Causes of Unemployment - Case Study Example

Causes of Unemployment Lecturer Introduction Joblessness or Unemployment refers to a of not having a job experiencedby those people who are willing to work at the going rates of labor but are unable to secure a job. Today, several hundreds of people are on the payroll. This corresponds to approximately seven percent of the entire world’s population. The rates of the unemployed persons are much higher in the regions of western and southern Africa and the Middle East region. Furthermore, bin this modern era of globalization and in current time of disruptions of the financial markets the rate of unemployment is rapidly increasing (Begg 2013, pp.156-267). As the rate of joblessness is becoming more prevalent in all the areas of the globe, it is not surprising at all that the socio-economical scientist are developing interest in it and learning more about its causes. This helps in finding results to be used in mitigating the monetary and the social consequences. Primarily, they learn to distinguish between the voluntary and the involuntary induced type of unemployment (Clark & Summers 2012, pp.43). Causes of Unemployment The most frequent causes of unemployment accounts for the huge figures recorded are the involuntary causes by nature. This is because, all concerned people got out of work because of cynical, or structural conditions of the working places. Both do take place when demands in the labor marketplace can no longer be accommodated. Structural unemployment often do come from the shifting economy that in turn makes it hard for particular segments of the societal population to find new working places or retain the jobs they use to do before. Economists reveal there exist a mismatch between the available jobs and the skill level of the unemployed population in the society. The industrialization process, which occurred in the second half of the eighteenth century and the recent digital revolution, are among the many examples of the cause of the structural unemployment when the working places experience advances in technology. Those labor saving inventions have been replacing the workers who are unskilled leading to a drastic fall in the labor demand (Gillespie, 2014). Beside the broad and specific explanation that is accepted for unemployment, economists still bring forth the argument that cyclical factors can also result in high rates of unemployment, for going hand in hand with the business cycle. When the GDP (Gross Domestic Product) is high, the lower will be the cyclical rate of unemployment at the business cycle peak, and vice versa is true. For example, in the recent recession, which took place simultaneously in several countries such as Spain, Portugal and Greece, their economic outputs in the markets were declining and were below full capacity as the aggregated demands were falling. With a drop in the production companies and firms, they will ultimately employ few workers since the quantity of goods being produces is few. In the long-term, there will be an adjustment in the salaries only if the organizations and politics will not manage the cut in wages. This will lead to a further fall in the spending of consumers and aggregate demand, causing even more unemployment rates. Even though such approach of explanation has a lot of controversies, employees have limited influence on the performance of a firm at a macroeconomic level (Andersen 2010, pp.23–28). On the other hand, voluntary unemployment is defined as a situation where a worker chooses not to work rather than taking the available job opportunities. If the states decide to create, excessively generous welfare benefits and high-income tax rates people may, therefore, prefer to remain on benefits. This voluntary type of unemployment is most likely to take place in situations where the rate of equilibrium wage is below the necessary wage to encouraging individuals to supply their labor. In states that are highly industrialized with extensive programs of welfare including Germany, some of the citizens tend to live at the expense if the public as there is a lack of incentives to motivate people to work. This type of unemployment, voluntary joblessness, is necessarily not associated with negative impacts yet frictional unemployment is considered a natural phenomenon because workers are heterogeneous, and mismatches result between the characteristic of supply and demand (Tigges et al. 2005, p.392). One of the other causes of unemployment is the debt crisis. This was created as a result of the “mortgage bubble” in the United States. This led to a financial crisis in several countries and had a destructive effect on the banking system. The debt crisis reduced the supply of credit and increased the cost of financing. During this period of the financial crisis, the tourism industry was severely hit, and seasonal workers who depended on tourism had to lose their jobs. In this period, the rate of unemployment soared high in record in many countries. Besides the financial crisis, there are several other causes for unemployment based on specific features. One of them includes lack of qualification among the young professionals. It was shown approximately forty there percent of the young individuals are unemployed. The main reason for this is inappropriate education system and the general attitudes of the young people towards study. The education system structures may not be beneficial to the students especially in Africa, as it does not correspond directly to the prevailing economic activities outside the school system. Rather than the education system, providing skills that are useful to students and molding professionals, they engage in a lot of theory instead of practical is content. The result of such a system is an individual whose skill are not replicating at all to the current economic trends and the job market. On the other hand, a huge number of the youngsters do leave education system without completing training. Because of this, the young individuals are not in demand in the job market since they do not have the needed qualification and skills to do certain types of jobs (Hayford 2000, pp.315–329). Another reason is non-flexible labor legislation. It is known that the process of the job application is complicated and entails long procedures. For one to apply for a job, the individual is expected to obtain consents from several people. On the other hand, the process of dismissal is also characterized by problems. These conditions make finding a job by those people who are jobless very hard and difficult. Another cause of unemployment, which is vital, is the lack of training facilities and sufficient vocational guidance especially among the youth. The education system is flawed in its structure mostly in Africa since it purely provides academic knowledge that is not oriented to the real work in the job market. Hence, this creates the need to establish several technical facilities and other work-oriented courses at the village level. Bad leadership and corrupt attitude from people who are in power are also linked to the lack of employment opportunities. Moreover, a lot of money is being embezzled, and power is retained as exhibited by the policy makers in the education sector. This means funds that are meant for the improvement of the education system are being diverted for selfish and personal use. Hence, corruption makes the education sector to remain largely undeveloped. With the sector deteriorating, the products released in the market remain half-baked and cannot meet the demands d the skills needed. Poor leadership also discourages investors from investing in certain countries. With no investors to expand the job opportunities, the government cannot promise the population of jobs due to poor governance hence leading to unemployment (Diamond 2013, pp.410–455). Transitional unemployment can also be caused because of people moving from one job to the other. For example, the newly redundant workers or the workers who are entering the labor markets such as the new graduates may take time to finding appropriate jobs at the rate of wages, which they are prepared to accept. Many of this group of people are unemployed or remain unemployed for a short period while involve themselves in searching for jobs. The unemployment may even be made worse by the imperfection information in the labor market if those who are unemployed are not aware of the available job employment opportunities. Unemployment can also be caused due to job outsourcing. This takes place when a company moves its call centers of manufacturing to another country where the costs of labor are cheaper compared to the initial country. Because of migration, several people who used to work for the company will be left behind without jobs thus increasing the rate of unemployment in a country. In cases of large-scale unemployment in huge companies, this is caused when the demand of consumers for a product does not show enough improvement and keeps recording downward checks making the business start losing much of its profits. If the company does not expect the sales of its products to increase or soon pick up, then they must do a massive retrenchment. The company lay off its workers to save itself from plunging down into losses leading to its closure. Such recession in companies has been experienced during global economic crisis, which forced several people to lose their jobs and become unemployed. Despite the other types of unemployment when one fails to acquire a job, a natural unemployment also takes place in the society, even in an economy that looks healthy. It takes place when an individual decides to go into retirement, go back to school or leaves workforce to engage in taking care of children or other important family matters they remain unemployed (Mankiw 2014, pp.128). In conclusion, there are numerous causes of unemployment. One of the main causes is a sovereign debt crisis. This affects several sectors of a country’s economy to stimulate the rise of unemployment. Besides crisis, other causes of unemployment relate to specific features of a country. The impact of unemployment on a countrys economy is significant. Definitely, it is adverse, possesses great damage to the economic and political well-being of a country. Therefore, it should never be underestimated. On the other hand, person’s involuntary unemployment can lead to financial embarrassments and emotional charges yet voluntary joblessness can be beneficial for both the society and the individual. Strategies the government can use to reduce causes of unemployment Since insufficient in demand is the cause of unemployment as a result of demand-deficient, policies must be designed to tackle it should first be aimed at addressing the principally the issues of demand through management of demand. Demand in management occurs when the government attempts to influence the growth and level of aggregate demand; hence, the employment levels and other variables like the rate of national income and economic growth. In principle, the most effective measurements can eliminate unemployment due to deficient demand through using fiscal expansionary and policies of money that can lead to an increasing in the demand of labor (Tigges et al. 2005, p.392). Strategies Cutting taxes- one such fiscal policy that governments can employ has to tackle the demand-deficient unemployment is through cutting back of taxes that blocks consumption by the consumers. The result of cutting tax means that take home pay for all but the richest people will grow to a certain figure above the inflation rate. Increase spending of the government- this policy has been deployed by several governments since recession time in an effort to reducing unemployment. The government increases its expenditure in amid to stimulate the demand of the consumers. The aim of this fiscal policy is to increase the private as well as public spending hoping that it will lead to the stimulation of aggregate demand thus encouraging firms to produce more goods. When this happens, the ultimate results increase in the labor demands and hence lowering the demand deficient unemployment. Nonetheless, the problem with more government spending will require the state to borrow more, and it takes time for its effects to be realized. Cutting the rates of interest- monetary policies have been used by governments in tackling the problems of unemployment mainly through major banks cutting the rates of interests. Lower rates of interests reduce the borrowing costs that encourage the consumers to invest and spend more. In turn, this increases the aggregate demand and boosts the grand domestic product (GDP) hence reducing unemployment due to demand-deficiency (Diamond 2013, pp.410–455). Education and training- the aim of this is giving the long-term unemployment new skills that would enable them to find jobs in the developing countries, for example, retraining unemployed steel workers to possess basic skills in I.T that will help them to find jobs in the service sector. However, despite the government providing training and educational schemes, the unemployed may be unwilling to acquire a new skill. At best, this strategy takes time to reduce the rate of unemployment. The government should also ensure quality education in the institutions of learning and training to ensure those young professionals are fully and wholly equipped with the required skills and knowledge that the market is demanding. Reduction of trade union power- when unions are in a position to bargain for wages above the market-clearing level, they will cause real wage unemployment. In this case, the influence of the trading unions helps a lot in solving the real wage unemployment. Improvement of the market flexibility- it is stated that the high structural rates of unemployment in European countries is as a result of restrictions in the labour markets that discourage several firms from employing more workers. However, when labor market is made flexible, it could lead to an increase in temporary employment and job satisfaction (Begg 2013, pp.156-267).. Useful strategies From the above-discussed strategies, that governments can put in place to ensure that the rate of unemployment is reduced some can turn to be useful in practical and not just theoretically. Improvement in the market flexibility, improving education and training, increase in the government expenditure and cutting of taxes to reduce demand deficient unemployment are among the useful strategies that most governments are putting in place to reduce the rates of unemployment. References Andersen, T.M., 2010. Unemployment persistence. CESifo Forum, 11, pp.23–28. Begg, D. K. H. 2013., Foundations of economics. 11, pp.156-267 Clark, K. & Summers, L., 2012. The Dynamics of Youth Unemployment, pp.43. Diamond, P., 2013. Cyclical Unemployment, Structural Unemployment. IMF Economic Review, 61, pp.410–455. Gillespie, A.., 2014. Foundations of economics. Oxford [u.a.], Oxford Univ. Press. Hayford, M.D., 2000. Inflation uncertainty, unemployment uncertainty and economic activity. Journal of Macroeconomics, 22, pp.315–329. Mankiw, N. G., 2014. Principles of microeconomics. 7, p.128. Tigges, L.M., Petersen, A.C. & Mortimer, J.T., 2005. Youth Unemployment and Society. Contemporary Sociology, 24, p.392.  Read More