic: unemployment. In order to understand this topic adequately, I have subdivided unemployment into different types. After subdividing them, we can clearly see the causes of the different types of unemployment, their effects in our society and their solutions.
Unemployment affects people who have been out of their jobs. It always starts with the individual before it can be viewed as an economic meltdown. The jobless people lose their motivation, respect, sense of achievement, and income. We always view unemployment as a destroyer of the economy. Have we asked ourselves where it came from in the first place? Unemployment starts destroying the individual’s psychology and sociology. The effects of unemployment climb the chain. From the individual; then to the family; then to the nation, and finally to the economy at large. The individual is stressed because he cannot provide for his family. The anger and guilt spreads to his family where family quarrels begin. The individual may also resort to other uncouth measures like crime. A drastic rise in crime rates is evident in countries with high unemployment rates. To make it worse, the longer a person is unemployed, the harder it becomes to find a job. This is because the employers don’t want to take a chance on someone who other employers have rejected. Moreover, a long period of unemployment deskills the individual. I.e., He/she looses the expertise on how to perform some technical tasks.
Types of Unemployment and their Solutions
Unemployment can be caused when the demand for the commodities is low. This is the only known demand-side unemployment. In all the regions, the economy is controlled by the forces of demand and supply. When the demand of goods is low, then the supply must be low. This is to prevent production of surplus goods. Therefore, companies cut down on the amount of goods they manufacture and produce. This cutback forces the industries to lay-off workers. Those worst hit by this type of unemployment are young workers searching for new jobs. Young workers are affected because the firms are not looking to hire new employees. The firm may choose to lay off workers, but the brunt is borne by young workers who don’t get vacancies. This type of unemployment is known as demand-deficit unemployment. It is also known as cyclical unemployment because it depends on the cyclical nature of businesses. Businesses are known to be productive in some periods of the year.
According to Peder J. Pedersen, other people may become unemployed because of their geographical region. These people may possess the skills required. The only limiting factor is that they are not in the same geographical location as the firms offering the vacancy. Many reasons may come into play as to why they are unable to access these vacancies. They may be having children who need schooling in their current regions. They may not like the accommodation, transport, and security services provided in the regions with vacancies. People may also be unemployed because they don’t have the skills to operate the new machinery introduced into their companies. These workers may be laid off because they lack the required skills. In this case, they are referred to as being occupationally immobile. To prevent this type of unemployment, the population is encouraged to keep an open eye on new technologies available in the market. This will prevent future job losses due to the inability to adapt. (187)
A common reason for unemployment is seasonal changes. When we learn about the reason for this type of unemployment, we learn how to alleviate it. In rural regions, the population is highly dependent on agriculture to supplement their income. This is dangerous because seasons come and go. During the summer, the harvest is plentiful , and the population is employed in farms. However, this can be reduced by diversifying their activities, e.g venturing in business activities other than agriculture. People in rural regions should be encouraged to abandon strict mindsets. It is this rigid form of thinking that lands us into unemployment problems. This problem is not only in the agricultural sector. It can also be seen in the seasonal businesses that come up during festive seasons only to disappear when the holidays are over. The main cure for this ailment is diversification and expansion of activities. For example, businesses making Christmas cards and presents can also produce birthday cards. This will not only lead to increased vacancies, it will also lead to increased revenue for the business entity.
An individual may be unhappy with their current place of work. This may be because the working conditions in the firm may not be conducive. This may also be because of the individual’s skills don’t match the job he/she is doing. The employee opts to search for another job while doing the current job. The period between the old job and the new one is known as search unemployment or frictional unemployment. Frictional unemployment is important because it makes the unsatisfied employees search for new and more promising jobs. It is evident in the month of July when students have just graduated and are searching for job opportunities. Rather than sitting on the old job, the people go out in search for jobs that match their skills. For example, it is very wasteful for a PhD student to work at McDonalds because it is available. He/she should wait for the opportune moment when the job matching his/her skills presents its self. This type of unemployment can be prevented by ensuring that the learned go out in search of jobs matching their skills. Those unhappy with their current placement should also seek a new job position. If there is a shortage of vacancies, the unemployed should try to become innovative. Self employment is the best form of employment because it makes the individual self reliant and self disciplined. Self discipline happens because the self employed individual sets his/her own rules without the intervention of a higher power. The solutions given above have been mentioned by Jack Stone and Joe McCraw (201)
In some cases, the government fails to factor in some unemployment statistics. This type of unemployment is known as hidden unemployment or disguised unemployment. This discrepancy goes a long way to influence future government planning. This type of unemployment is evident in people doing part-time jobs, these individuals think that they are employed, but in the real sense, they are unemployed. Other situations of hidden employment can be seen in sick or disabled people who do lighter jobs than the rest of the employees. In this case, the employed population is not productive enough to be termed as employed. The infrastructure put in place by the government to collect information about unemployment should be able to cater for hidden unemployment.
Individuals may also be voluntarily unemployed. This occurs when people voluntarily choose to remain unemployed. The unemployed may even turn down a job offer. They are better off enjoying the benefits than taking low-paying jobs. The definition of involuntary unemployment is somewhat disputed. Classical economists suggest that unemployment is voluntary. Involuntary unemployment says that people are unemployed because of lack of aggregate demand. As mentioned above, Keynes argued that unemployment leads to further drop in demand for goods because consumer spending is reduced.
Adverse Effects of Unemployment
According to Jack Stone, in high unemployment, people have less cash-at-hand. When people are unable to meet their day-to-day needs, they resort to other methods. A rise in unemployment rates is characterized by high crime rate. (184)
Provision of Public Services by the Government
With high unemployment, there is a decrease in the government’s tax income. Therefore, the government lacks the funds to provide public services. Public services here include security, roads, and public hospitals.
Loss of Skills
When skilled personnel stay unemployed for a long time, they tend to lose their expertise. Even with subsequent return of employment, these individuals may not secure their previous jobs because they have gotten rusty overtime.
The spending power of the unemployed reduces because they have limited cash. They rather save than spend the little money they have, and this adversely affects the economy. The spending power of the employed is reduced drastically because of increased taxation. The government raises taxation on the employed population. The consequence is that the employed population will hold on to the little money they are paid. In these situations, a decrease in spending power means that the government gets lower taxes.
Stress, depression, and tension are the core causes of illnesses in today’s world. Loss of regular income brings frustration. Research has shown that the life expectancy of the unemployed is reduced by 7 years. (Job-interview-site.com)
There is a rise in political instability when the rate of unemployment increases. The population loses trust in the government and frequent riots and clashes occur.
Insecurity is brought about by many factors, and one of them has been mentioned above. Crime rate rises because disposable cash has been reduced due to unemployment. Another factor is the reduction in tax income for the government. A fall in tax means that the government will not be able to provide services to the population. Chief among these services is security.
It has been noted that suicides are mostly committed by the unemployed. This is due to the stress they experience over the lack of jobs.
Divorces and Breakage of Families
According to Jack Stone, unemployment affects the lives of the unemployed adversely by ruining their social life. The families of the unemployed may break up because of limited resources to use, such as food, clothing, and accommodation. The family may also be affected by the frustration of a family member. This frustration is usually characterized by outbursts of anger. (184-200)
Positive Effects of Unemployment
Contrary to the belief, unemployment can be beneficial in some situations.The fact that people willing to work for a minimum pay are available is beneficial to upcoming businesses and firms. These firms will get cheap labour. Cheap labour ensures that the firms are able to cut down on the cost of operation. This means that the new firms will enjoy economies of scale. Economies of scale mean that the new firms will grow faster. Unemployment has also been argued to be beneficial to the employed population, for in the presence of unemployment inflation rates are reduced. Inflation is the increased prices. During periods of raised unemployment rates, inflation rates are reduced. This is an advantage to the working population because they get to spend less on the cheaper goods.
Other Solutions to Unemployment
Apart from the methods of solving unemployment by individuals mentioned above, the government can always lend a helping hand. Usually, the main solution to unemployment is the creation of new jobs. An economic growth rate of up to 3% can ensure creation of more than 100,000 jobs. However, when unemployment rises above 6%, the economy is ailing, and the government has to step in. When the government steps in, it has to make some adjustments which include:
Useconomy.about.com explains the monetary stimulus from the Federal Reserve. The Federal Reserve is the central bank. When there is no risk of inflation, the central bank makes lending cheaper by lowering the interest rates. This will lead to increased liquidity, resulting in growth of businesses and firms. Growth of these entities will create jobs for unemployed individuals (Useconomy.about.com).
Families can also borrow loans to buy cars, houses and other commodities. This stimulates demand and increases production of goods. Production requires labour, which means that workers get jobs. However, when inflation occurs, the central bank increases interest and makes lending expensive. This will discourage borrowing and lead to reduced inflation.
When monetary policy fails, the government uses fiscal policy. Fiscal policy is more efficient than the monetary policy. Fiscal policy involves either reducing taxation, or the government increasing spending.
The only downside is that fiscal policy takes time to be implemented because the president has to decide what to do. In spite of the fact that it is slower, it is more effective than the monetary policy, because it inspires confidence. Consumers are confident the government will do something about their hardships. Confidence is important, because consumers will spend more and save less. Kimberly Amadeo says, “Confidence is a crucial ingredient in convincing people to spend now for a better future” (About.com).
When taxes are lowered, consumers are able to spend more. This approach is similar to that of lowering lending rates, because it increases demand for goods. As discussed earlier, an increase in demand means that there is an increase in production and workforce, hence reduced unemployment.
Increased Government Spending
This is a direct way to reduce unemployment because the government pays able-bodied labourers to perform certain tasks. This government spending technique is not recommended, because the existence of public sector jobs depends on tax from the private sector. Research has shown that not all fiscal methods are effective. According to Kimberly, the most cost-effective solution is to provide construction jobs, followed by production of employment benefits and funding education.
According to Kimberly Amadeo, one billion dollars invested in each of these sectors shows staggering figures. These funds will create 19,795 jobs in the construction sector, and 17,687 jobs in the education sector. The result is that this investment will earn 1.3 billion dollars and provide well-educated people who will ensure demand. On the other hand, investing one billion dollars in unemployment benefits creates 19,000 jobs, because the unemployed will spend their time in such businesses as groceries, clothing etc. (About.com) Other forms of unemployment can be avoided. Unemployment forms, such as seasonal unemployment, can be avoided. Farmers should be able to sustain themselves during off-season periods. They can do this by planting crops in green houses, or even planting crops that can survive through all seasons. Other businesses, such as those functioning during festive seasons, should come up with business plans for the rest of the year, e.g some of the businesses that specialize in selling Christmas goods can diversify their products. This will make their activities viable throughout the year. When firms, such as the ones mentioned in the example above, learn to diversify their activities, seasonal unemployment will decrease.
Innovation is the ability to come up with something new and foster it up to the productive level. It involves creative mind/minds coming together and brainstorming viable business ideas. Young people should be encouraged to become innovative, so as to provide their own employment. Self-employment is important, because the individual is immune from layoffs. In recent times, we have seen people who defy odds and generate their own ideas. Innovative business ideas can be seen in the social media, such as Facebook, the clothing industry, and so on.
By examining works from the authors mentioned, we can conclusively say that unemployment is a setback to the well being of our society. Unemployment not destroys the individuals, but it also finds its way up the chain to the economy. As seen above, the social evil culminating from unemployment is eye-watering. From family wrangles, to political unrest; from mugging to suicides, it is not a pretty sight. Although it is impossible to stump out unemployment, some things can be done to alleviate high unemployment rates. The government may lend a helping hand, but it always comes down to the individual. Many of these types of unemployment can be avoided if an individual takes heed of the warning, and instructions from works of different scholars. The media has also tried to sensitize the public population on how to avoid unemployment, and how to live a healthy life if unemployed. In recent times, the emerging factor has been innovativeness of the young mind. It is encouraging to see the young population fending for themselves without depending on big firms. It will be interesting to see what comes next, that is, after Facebook.