Unemployment in UK - Essay Example

?Unemployment in UK Introduction Unemployment, a major menace to the society has prevailed through the times and the problem has become more chronic and serious at the present moment. In the current situation, most of the countries irrespective of the fact whether they are developing or developed are a victim of unemployment. Unemployment might be defined as the number of person searching for job with their full initiative yet not getting one. People averse of working at any existing wage rate are considered as "economically inactive" and hence do not fall amidst the domain of Unemployment. The thing that makes unemployment most dangerous is that it directly affects the growth of a nation and this is becoming evident for UK. United Kingdom, arguably Europe’s most influential country over the history has been dealing with this ailment since the early 1970’s. The unemployment rate in the United Kingdom was last reported as 8.4% in December 2011. (Hamilton) Due to this it is very important to analyze the cause of this mass unemployment in UK, and to find viable solutions to this particular problem. Summary of Articles As proposed by Hamilton, in his article “U.K. Unemployment Increases as Global Outlook Cut: Economy” published in Business Week (January 18, 2012), mass unemployment in UK touched its zenith in 16 years in November 2011. This was primarily due to Britain’s plunge into recession again. The unemployment rate according to the International Labour Organisation (ILO) rose to a staggering 8.4%, the highest recorded since January 1996. The number of people attaining jobless benefits rose to a figure of 1.6million. The World Banks’ estimation of global growth has experienced repeated down grades in last three years. The prime reason that has been forwarded by them is a declining state of the UK economy. Since UK is a part of the European Union and enjoys a quite significant status hence the euro-area crisis is being compounded by Prime Minister David Cameron’s budget cuts. This is affecting consumer confidence negatively and will lead to a further loss of employment for about 700000 workers by 2017. As specified by Nida Ali, an economic adviser in the Ernst & Young item club, the future for the labour market is pretty dismal. She even expects the rate of unemployment to rise by another 9.3% in a year. ITEM (Independence Treasury Economic Model) Club acknowledged that Britain has been struck by recession once again and Europe’s incapability to end the crisis of debt had a simultaneous effect on Royal Bank of Scotland group in United Kingdom. It has proposed last week that it will shut down its corporate-finance units and equities that will cut down almost 35000 jobs. Hamilton has also cited the ITEM club regarding the possibility of 600 job cut by “Premier Foods Plc” to illustrate the grim situation in UK job market. (Hamilton) According to Barrow in his article “Foreign workers take yet more UK jobs as number of Britons in work plunges and youth unemployment hits 1 million” published in Daily mail UK, a prime reason for unemployment in UK is the increased absorption of foreign workers by the firms belonging to UK instead of own domestic workers. Most of the business entities in UK hire foreign workers and that has left United Kingdom’s unemployment rate at the highest in 17years. The ministers termed this as “unacceptable”, but the management of the reputed entities in UK pointed out that many young British workers are lazy and incapable at basic works, which made them to shift towards the foreign workers. As an example, the proportion of foreign workers at a leading firm of plumbers, “Plimico Plumbers”, has doubled over the past two years because the domestic British workers lack the right work ethics. Furthermore it is often seen that the workers are more interested in real wage than nominal wage courting a fall in their purchasing power. (Barrow) Evaluation & Conclusion It has been specified by Hamilton that the Prime Minister of UK has been administering a budget cut. A budget cut refers to a decline in government expenditure that will translate to lower level of national output. Now output is an increasing function of capital and labor. Now if output declines with capital remaining the same then labor will decline. It implies that budget cut might result in decline in employment of labor or increased number of unemployment. The aforesaid discussion has been explained graphically below. AD implies aggregate demand. C= Initial consumption expenditure. I= Initial investment expenditure. G1= Initial government expenditure G2= Changed government expenditure. Aggregate demand signifies the sum total of consumption expenditure (C), investment expenditure (I) and government expenditure (G). The equilibrium output is the point at which the aggregate demand line intersects the 45° line. In the diagram above, let C, I and G1 denotes the initial consumption, investment, and government expenditure respectively. Hence, (C+I+G1) represent the initial aggregate demand line. It is apparent from the above diagram that equilibrium output is achieved at YE1 (at the point of intersection between (C+I+G1) line and the 45° line). (Branson; Cohn 165-171) The budget cut refers to a cut in the government expenditure. The investment expenditure and the consumption expenditure remaining constant, as the government expenditure declines to G2, the aggregate demand line shifts downward (G1>G2). The new equilibrium output is achieved at YE2 (at the point of intersection between (C+I+G2) line and the 45° line). It is apparent that YE2< YE1. Now we know that output is an increasing function of labor and capital (YE= f (L, K)). Hence if equilibrium output declines with capital constant at K and technology of production unaltered then employment of labor will definitely decline. Taking into account capital (K) as constant, with YE2 = f (L2, K) being less than YE1 = f L1, K), it is evident that L2 is less than L1. This explains that the decision of a budget cut by the British Prime Minister David Cameron would result in higher level of unemployment. LS1= Initial labor supply curve. LS2= Labour supply curve signifying excess labour supply. LD= labour demand curve. w1= Initial wage rate. w2= Changed wage rate. E1= Initial equilibrium employment at wage rate w1. E2= Changed equilibrium employment (domestic and foreign workers) at increased Labour supply. E3= Changed equilibrium employment (domestic workers) at wage w2. For simplicity let us consider that initially the workforce comprised only of the native British workers and the labor supply curve is LS1. Equilibrium is attained at the point of intersection between the labor supply and the labor demand curve at E1. Now with the entry of the foreign workers the labor supply curve shifts rightward implying an increased supply of labor at the existing wage rate. This shows an excess supply of labor at the existing equilibrium wage rate w1. This excess supply of labour will put downward pressure to the existing equilibrium wage rate. The new equilibrium wage rate is achieved at w2 at the point of intersection between the initial labor demand curve (LD) and the new labor supply curve (LS2). The equilibrium level of employment is achieved with the employment of E2 number of workers. Here w2E1. Hence employment raises, however at w2, the number of domestic workers willing to work is E3. Now E3 Read More