Unemployment in UK auses and effects on economy - Assignment Example

Running Head: Unemployment in UK Unemployment in UK - Causes and Effects on Economy of Unemployment in UK Introduction Unemployment is one of the challenging and serious issues that usually effect a country's economic development in negative manner and the countries having high rate of unemployment often face sharp economic downturn. This paper is intended to identify the main causes of unemployment in the United Kingdom. In this regard the paper presents an overview of the unemployment situation in the country and discusses the causes and effects of unemployment on the economic development of the country. Furthermore, the paper also describes some possible ways that can help the country in reducing the unemployment rate. Unemployment in the United Kingdom - A Brief Overview of past and present situation The history of unemployment in the UK tells that during Great Depression the rate of unemployment was very high in the country. It reached to the level of 25 percent but after that time, unemployment rate used to remain at low level and with the help of different policies and strategies the government of the UK succeeded to attain more or less full employment level until 1970s. However, after oil prices fluctuation in 1970s the unemployment rate was also badly affected and gradually it began to rise. The recent rise in the unemployment rate is highest during the last decade and the country is facing worst situation with respect to unemployment crisis in the country (Pettinger, p2, 2009). The following table shows the United Kingdom unemployment rate during last three years and it is clearly seen in the table that unemployment rate is continuously increasing in the country with each passing year. Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 3.80 2008 2.50 2.50 2.50 2.50 2.60 2.60 2.70 2.80 2.90 3.10 3.30 3.60 2007 2.90 2.90 2.80 2.80 2.70 2.70 2.60 2.60 2.60 2.60 2.50 2.50 2006 2.80 2.90 2.90 2.90 2.90 3.00 3.00 3.00 3.00 3.00 2.90 2.90 The recent statistics also show that the unemployment is recorded at highest rate in last eight years. The rate of unemployment is rising at alarming pace due to which the year 2009 is also expected as a stagnant year for the economy of United Kingdom. (Monaghan, p1, 2008) The country while responding towards the global financial crisis is witnessing worst situation of unemployment and there is high level of concerns and worries at all level regarding the rise of unemployment rate. The following chart shows the current situation of unemployment in the country that is expected to rise even more. Causes of Unemployment in United Kingdom Unemployment is closely related with the economic development of a country. When economy faces recessions, the rate of unemployment also increases. Thus, the economic recession is the major cause behind the high rate of unemployment in the UK and it is expected that if the UK will face deep economic recession in 2009 then the unemployment will also reached the level of 3 million. (Pettinger, p2, 2009) Hence, the recent economic instability can be sought as one of the major causes of unemployment in the UK. Furthermore, the credit crunch is also viewed as an important cause of rise in the unemployment rate in the country. Due to market uncertainty it has become difficult for the investors to get loans and credits from the banks and financial institutions. The financial instruments in the UK economy are witnessing worst effects of global financial crisis due to which the credit and mortgage market is also going through a recession phase. The banks in the UK are now reluctant towards lending loans, credits and mortgages to the people and business that led to reduction in the consumer spending. The investment level is also very low and many of the bid investment projects are delayed. This entire situation is responsible for reduction in productivity and demand for labor in the country. The global economic downturn is also an important cause of unemployment in the UK because when there is slow growth of global economy, there is also decline in the international trade operations and export import that directly affects the unemployment rate of the country. The sectors badly affected by the financial crisis are not only suffering from decline in their output but they are also affecting the rest of the economy (Monaghan, p1, 2008). The real estate market, banks and construction industries are struggling with serious financial crisis and there are fewer jobs created in these sectors. As a result, there is overall increase in the unemployment rate of the country. (Sunday Sun, n.p., 2009) Another important cause of unemployment is the emergence of cost and time effective manufacturing technology. In most of the areas of the UK, including South Wales and North East, the industrialists have now adopted newest modern machinery and technology that allow them to replace their traditional manufacturing processes. The advanced machinery works faster and effectively then the labor force. As a result, of induction of modern machinery, there is less demand for workers in these industries. Furthermore, the emergence of new technology demands skilled educated and well trained labor due to which less educated and untrained people are not needed in most of the industries. Ultimately, this development has led to rise in the unemployment rate of the country. The situation of unemployment in the UK is not same in all the regions. There are some regions where one can easily get an employment opportunity. These are the regions where the labor intensive industries are located like steel, textiles or coal mining but these industries are also reacting differently now, allowing lesser people to work. In other industries and sectors the level of unemployment is even greater Effects of Unemployment on Economy Unemployment does not only affect the unemployed person but the entire economy suffers from the negative effects of unemployment. Unemployment is serious threat to the economic development and in the UK almost all the sectors are facing this serious problem. There is considerable increase recorded in the pace of job cuts in the manufacturing, construction and financial services sectors of the country. As a result, the total number of unemployed people has touched the level of 1.97m in 2008 that is highest level since 1997. As the rate of unemployment increases, ultimately the number of people claiming unemployment benefit also rose. In January 2009 there were 1.23m people that claimed for unemployment benefit. (Pettinger, p2 2009) The consequences of this increasing rate of unemployment are very serious upon the UK economy. According to the official estimates there could be one percent decline in the economy in 2009 due to high level of unemployment and some non officials estimates forecast that the economy might shrink up to 3 percent and as a result the unemployment rate of expected to further increase. (Sunday Sun, 2009) The output of the businesses is declining and they are finding it difficult to make their ends meet. When there is high rate of unemployment in the country, the government also losses confidence of the business sector. Experts also believe that when there are more people jobless in the country, it results in decline in the output and as a result the business activities and the overall economic development suffer badly. (Miller, p4 1994) The major effects of high level of unemployment rate could also be in form of low productivity of the economy. Furthermore the governments can also face considerable decline in its tax revenues because when more people are not earning then these people are also unable to pay taxes to the government and ultimately the government has to bear decline in the revenues generated through income taxes. According to estimates, the UK can have unemployed force of 3m people in coming year if the recent trend of economic recession continues so the UK government is also going to see major decline in the tax revenues. (Monaghan, p1, 2008) Measures to Reduce Unemployment In order to reduce the unemployment rate in the country, there are several efforts made at government level. The social scientists and the economic experts also use to analyze the situation from different angles so that they can come up with some possible ways that can help the country in reducing the level of unemployment. Moreover, the business community also uses to give several suggestions to the government that they think can work for reduction of the unemployment rate. The working Trials often called as "work trials" are implemented in the budget by the UK government in 1994 with the intention to provide assistance to people in finding appropriate jobs for themselves. The community action was also established to give temporary job to the people until they find suitable job. This was a positive step that can help the country in reducing the unemployment. Thus, in order to cut down the unemployment rate the government should come up with the establishment of some more agencies, policies and strategies that can assist people in finding employment opportunities. Experts also believe that in order to reduce the unemployment rate in the country, it is very important to have close look at all the possible causes of unemployment because unemployment rate could be cut down by paying attention and resolving these causes and issues. As discussed above, low level of education and training is an important reason of unemployment in the country because most of the industries equipped with modern machinery look for trained labor. So the proper professional training and skill development of the workforce is a measure that can help in overcoming the increasing rate of unemployment in the country. Different job centers should also work efficiently to provide complete information to the people about the vacancies. (Schmelzer and Hlaimi, p3, 2007) The economic instability is also an important cause of high level of unemployment so it is very crucial for the UK to attain economic stability. The government should formulate policies and strategies to gain back the confidence of the businessmen and investors and for this it is very important that the government must encourage them to invest and initiate different projects in the country. The UK government should also lower down the interest to encourage the investors so that they can initiate major projects in the country and provide job opportunities to the people. While looking from a broader perspective, the government should also fund the exploration of different raw materials to promote the development and growth of the basic industries that can provide employment to the people. The government should also encourage research and development work (Miller, p4, 1994) The UK business group also insisted that the government and the Bank of England must take some serious step for the reduction of unemployment in the country. The report of a survey conducted by BCC discloses that the UK businessmen suggest the government that the interest rates of Bank of England's monetary policy committee must be cut down and it should also slash the business taxes. The report shows that most of the economic experts and the businessmen see the role of the government very fundamental in brining the unemployment rate at low level thus the main responsibility lies upon the shoulders of the UK government to reduce unemployment in the country. (BBC News, n.p., 2008) Conclusion The paper presents an overview of the unemployment conditions in the UK and also discusses the main causes and effects of high unemployment rate. This discussion allows having a clear picture of unemployment situation in the country. It is revealed that after the Great Depression, the UK now faces worst unemployment crisis that are basically led by the global financial crisis, credit crunch, economic instability, global economic recession and need of highly skilled and well trained labor in industries due to emergence of modern technology. All of these factors have taken the rate of unemployment at highest level of the last ten years and experts forecast that the unemployment level will increase further due to economic instability. The recent rise in the unemployment rate is the UK's response to the global financial crisis and the economy is also witnessing very negative effects of the rise in unemployment level. The economy has already shrunk by one percent and expected to further shrink by 3 percent. There is also decline in the productivity of the economy and government revenues that are earned through taxes are reduced and expected to reduce further. The businessmen and the investors also find it difficult to manage their resources and as a result there is decline in their profits as well. The paper also discusses some important measures that can be taken to reduce the unemployment rate in the country. First of all there is need of establishing a well organized and authentic agency to assist people in job hunting. The interest rate of the banks must be lower down to encourage investors. Furthermore, the training and skill development of the work force is also very important to reduce the level of unemployment. Hence, it is found that economic development and unemployment are interrelated with each other. When there is decline in the economic development, the unemployment rate also increases and when unemployment rate increases the economic development of the country suffers badly and the recent condition of the UK economy confirms this relationship. References Angela Monaghan (2008), UK UNEMPLOYMENT JUMPS MOST IN 17 YEARS AS DOWNTURN BITES, Telegraph. Online available at: http://www.telegraph.co.uk/finance/economics/3202393/UK-unemployment-jumps-most-in-17-years--as-downturn-bites.html BBC News (2008), UK job market weakening rapidly. Online available at: http://news.bbc.co.uk/2/hi/business/7762009.stm Paul Schmelzer, Boubaker Hlaimi (2007), Unemployment and its scarring effect on post-unemployment career in UK, QMSS Conference, Prague, Check Republic. Online available at: http://www.s3ri.soton.ac.uk/qmss/conf07/presentations/Schmelzer_presentation.ppt. Sunday Sun (2009), Unemployment hits 10-year high, Online available at: http://www.sundaysun.co.uk/news/uk-world-news/2009/02/11/unemployment-hits-10-year-high-84229-22909084/ T Pettinger (2009), "Unemployment in the UK ", Economic Help, Online available at: http://www.economicshelp.org/2008/10/unemployment-in-uk.html Tim Miller (1994). Measures that could be used to reduce the Level of Unemployment in UK, Online available at: http://www.economic-truth.co.uk/alevel/curingunemployment.pdf Read More