UK Economy as the Seventh Largest Economy Worldwide - Essay Example

UK ECONOMY Q 1: Unemployment a. “What are the main characteristics and causes of unemployment in the UK at present?” The UK economy ranks the seventh largest economy worldwide when measured using the GDP, while it ranks the eighth largest worldwide when measured using the purchasing power parity. During the 18th century, UK was the first country worldwide to industrialize, hence contributing positively towards the world economy in the 19th century especially through employment. Consequently, unemployment refers to the rate at which people within a given economy are willing and able to work but cannot find a job because of the prevailing situations. In UK, the section of the population that is not willing or unable to work based on varied reasons does not count towards unemployment. This is because they are economically inactive and may not participate in processes that focus on improving the economic conditions. However, it is true that when a given country has an elevated level of unemployment, such country is not utilizing the available resources as expected. Unemployment significantly influences the social cost of the affected country because persons with familial commitments may have trouble trying to meet their responsibilities. This is based on the dependency ratio, which may be high. However, unemployment can cause boredom and rejection, thus increasing social problems in the society. In addition, unemployment can result in increased criminal activities in the society. Interestingly, suicide rates and poor health among individuals may also rise. The UK unemployment influences both the economy and societal history of the country. During the 1950s and 1960s, the UK experienced low rates of unemployment. This is because the service members who participated in the Second World War got full employment as a reward for their victory. However, the rate of unemployment in UK remained low until 2005 when it started to increase. By 2008, Gordon Brown announced that the frequency of unemployment has mounted to 1.79 million, which was a rise from 1.397. Currently, the degree of unemployment in UK has increased to 2.5 million. A large percentage of the unemployed individuals in UK are men. It is clear that close to 2.6 million individuals are jobless and the jobseekers amount to 1.59 million. This was a reduction compared with the percentage of unemployment witnessed during summer. Therefore, this has increased the total number of people undertaking part time jobs to over 8 million. About 30 million individuals in UK are working as full time; furthermore, others are partially employed or self-employed. The total numbers of people who have stayed jobless for two years and above are 428,000 and the economically inactive people count to 9.25 m. Generally, the rate of unemployment in UK has fallen to 8.2 percent, which is below the European rate of 10.2 percent. The rising trend of unemployment in UK started in 1970s and went on increasing up to date. There are several causes of the high rates of unemployment in UK, which include the following. Initially, there is the cyclical unemployment, which occurs because of low demand within the economy. If there is low goods and services demand within a given economy, then the demand for employees will be low. Moreover, structural unemployment is another cause of the increasing unemployment rate in UK. It is a common cause of unemployment, which occurs due to change in the structure of economy. This is common in UK because most industries lose their international competitive levels because of increase of the new competitors within the economy. Therefore, it is important for people to seek for alternative employment with such incidences. The structural unemployment also occurs because of occupational immobility as it becomes hard for individuals to learn new skills applicable in varying jobs. Sometimes, it occurs because of the geographical immobility since people may encounter difficulties while trying to move from one place to another in search of employment. In addition, seasonal employment also contributes towards the high rate of unemployment witnessed in UK. This is common in seasonal industries such as skiing and fruit picking. Interestingly, when the season is over, the job ends, hence making many people unemployed. b. “What are the measures that can be used to reduce this type of unemployment?” The government should intervene by encouraging and supporting improvements in the employability labor supply in order to reduce the high rates of unemployment witnessed in UK. This would increase the occupational mobility among employees. Moreover, improvement in the incentives would empower people to search and accept paid work, which can be possible through enabling reforms within the tax and benefit system. However, there should be a constant financial growth with the intention of increasing the total number of newly created jobs. The government should consider improving the skills among individuals to reduce occupational immobility, thus providing the unemployed individuals with relevant skills to enable them to work in new industries. Finally, the government should repeal insurance penalties for employees, lower taxes on repatriated earnings, expand free trade and exempt teens from minimum wages, and these will increase the employment levels. Q2: Euro a) “Provide an evaluation of the perceived benefits and costs of a single currency in an integrated market” Single currency refers to the common currency used and accepted by many people and countries. The single currency has both benefits and costs to the involved countries. Initially, single currency is beneficial to involved countries because it eradicates the operation costs. This involves the total amount that a country spends in buying and selling foreign currencies to conduct business, hence increasing profits in different firms. Consequently, single currency can foster price transparency because many people find it hard to compare prices across countries due to the differences in exchange rates. As a result, this negatively affects trade, so the introduction of single currency will help the involved countries to purchase goods without difficulties of calculating the currency price. In addition, single currency will eliminate the qualms that originate from fluctuations in exchange rates. This is because many firms fear investing in other countries due to such uncertainties; therefore, single currency will eliminate all the anxieties. Single currency is beneficial because it enables the business to maneuver more effectively and competently. Additionally, single currency prevents war because countries that trade together in a friendly manner are unlikely to instigate war on each other as they maintain peace. The currency is likely to increase trade and lower costs to firms as it fosters good economic trade, since there will be no exchange rate fluctuations. It is perceived that single currency will lower the inflation rate in the involved countries. However, single currency can also lead to additional costs to the involved countries. For example, it is likely to cause instability within the system, hence making it hard to sustain the exchange rate stability. In addition, single currency can result in overestimation of the trade benefits; therefore, moving from the current currency system to the single currency will cause instability. Finally, the single currency is likely to cause losses within the government. This is because they are likely to miss the opportunities to control the policy. b) “Evaluate the case for sterling joining the Eurozone, i.e. adopting the Euro from the point of view of British business.” A common market does not prevent the British businesses from ranking among great international traders, largest investors in U.S as well as exporting more than 75% of their products to other countries. Therefore, the British businesses support the single and common market but they do not support the sterling joining Euro. This is because the British businesses believe that they trade well using varied currencies compared to most of their competitors; therefore, there is no need of the sterling joining Euro. The Britain asserts that it manages to make conversions into foreign currencies without spending colossal sums, hence protesting against sterling joining the Euro. In addition, Britain believes that it has many fully funded pension schemes compared to the rest of Europe, which, when put together, make it avoid collaborating with Europe. The British business also believes that by supporting the sterling to join Euro, it implies that it will be handing over the country’s economic policy and power to non-existing third party. However, the British business asserts that by sterling joining the Euro, it will lose its powers of setting interests, controlling inflation, balancing the currency with the trade in U.S dollars, yen and other currencies that Britain collaborates with in business. British businesses also argue that they will lack the capacity to control the rate of unemployment using reflation or currency adjustment during recession. By sterling joining Euro, Britain will lose the autonomy of its economy policy because of the possible formation of a common interest rate. British business insists that by sterling joining the Euro, the country will lose the powers that it has acquired especially when it comes to controlling its fiscal policy. This is because it will be required to maintain economic principles applicable to other countries. The state needs to devise a fiscal reduction plan that will ensure sustainability of the currency. However, the plan will also be beneficial because it will reduce the risks and losses, hence bringing about balanced recovery. This will empower the economic zones, thus limiting the likelihood of collapse when other currencies or wealth systems are incorporated into the country’s financial system. Read More