The paper will examine what unemployment is and the different types of unemployment. It will also look into details of the unemployment in United States, the different views of various researchers on causes of unemployment in United States. The effects of unemployment on the labor market and the government and private and public approach will also be explained in detail. The paper will also give a methodology of research and the findings
Unemployment has always been defined differently by people. The standard definition by the international labor organization states that it is a state in which people are without jobs, even though they are capable of working and they have actively sought for jobs (Summers, 2009). The rate of unemployment in many countries is usually measured by the prevalence of unemployment, which means the number of people who are unemployed at a particular time. There have been several debates on the causes of unemployment, their consequences and their solutions. This is due to the different situations in countries and the various economic situations in the countries. There have also been several arguments, regarding the solutions to unemployment, for example, the classical economists argue that market mechanisms can be used to solve unemployment (Summers, 2009). This means that they do not support the interventions, imposed on the labor markets. The Keynesians, on the other hand, propose solutions that will help in reducing the rates of unemployment during times of recessions. Keynesians also propose the interventions of government to help in increasing the demand for workers. Such interventions include financial stimuli, funded job creation and expanding the minimum wage that benefits both the employer and the employee among many others.
There are different types of unemployment. One of them is structural unemployment. This has its main focus on the structural problems in the economy and the inefficiencies that are there in the labor markets. This will include the differences in the demand and supply of laborers with qualified skills. This type of unemployment mainly deals with the structure of the economy. Another type is the classical unemployment, which occurs, when the wages of a job are way above the normal wage level. This will cause the number of job seekers to be more than the number of vacancies. The government has always intervened to try and make the wage rate beneficial to both parties. Another type of unemployment is the cyclical unemployment. This type of unemployment occurs, when there is not enough demand for labor in the economy. This usually happens, when there is a reduced demand for most goods and services and, hence, the level of production reduces, which leads to reduced demand for labour
Unemployment in the US
United States is one of the most developed countries in the world and it has become one of the superpowers in the world. Despite its development and power, it still suffers from some level of unemployment. This has been a very big subject of debate in the United States Government. There have been increased rates of unemployment in the United States because of many different factors that have been witnessed in the nation. There have been several events that have taken place in the United States that have led to the economic recession and, in turn, led to the increased unemployment
Literature review on unemployment and its causes in United States
One of the causes of unemployment in United States is the financial crisis that hit the country in the years 2007 to 2009. According to US Bureau of labor statistics (2011), the president of United States, Barrack Obama, made harsh comments that the increased rates of unemployment is caused by the culture of irresponsibility. This simply meant that the economy of America was poor because Americans were not industrious enough. Kim (2007) believes that an economy with a good gross domestic product results from legitimate demand and supply for goods and services. This demand is usually paid for by the consumers. If the payments are legitimate, then, there will be continued production and, hence, continued demand for laborers and this will help in the reduction of unemployment rates in the country. Payment of goods and services by the use of credit cards is one of the major causes of financial crisis in the United States. US Bureau of statistics (2011) explains that a report by the Federal Reserve showed that there was 2.5 million dollars, worth of consumer debt that had accumulated in America. This large amount has led to a gross domestic product that is not real or that is artificial and a lot of debts and bankruptcy with lenders and credit card companies. The losses affected many people who have an impact on the economy and, therefore, there was an effect on the economy, which led to the financial crisis, hence, unemployment.
Baumol (2011) believes that a large rate of unemployment in America has been as a result of the real estate bubble. The real estate rates in United States have risen rapidly over the past decade. Gangl (2003) explains further that the issues, regarding real estate such as refinancing, second mortgages and reckless lending, have caused many banks large losses and they ended up bankrupt. This is because the banks had lent so much money to real estate owners, whose businesses had failed, and they had become bankrupt. That meant that they could not pay off the banks and, hence, the banks also became bankrupt and the companies that were associated with the banks suffered losses, leading to layoffs and, hence, unemployment. US Bureau of statistics (2011) states that an example of a bank, which became bankrupt because of the failures of real estate businesses, was the Lehman Brothers, which had assets of more than six hundred billion dollars. They suffered a major blow that saw companies, associated with them, losing a large amount of its liquidity and becoming bankrupt and most of them lay off their workers. Lehman and Brothers itself laid off more than two thousand workers because of the losses they incurred.
Baumol (2011) also believes that another cause of unemployment in United States is the automotive industry crisis. The blow on the banking industry highly affected the automotive industry. Baumol (2011) explains further that car loans and auto loans disappeared and, hence, the international trade and oil trade was highly affected. These led to loss of sales and markets, credit crunch and poor labor procurement. The resultant effect of all these was a large number of people, being laid off, and hence, the rise of unemployment rates. Another cause of unemployment in America is outsourcing. Ashenfelter (1999) explains that this is the practice of allocating work to companies, which are based in less developed countries. Outsourcing provides manpower, which is very cheap but very efficient and, hence, most Americans prefer to outsource their work. This practice has, therefore, led to a lot of jobs, being lost to the people, doing outsourcing. The growing population of the United States, due to the increased immigration and mortality rate, has also led to unemployment.
Kim (2007) explains that the level of jobs does not increase with the rates of population and, hence, it is logical for the level of unemployment to increase in such a case. Another cause of unemployment, according to Kim (2007), is that most companies in United States are facing competition from multinational firms from other countries. The stiff competition has made it difficult for the companies to cope with it and, hence, there have been closures and financial instabilities, which have led to the loss of jobs. Kim (2007) also believes that the low wage rates outside United States, especially in Asian countries, have led to the increased unemployment rates in United States. This is because most companies prefer to base their operations outside the United States, so that they can take advantage of the low wage rates. This means that the possibility of potential employment in United States is reduced. This also led to sub contraction and outsourcing of projects, which were already taking place in the United States and this resulted to a large amount of job loss. The minimum wage rate in the United States of six dollars per hour has also been a major cause of unemployment in the United States. The minimum wage rate was considered by many people as being too low and they decided not to take up jobs, hence, leading to voluntary unemployment.
Due to the increased improvements in technology and in innovation, most companies are automating their production facilities. This means that most of the production work will be done by machines and, hence, people will not have things to do and they will lose their jobs, leading to unemployment. Seasonal products are also a cause of unemployment. According to Summers (2009), many seasonal products and businesses in the United States usually result to employees being laid off, when those products and businesses are not in season and, hence, many people remain unemployed. Another cause of unemployment, as stated by Ashenfelter (1999), is that most companies in United States encourage multitasking. This means that one person does several jobs, which could be done by two or more people and, hence, this leads to unemployment. Another cause of unemployment is that most young people are considering going for further studies, instead of taking up jobs and, hence, they become unemployed, when they are studying instead of working
Effects of unemployment on labor market and government, public and private approach
The increased unemployment in United States has led to an unstable labor market because of the increased demand for unemployment but with little supply. It has also led to the dictation of wage rates by the employers, rather than the economy. Government, private and public sectors have tried to intervene to reduce the levels of unemployment. The government has set the minimum wage rate that benefits both employers and employees to ensure that employers provide as much jobs as possible and that employees also take as much jobs as possible. The private and public sectors have also intervened by creating a lot of job opportunities at reasonable rates for both employers and employees
Methodology, analysis and data
The unemployment rates in United States were last reported at 8.6 % in November 2011. Since 1948 the rates of unemployment averaged 5.7% with a high of 10.8 % and a low of 2.5%. The labor force was also down in November. The major work groups that were affected were adults, teenagers, whites, blacks and Hispanics
The major cause of unemployment in US is the financial crisis or recession, which affected many sectors of the economy. The US government should, therefore, try to create jobs and ensure that the wage rate is beneficial to both the parties. The US government should also ensure that the economy is stable to avoid a financial crisis