Wealth disparity and effects of long-term Unemployment on the United States Economy - Essay Example

Wealth disparity and effects of long-term Unemployment on the United s Economy Summary of the news article In the article on New York times “The Jobless Trap” by Paul Krugman dated April 21, 2013, The US employment situation is explored and the wealth disparity consequence this has on the economy is equally discussed. It is important to undertake a critical analysis of unemployment in respect of the article to establish the effects this has on the entire economy of US and any other nation.This article explores the varuios employment related economic issues. It is also importasant to note that the author gives a vivid description of the consequences of unemploymdent and the indirect challenges it will pose on the wealth disparity among citizens. 1.0 Introduction Unemployment is a situation where a person is able and willing to perform tasks or work but is unable to find a job. However, there is no clear definition of long-term unemployment. economists define a period of six to twelve months as a long-term unemployment period. This is when an individual is unwillingly unemployed. Several factors lead to long-term unemployment; some of these factors are facilitated by economic changes such as economic recession, an individual not willing to work or dynamic technological changes (Hollander,2011,45). Previously, the United States’ labor market had short periods of unemployment for most workers who were jobless; they would be easily absorbed into the labor market. Even though jobless workers especially the elderly had a long unemployment period, the level of long-term was less comparing to other countries. The rise in the long-term unemployment and unemployment rates has severe human, social, and economic costs. Wealth disparity, also known as wealth gap or inequality, refers to state of uneven distribution of financial assets among citizens of the United States of America. Wealth includes automobiles, value of homes, savings, investments and businesses. Those who have a great deal of financial assets have primarily acquired them by appreciation of fiscal portfolios. Hence, financial wealth involves mutual funds, stocks, as well as other investments. Thus, there is a greater wealth inequality than basic net worth disparities (Lubik, 2010,20). Statistics show that the top ten percent possess eighty percent of all financial wealth and the bottom ninety percent only hold twenty percent of all financial assets.Employment plays a vital role in determining the amount of economic wealth hence the observed disparity. 2.0 Discussion Unemployment is risky to the country’s economy and to other countries worldwide as well, with some costs of unemployment being levied to the society such as exchequer cost due to unemployment and social cost. While the short term unemployment may or may not have implications on an individual, long term unemployment may have a demoralizing effect to an individual. Long-term unemployment causes negative effects to individuals. Some of the most common effects include financial difficulties, health related diseases, psychological problems, boredom, idleness, losing close friends and relatives and eventually depression. Severe long-term unemployment results are mostly seen in the disadvantaged in the society. The unemployed are wasted resources, and they also waste resources meant for humanity. It is a life full of unhappiness and sorrow as unemployed individuals live in suffering and poverty; economically, human labor is devalued. The social results from unemployment lead to rise of rebellious groups, riots, family breaks, divorce and some cases of death (Hollander,2011,45). The impact of the recession shows in the United States and many countries where long-term unemployment majorly impacts the male. During the recession, construction and manufacturing industries were affected by unemployment. In the United State wealth, ownership has been concentrated in the small minority population due to their well grounded employment status. The minority populations, who roughly comprise of twenty percent of the total population, are about thirty percent of the household sector wealth. During economic downturns, wealth distribution seems to appear equal. However, research on wealth mobility shows that upward movement is uncommon, and that era of equality illustrate deflated financial asset prices more than they reflect on the financial wellbeing of the eighty percent majority population (Moran, 2008, 155). Besides, many young people would willingly resign their jobs to find a better job, and eventually find it tough to find a new employment opportunity a recession. Most researchers have paid little attention to wealth disparity and its causes, and they have focused more on income and the follow of cash that an individual or a household receives as indicators of financial wellbeing. In contrast, net worth or wealth is the value of financial assets that a household owns. Net worth, to be more accurate, is the difference total asset that is vehicles, houses, real estates and financial assets such as stocks, bond, saving and checking accounts and total liabilities which include car loans, mortgages, credit card debt and student loans. According to the United States labor samples, based on international labor, an unemployed individual should not have worked for a profit or pay in the last one week; the individual must be have been looking for employment for the last four weeks, and will be available to begin work the following week. The number of long-term unemployment is probably estimated for an individual who finds an opportunity as a casual or temporary worker is characterized as employed. The United States Labor market has introduced reforms to use temporary or casual employees. During the recession, many workers encountered unemployed challenges as some employees were laid off or their contracts were cancelled or not renewed. During the recession, the United States introduced measures to resolve long-term unemployment (Keister, 2000,57). Some of the measures introduced were lowering bank interest rates and introducing fiscal and monetary policies. The main purpose of the policies was to minimize the rise in unemployment and the country’s Gross Domestic Product. The rise in unemployment levels results in a delay in employment opportunities. When the economy is negatively affected, there will be an increase in new employment seekers. As a new job seekers join the labor market, the current unemployed find it hard to find employment, supposing the job opportunities are constant. Therefore, an increase in long-term unemployment. If there is a significant increase in the number of job opportunities, then there would reduction in the percentage of the long-term unemployment, but there will be an increase with time. During any recession, the unemployment rate increases. There is an increase in the unemployed young people because they are new competitors into the labor market; they have fewer skills and work experience and a lot work in casual or temporary jobs. Aggregate demand and the Phillips Curve. AD2 AS P2 P1 AD1 Y1 Y2 In the short run, as aggregate demand increases firms will face capacity constraints - building new capacity is an option only in the long run. At first, unemployment will go down and this shifts aggregate demand (AD) from AD1 to AD2, which increases Y (output) by Y2 - Y1. This increased demand means more workers are needed, and then AD will be shifted from AD1 to AD2. However,at this moment, much less is produced than in the previous shift, but the price level has risen from P1 to P2, which is a much higher increase in price than in the previous shift. The increase in price is called inflation. The older workers have a lower chance of finding work opportunity than a younger individual seeking employment opportunity. This is due to discrimination from the employer or the chance that older workers are likely to choose jobs. The recession impact in the United States shows that the male has a long-term employment rate than females. Researchers had documented income inequality as extreme, but recent evidence shows that wealth disparity is dangerous. This is because there are merits that come with wealth ownership and not with income. Wealth bestows social prestige, offers short and long-term financial security that can be used to generate more political power (Moran, 2008, 155). In measuring wealthy inequality, one looks at the correlation between the former and income. The two are not highly correlated as previous research shows. Several reasons are behind this; many of the people considered wealthy have low earning as they are compelled to daily consumptions with income generated from assets (Lubik, Andreas and Thomas, 2010,34). Moreover, retired people have low incomes, but their net worth is high. This is because their wealth does not cease to accumulate when their income ceases. Families can be below the poverty line but live comfortably on assets. On the hand, those who have high income and live above the poverty line may lack assets hence making them vulnerable if income ceases or is reduced (Keister, 2000, 100). In analyzing wealth disparities, data used comes from estate tax data, government cumulative estimates on household wealth and survey data. Most reliable survey data comes from the survey of consumer finances (SCF). The SCF data contains panel estimates, details on wealth components such stocks and home, and samples high-income households so as to include top wealth holders. Inclusion of top wealth holders is important because wealth distribution is highly skewed. While methods used by researchers in analyzing wealth distribution may vary, they all agree that wealth ownership in the United States is enormously unequal, and disparity has worsened in the latest past. Historical evidence shows that levels of inequality in household wealth distribution varied dramatically during the twentieth century. Consequently, wealth ownership inequality was severe. This disparity in wealth has become a social problem (Keister, 2000, 100). 3.0 Government policies The unemployment compensation program is managed at the state level. The duration and amount of benefits varies across different states. The period of long-term unemployment benefits is prolonged to decrease the negative impact of long-term unemployment. An impact of extended benefits is to increase the average period of long-term unemployment for unemployed workers. This impact can influence the way workers make choices in accepting or rejecting job offers (Heard,2011,56). Increasing the long-term unemployment benefits affects how unemployed workers make decisions. Therefore, the long-term unemployed workers will hold on to the benefits until they get or receive what they may think as an acceptable offer. However, not all unemployed workers are eligible for long-term unemployment benefits; for the unemployed worker to qualify, the worker must have been laid off work. Wealth inequality explanations are in two categories: those that have focused on aggregate-, level influences or macro, and those that are on the levels of families or individuals. It is not easy to explain wealth accumulated by families and individuals without making speculations on the impact that this inequality has on the macro level wealth distribution. Likewise, it is also difficult to explain aggregate level wealth distribution among families without making speculations on how the behavior of society members affects this distribution. Besides long-term unemployment,market fluctuations in real estate and stock market influence the aggregate process of wealth distribution. When the value of assets increases, those who own the assets become wealthier. This results in a net behavior change. Since wealthy people are the ones more likely to own stocks than the poor, it follows that when stock market booms, their wealth concentration increases. Family and individual level characteristics influence wealth accumulation. The family income has a positive effect on wealth and saving. Other attributes that influence wealth include race, family structure, and age (Collins,2012, 200). 4.0 Conclusion In conclusion, the problem of wealth disparity cannot be solved overnight. This is because there is no adequate data to help researchers determine the cause of this problem. However, the government can aid in reducing the effects of wealth disparity by ensuring that there is equal distribution of the natural resources. It can also enact laws and regulations that protect the less wealthy from exploitation by the minority wealthy group. 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McDermott Statement at Hearing on Policy Responses to Long-Term Unemployment.Lanham, United States, Lanham:, 2010. ProQuest Research Library.Web. 10 May 2012. Moran, Beverly I. Race and Wealth Disparities: A Multidisciplinary Discourse. Lanham, Md: University Press of America, 2008. Print Paul Krugman The Jobless Trap. New York times. April 21, 2013 Retrived on 24 June 2013 from: http://www.nytimes.com/2013/04/22/opinion/krugman-the-jobless-trap.html Read More