Unemployment Rate and Labor Union Membership Rate - Term Paper Example

?An Analysis of Unemployment Rate and Labor Union Membership Rate Together with the Threat of Economic Recession School The problem in the global financial markets is being seen as a threat to the economy of the United States. In particular, the debt crisis in Europe might trigger a global recession (Moon, 2011). The U.S. fears that this turmoil might affect the country said the Federal Reserve in the sense that this could be a risk to the economy, though at present the crisis in Europe shows little impact to U.S. (Felsenthal & da Costa, 2011; Moon 2011). Felsenthal and da Costa (2011) said that this event can lead to “possible further steps to boost growth, though a stronger labor market has been noted”. Moon (2011) cited that the weekly applications of unemployment insurance fell to a 3-1/2 year low. The unemployment rate was reduced to 8.6 percent last November from 9.0 percent in October this year (Dalgleish, 2011). Though this shows an improvement of 0.4 percent, the present unemployment rate is still high (Harrison & Berg, 2011; Felsenthal & da Costa, 2011). This improvement might be undone if the bill which cuts funds allocated for defense in the 2012 budget will be approved by the senate and the president. This bill will cost 800,000 jobs and this might rose up to 1.5 million jobs in the following decade due to legislation passed in August (Felsenthal & da Costa, 2011). High unemployment rate was one of the reasons why thousands of demonstrators marched on ports from Southern California to Alaska last December 12. This march included two of the largest labor unions in country: the longshoremen’s union and the Teamsters (Harrison & Berg, 2011). Part of the rally’s focus was for non-union members; independent workers who earn low wages such as truck drivers said Harrison and Berg (2011). High unemployment rate is one of the major problems of the economy of the United States at present times. In lieu of the current economic situation of the country using macroeconomic models, analyzing the effects of high unemployment rate, together with the membership rate in labor unions in economy which is being threatened by a recession will be very useful. This will provide information to laborers, to workers who are planning to join labor unions and to the public in general. The U.S. GDP and Unemployment Rate To analyze the current situation in an economic perspective, the country’s data on its Gross Domestic Product (GDP) must first be known together with its unemployment rate. It is important to take note of the economic output at the macro level According to Williamson (2008), “when the aggregate real GDP is high, the unemployment rate tends to be low since the two variables are countercyclical in nature (p. 594). Graphing these two sets of data will serve as a tool for analysis. Table 1. U.S. Gross Domestic Product 2011 ­­­­­­­­­­­ Quarter 1 Quarter 2 Quarter3 ­­­­­­­­ GDP 0.4 1.3 2.0 Source: Bureau of Economic Analysis Table 2. U.S. Unemployment Rate 2011 ­­­­­­­­­­­­­­­­­­­­ Month Unemployment Rate January 9.0 February 8.9 March 8.8 April 9.0 May 9.1 June 9.2 July 9.1 August 9.1 September 9.1 October 9.0 November 8.6 Source: Bureau of Labor Statistics Graph 1. U.S. GDP and Unemployment Rate 2011 Graph 1 show that the data is in accordance with what Williamson (2008) mentioned regarding GDP and unemployment rate. This further implies that despite the European debt crisis, the U.S. economy is still doing well at the moment, especially since an increase in GDP has been noted in the last quarter together with a significant decrease in unemployment. Production output has increased implying increased earnings. The number of people employed increased which means less spending for the government since the people who avail unemployment benefits decreased. If the bill which permitted the cut of funds in the budget for defense is approved, 800,000 workers will lose their job and the unemployment rate will increase once more. This will lead lesser production and an increase of government spending in terms of unemployment benefits. These lessen economic efficiency, which is what we would like to avoid. Though these are negative in nature, these do not imply that recession will push through as there are also other economic factors to be considered. The lawmakers are trying to prevent recession in the economy. If recession can be avoided through budget cut and lesser output production, then this is one alternative to be considered. Lesser output is better than having the economy plunge into recession. This is the picture in the macro level. Let us also take into account the country’s unemployment rate for the last five years. Table 4. U.S. Annual Unemployment Rate, 2006 – 2010 Year Unemployment Rate 2006 4.5 2007 5.0 2008 7.2 2009 10.0 2010 9.4 Source: Bureau of Labor Statistics Graph 3. U.S. Annual Unemployment Rate, 2006-2010 Prior to the economic recession in 2008, the unemployment rate in the country was only 4.5 percent in 2006 and 5.0 percent in 2007. These are way far from the current unemployment rate which is 9.4. Unemployment increased at the onset of the economic recession and as we can see from Graph 3 that it reached its peak in 2009. Though a year has passed since then and a decrease in unemployment was observed, fact is, this rate is still high as compared to unemployment rate prior to the recession. These data tell us that the effect of 2008 recession is still apparent in labor sector till this present day. A budget cut has been approved by the government which will result to job loss of hundreds of thousands of workers and another bill on budget cut is still in process. Regarding unemployment, the scenario at the micro level or household level is quiet different. Unemployment means lesser income, which implies lesser purchasing power and a decrease in consumption. Laborers are also consumers and they buy goods or services to obtain utility. Utility is the satisfaction that person a gains from consuming goods and services (Ayers & Collinge, 2005, p. 142). Unemployment means lesser utility and this implies lesser satisfaction for the consumer. Discounting other economic factors, unemployment is something that the average laborer avoids since this will lessen the satisfaction that worker is enjoying. Labor Unions and Unemployment Table 3. Percent of Workers Belonging to Labor Unions from 2006-2010 Year Percent of workers belonging to labor unions 2006 12.0 2007 12.1 2008 12.4 2009 12.3 2010 11.9 Source: Bureau of Labor Statistics Table 3 shows that the number of workers who are members of labor unions gradually decreased over the past three years, in particular it started when the recession was felt by the economy. Millon (2011) said that after World War II the number of workers in the United States who were members of labor unions extended over a third of the labor force. Nowadays, this is but a mere 11.9 percent. Improving pay and working environments are the primary factors why workers join labor unions (Ayers & Collinge, 2005, p. 324). Millon (2011) cited several reasons why such trend has been observed over the years and these are some of them. First, public opinion regarding labor unions has always been low. Second, job growth in country occurred in sectors that have resistant to unionization. Third, large corporations resist efforts to organize because this will imply additional cost for business. With the economic recession looming ahead and the budget cut approved by government and another bill for budget cut in process, the likelihood of increasing wages through labor unions is less likely for the reason that the threat of being laid-off weighs much more. Employers discourage labor unions as this equates to additional cost for the firm, thus a worker who will join a labor union in this present times will not solicit a favorable view from his or her employer. If such a thing occurs, the chances of being included in the list of workers to be laid-off in the future might increase. This is what our laborers would like to avoid as much as possible. During recession, it is better to have a steady income than to have no income at all. The economic view regarding utility supports this perception. The satisfaction provided by a worker’s current compensation is preferable than opting to increase it through joining a labor union. The risks of joining a union are far greater than the compensation that it will likely give. Besides, this compensation is still likely in nature: that is, it is uncertain. A certain income is better than to go for a higher uncertain income. Graph 2. Percent of Workers Belonging to Labor Unions, 2006 – 2010 Let us consider another perspective and take a look at the percent of workers who were members of labor union prior to the economic recession in 2008-2009. According to the Bureau of Labor Statistics (2008), union members account for 12.0 percent in 2006 which became 12.1 percent in 2007. Though an increase of 311,000 members in labor unions has been noted, the Bureau still maintained that the percent of members from 2006 to 2007 was “essentially unchanged” as compared to the 20.1 percent membership rate in 1983 (UNION MEMBERS IN 2007, 2008). In 2008, the membership rate increased to 12.4 percent. However, this was the year when the economic recession occurred which lasted until 2009. By the following year, this decreased to 12.3 and this year, the percent of workers who are members of labor unions is only 11.9. From here, we can see that the decrease of union membership decreased at onset of economic recession in 2008. Though the recession is already over, a continued decrease was still observed from hence till now. A threat of another economic recession lies ahead, coupled with another threat in terms of job loss. In accordance with the utility theory, workers are less likely to join labor unions. CONCLUSIONS The debt crisis in Europe nowadays is enormous that economies from around the world fears that this will trigger a global recession. It is a given that the United States of America is among the major players in the world economy. If effects of the debt crisis touch the U.S. economy, there is a likelihood that a recession will occur. To alleviate this, the government exerts measures such as budget cut. Decrease in spending is preferable than having the economy plunged into recession. The effect of the recession in 2008 can still be felt by the labor sector. The unemployment rate remains high till now, though little improvement has already been observed. The budget cut however is another one that will increase the unemployment. If the current bill is passed, unemployed workers in the future could increase up to 1.5 million. Joining a labor union in this present time is not highly recommended. Since recession is just around the corner, the threat of lay-offs also exists. Being a member of a labor union is not positively viewed by the general public, more so by employers as this equates to additional costs shouldered by the firm. Joining a labor union will not illicit a positive view from the employer, and chances are, if lay-offs will be unavoidable in the future, the worker might be among the potential candidates. Employment equates to earnings and earnings equates to purchasing power. Purchasing power implies that a number of goods and services could be bought and enjoyed thus obtaining utility. According to the utility principle, an individual will always want to maximize his utility given his limited resources. If a worker joins a labor union, the current utility that he is enjoying might be compromised in the future, especially if lay-offs occur. The potential benefits of joining are far outweighed by risks that follow the joining process. A regular income insures that the current satisfaction being experienced will still be experienced. This is preferable than having a higher income at the cost of potential unemployment, most especially with the threat of recession. Unemployment is expected to rise while membership to labor unions is not in this present time. References Alexander, D. (2011, December 13). Defense cuts could cost 1.5 million jobs: lawmaker Retrieved from http://www.reuters.com/article/2011/12/14/us-usa-defense-budget-idUSTRE7BD02C20111214 Ayers, R. , & Collinge, R. (2005). Microeconomics explore and apply. (Enhanced ed.). New Saddle River, NJ: Pearson Education, Inc. Dalgheis, J. (ed.) (2011, December 13). Job openings slip in October. Retrieved from http://www.reuters.com/article/2011/12/13/us-usa-economy-jobs-idUSTRE7BC1EK20111213 Felsenthal, M. & da Costa, P. (2011, December 14). Fed sees risks from Europe, some improvement in U.S. Retrieved from http://www.reuters.com/article/2011/12/14/us-usa-fed-idUSTRE7BC0CW20111214 Harrison, L. & Berg, E. (2011, December 12). UPDATE 5-Anti-Wall Street activists march on West Coast ports. Retrieved from http://www.reuters.com/article/2011/12/13/protests-ports-idUSN1E7BB0BJ20111213 Millon, D. 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Retrieved from http://www.bls.gov/news.release/archives/union2_01252008.pdf UNION MEMBERS IN 2008. (2009, January 28). Retrieved from http://www.bls.gov/news.release/archives/union2_01282009.pdf Union Members Summary. (2011, January 21). Retrieved from http://www.bls.gov/news.release/union2.nr0.htm USUAL WEEKLY EARNINGS OF WAGE AND SALARY WORKERS THIRD QUARTER 2011. (2011, October 30). Retrieved from http://www.bls.gov/news.release/pdf/wkyeng.pdf Williamson, S. (2008). Macroeconomics (3rd ed.). Boston, MA: Pearson Education, Inc. Read More