economic essay about unemployment

Unemployment Causes and Effects Essay

Introduction, causes of unemployment, effects of unemployment, works cited.

Unemployment causes and effects are vital to recognize in order to solve the problem. Analyzing them can also allow people to realize what consequences are to expect. Yet, first of all, all the essential terminology should be defined.

Unemployment refers to a state of not having a job. It entails individuals with the ability to work, a resolve to find employment, available and in the hunt for employment (Stone 25). Categories of unemployment include classical, structural, frictional, cyclical, and hidden types.

Classical unemployment entails a situation in which earnings received for a job go beyond ordinary levels. This results in limited job vacancies for people. The structural type refers to a situation in which unemployed individuals fail to meet job requirements in terms of skills needed (Stone 29). Frictional unemployment concerns the changeover phase between jobs, while the cyclical one refers to a state in which claims in the economy fail to offer jobs to people. When the claim for goods and services lowers, there is a limited production that requires few workers (Stone 29). Finally, the hidden type refers to the unemployment of prospective workers due to errors made in generating statistics on the subject (Stone 30).

The causes and effects of unemployment impact individuals, society and the economy in general. The overall problem issue results from various factors relating to social, economic, environmental, political and individual elements in an economy. So, to gather both consequences and causes of unemployment, this essay attempts to consider and analyze them separately.

Unemployment results from several causes and factors related to an economy. Some causes are due to personal choices while others are beyond individual control (Stone 31). People invest many resources in gaining reputable education and eligibility for jobs, but often find themselves with no employment (Stone 34). Unemployment results from factors and causes discussed below.

The first cause is inflation. Inflation refers to the progressive increase in prices of commodities and services in the economy. Economic inflation is one of the major causes of unemployment (Stone 37). Inflation results in a limited market activity by economies that cannot match efforts by others due to escalating prices. The economy experiences trouble, and progressively employers fire some workers to reduce the cost of production. This result in unemployment among the individuals fired.

The second cause is recession. Recession refers to decline Gross Domestic Product (GDP) of an economy, employment rate and market activity (Dawson 75). Economic recession links directly with economic inflation. Recession results from inflation where people are not able to afford goods and services offered by the economy (Stone 41).

A decline in production and more imports than exports characterize a recession. These elements influence negatively on GDP of an economy. This results in increased rates of unemployment because many employers refuse to hire while others fire some of their employees (Stone 43).

Another cause is change in technology. Rapid change in technology is driving many employers into diversifying and improving the effectiveness of their workforce (Dawson 78). Some of technology applied replaces individuals in the production process as some process executed manually apply through technology.

This leads to several people losing their jobs. Job dissatisfaction is also another leading cause of unemployment (Dawson 78). New technology results in some employees being involved partially in production activities, which leads to frustration. Frustrations may lead to employee resignation (Dawson 80). This causes unemployment.

Another cause is employee worth (Dawson 85). Employees put a lot of effort and dedication in their activities but often end up unappreciated by their employers. This may result to lack of motivation among employees, which may compel them to stop working for their employers (Dawson 85).

This leads to individuals being unemployed until they find employers who appreciate their efforts. Discrimination in places of work is another cause of unemployment. Discrimination could be because of age, gender, social class, race, religion or ethnic background. Securing a job in such a working environment is extremely difficult and may discourage people from looking for jobs as well as forcing those already in jobs to quit (Dawson 87).

Other causes of unemployment relate to an individual and include disability, attitude towards potential employers, negative perceptions about jobs and employees as well as an individual’s ability to look for a job (Dawson 93). Welfare payments should be discouraged as they reduce the will of unemployed people to look for jobs. People develop dependency on grants and lack any meaning in employment since they are able to meet their basic needs (Dawson 98).

Unemployment has both positive and negative effects. However, negative effects of unemployment surpass positive effects (Stone 65). Unemployed individuals experience difficulties meeting their basic needs as well as contributing to economic prosperity of their countries (Stone 66). In recessions, many people lose their jobs, but companies usually develop mechanisms to produce more goods with limited workforce. Unemployment leads to effects discussed below.

The first effect is loss of income. Unemployment results in individuals losing their source of income and livelihood. Most people in employment use their incomes to get mortgages and other forms of financing (Stone 69). Loss of income leads to poor living standards and increased risk on health.

Another effect of unemployment is social exclusion. A work place provides a platform for socialization. When people lose their jobs, their social circle reduces considerably and end up excluded from the social environment. Other social problems associated with unemployment include crime, bribery and gambling (Stone 70).

Unemployment causes political instability (Stone 75). When majority of a country’s population is unemployed, life becomes hard, and people develop hostile characters. They consider their government as ineffective and incapable of providing the needs of its people (Stone 76). Such individuals participate in movements that oppose government policies through riots that result in political instability.

effects of unemployment include over exploitation of available labor, reduced rate of economic growth, reduced human capacity, loss of human resources and increase in poverty levels (Dawson 101). One positive effect of unemployment is the availability of adequate labor at reduced market prices. When many people are unemployed, labor is available at competitive prices because people are always eager to have some income (Stone 80).

Unemployment has various categories that include classical, structural, frictional, cyclical and hidden unemployment (Stone 26). Unemployment results from several factors that vary in terms of the supporting conditions. Some causes are due to personal choices while others are beyond individual control. Unemployment has both positive and negative effects, although negative effects surpass positive effects. Welfare payments should be discouraged as they reduce the will of unemployed people to look for jobs (Stone 50).

People should be encouraged to look for a job instead of waiting on grants because they may not achieve financial freedom to satisfactory levels. In order to reduce the effects of unemployment, governments should develop and implement policies that regulate circumstances in which an employer can fire an employee (Dawson 90). This will prevent victimization of employees by employers who take advantage of weak policies on labor regulation and employee protection.

Dawson, Graham. Inflation and Unemployment: Causes, Consequences and Cures . California: University of California, 2008. Print.

Stone, Jack. Unemployment: The Shocking Truth of Its Causes, Its Outrageous Consequences and What Can Be Done About It . New York: Trafford on Demand Pub, 2007. Print.

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Bibliography

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AP®︎/College Macroeconomics

Course: ap®︎/college macroeconomics > unit 2.

Unemployment rate primer
Natural, cyclical, structural, and frictional unemployment rates
Worked free response question on unemployment

Lesson summary: Unemployment

Unemployment
Types of unemployment and the natural rate of unemployment

Lesson overview

Key takeaways, the labor force participation rate (lfpr), limitations of the unemployment rate, three types of unemployment, the natural rate of unemployment, changes in the natural rate of unemployment (nru), key equations, the labor force:, the unemployment rate (ur), common misperceptions.

Not everyone who is out of work is unemployed. In order to be counted as unemployed you have to be out of work, looking for work, and able to accept a job if one is offered to you. If you are out of work and not looking, then you are considered “not in the labor force” rather than unemployed.
We tend to think of unemployment as an undesirable thing, but a certain amount of unemployment is actually part of a healthy economy. Structural unemployment occurs when new industries are created and old industries become obsolete. For example, when we moved from using horses and buggies to using cars to get around, this put a lot of buggy makers in the structurally unemployed category.
Frictional unemployment might not seem very fun, but consider what it means to have zero unemployment—nobody ever looks for a job, they just remain in whatever job they are given! In fact, a number of dystopian novels have been written in which everyone in a society is automatically assigned a fixed career (such as the Divergent series). Those societies have zero frictional unemployment, but they are also quite unpleasant if you are unhappy with that career!
A decrease in the unemployment rate isn’t necessarily a sign of an improving economy. When people stop looking for jobs and drop out of the labor force as discouraged workers, the unemployment rate will decrease even though the true employment situation hasn’t gotten any better. This is why it is important to look at both changes in the unemployment rate and changes in the labor force participation rate. Looking at both changes let’s you get a more complete idea about changes in the employment situation.

Discussion Questions:

An inventor in Burginville developed a fantastic new dictation machine that perfectly records speech and turns it into a typed document. Unfortunately, that meant that unemployment increased among typists working in offices. Which type of unemployment is this? Explain. Solution, please. This is structural unemployment because typists skills are no longer desired. The changing structure of office work has resulted in people losing their jobs.
The nation of Fitlandia has 120 , 000 ‍ people. Of these, 20 , 000 ‍ are children under the age of 16, 72,000 ‍ have jobs, 8,000 ‍ don’t have jobs and are looking for work, and 20,000 ‍ people are retired. Assuming that these are all noninstitutionalized civilians, calculate the labor force participation rate and the unemployment rate. I think I got it. Can I check my work? L F = # Employed + # Unemployed = 72,000 + 8,000 = 80,000 L F P R = L F Eligible Population × 100 % = 80,000 100,000 × 100 % = 80 % U R = # Unemployed # Labor Force × 100 % = 8,000 80,000 × 100 % = 10 % ‍
Explain why a decrease in the unemployment rate can actually signal a tough job market.

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Learning Objectives

Explain frictional and structural unemployment
Assess relationships between the natural rate of employment and potential real GDP, productivity, and public policy
Identify recent patterns in the natural rate of employment
Propose ways to combat unemployment

Cyclical unemployment explains why unemployment rises during a recession and falls during an economic expansion. But what explains the remaining level of unemployment even in good economic times? Why is the unemployment rate never zero? Even when the U.S. economy is growing strongly, the unemployment rate only rarely dips as low as 4%. Moreover, the discussion earlier in this chapter pointed out that unemployment rates in many European countries like Italy, France, and Germany have often been remarkably high at various times in the last few decades. Why does some level of unemployment persist even when economies are growing strongly? Why are unemployment rates continually higher in certain economies, through good economic years and bad? Economists have a term to describe the remaining level of unemployment that occurs even when the economy is healthy: it is called the natural rate of unemployment .

The Long Run: The Natural Rate of Unemployment

The natural rate of unemployment is not “natural” in the sense that water freezes at 32 degrees Fahrenheit or boils at 212 degrees Fahrenheit. It is not a physical and unchanging law of nature. Instead, it is only the “natural” rate because it is the unemployment rate that would result from the combination of economic, social, and political factors that exist at a time—assuming the economy was neither booming nor in recession. These forces include the usual pattern of companies expanding and contracting their workforces in a dynamic economy, social and economic forces that affect the labor market, or public policies that affect either the eagerness of people to work or the willingness of businesses to hire. Let’s discuss these factors in more detail.

Frictional Unemployment

In a market economy , some companies are always going broke for a variety of reasons: old technology; poor management; good management that happened to make bad decisions; shifts in tastes of consumers so that less of the firm’s product is desired; a large customer who went broke; or tough domestic or foreign competitors. Conversely, other companies will be doing very well for just the opposite reasons and looking to hire more employees. In a perfect world, all of those who lost jobs would immediately find new ones. But in the real world, even if the number of job seekers is equal to the number of job vacancies, it takes time to find out about new jobs, to interview and figure out if the new job is a good match, or perhaps to sell a house and buy another in proximity to a new job. The unemployment that occurs in the meantime, as workers move between jobs, is called frictional unemployment . Frictional unemployment is not inherently a bad thing. It takes time on part of both the employer and the individual to match those looking for employment with the correct job openings. For individuals and companies to be successful and productive, you want people to find the job for which they are best suited, not just the first job offered.

In the mid-2000s, before the recession of 2008–2009, it was true that about 7% of U.S. workers saw their jobs disappear in any three-month period. But in periods of economic growth, these destroyed jobs are counterbalanced for the economy as a whole by a larger number of jobs created. In 2005, for example, there were typically about 7.5 million unemployed people at any given time in the U.S. economy. Even though about two-thirds of those unemployed people found a job in 14 weeks or fewer, the unemployment rate did not change much during the year, because those who found new jobs were largely offset by others who lost jobs.

Of course, it would be preferable if people who were losing jobs could immediately and easily move into the new jobs being created, but in the real world, that is not possible. Someone who is laid off by a textile mill in South Carolina cannot turn around and immediately start working for a textile mill in California. Instead, the adjustment process happens in ripples. Some people find new jobs near their old ones, while others find that they must move to new locations. Some people can do a very similar job with a different company, while others must start new career paths. Some people may be near retirement and decide to look only for part-time work, while others want an employer that offers a long-term career path. The frictional unemployment that results from people moving between jobs in a dynamic economy may account for one to two percentage points of total unemployment.

The level of frictional unemployment will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy. The extent of frictional unemployment will also depend to some extent on how willing people are to move to new areas to find jobs—which in turn may depend on history and culture.

Frictional unemployment and the natural rate of unemployment also seem to depend on the age distribution of the population. Figure 2 from Patterns of Unemployment (b) showed that unemployment rates are typically lower for people between 25–54 years of age than they are for those who are either younger or older. “Prime-age workers,” as those in the 25–54 age bracket are sometimes called, are typically at a place in their lives when they want to have a job and income arriving at all times. But some proportion of those who are under 30 may still be trying out jobs and life options and some proportion of those over 55 are eyeing retirement. In both cases, the relatively young or old tend to worry less about unemployment than those in-between, and their periods of frictional unemployment may be longer as a result. Thus, a society with a relatively high proportion of relatively young or old workers will tend to have a higher unemployment rate than a society with a higher proportion of its workers in middle age.

Structural Unemployment

Another factor that influences the natural rate of unemployment is the amount of structural unemployment . The structurally unemployed are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills. An example of the former would be the unemployment among aerospace engineers after the U.S. space program downsized in the 1970s. An example of the latter would be high school dropouts.

Some people worry that technology causes structural unemployment. In the past, new technologies have put lower skilled employees out of work, but at the same time they create demand for higher skilled workers to use the new technologies. Education seems to be the key in minimizing the amount of structural unemployment. Individuals who have degrees can be retrained if they become structurally unemployed. For people with no skills and little education, that option is more limited.

Natural Unemployment and Potential Real GDP

The natural unemployment rate is related to two other important concepts: full employment and potential real GDP. The economy is considered to be at full employment when the actual unemployment rate is equal to the natural unemployment. When the economy is at full employment, real GDP is equal to potential real GDP. By contrast, when the economy is below full employment, the unemployment rate is greater than the natural unemployment rate and real GDP is less than potential. Finally, when the economy above full employment, then the unemployment rate is less than the natural unemployment rate and real GDP is greater than potential. Operating above potential is only possible for a short while, since it is analogous to all workers working overtime.

Productivity Shifts and the Natural Rate of Unemployment

Unexpected shifts in productivity can have a powerful effect on the natural rate of unemployment. Over time, the level of wages in an economy will be determined by the productivity of workers. After all, if a business paid workers more than could be justified by their productivity, the business will ultimately lose money and go bankrupt. Conversely, if a business tries to pay workers less than their productivity then, in a competitive labor market, other businesses will find it worthwhile to hire away those workers and pay them more.

However, adjustments of wages to productivity levels will not happen quickly or smoothly. Wages are typically reviewed only once or twice a year. In many modern jobs, it is difficult to measure productivity at the individual level. For example, how precisely would one measure the quantity produced by an accountant who is one of many people working in the tax department of a large corporation? Because productivity is difficult to observe, wage increases are often determined based on recent experience with productivity; if productivity has been rising at, say, 2% per year, then wages rise at that level as well. However, when productivity changes unexpectedly, it can affect the natural rate of unemployment for a time.

The U.S. economy in the 1970s and 1990s provides two vivid examples of this process. In the 1970s, productivity growth slowed down unexpectedly (as discussed in Economic Growth ). For example, output per hour of U.S. workers in the business sector increased at an annual rate of 3.3% per year from 1960 to 1973, but only 0.8% from 1973 to 1982. Figure 1 (a) illustrates the situation where the demand for labor—that is, the quantity of labor that business is willing to hire at any given wage—has been shifting out a little each year because of rising productivity, from D 0 to D 1 to D 2 . As a result, equilibrium wages have been rising each year from W 0 to W 1 to W 2 . But when productivity unexpectedly slows down, the pattern of wage increases does not adjust right away. Wages keep rising each year from W 2 to W 3 to W 4 . But the demand for labor is no longer shifting up. A gap opens where the quantity of labor supplied at wage level W 4 is greater than the quantity demanded. The natural rate of unemployment rises; indeed, in the aftermath of this unexpectedly low productivity in the 1970s, the national unemployment rate did not fall below 7% from May, 1980 until 1986. Over time, the rise in wages will adjust to match the slower gains in productivity, and the unemployment rate will ease back down. But this process may take years.

The two graphs reveal how changes in productivity can impact wages and unemployment

The late 1990s provide an opposite example: instead of the surprise decline in productivity in the 1970s, productivity unexpectedly rose in the mid-1990s. The annual growth rate of real output per hour of labor increased from 1.7% from 1980–1995, to an annual rate of 2.6% from 1995–2001. Let’s simplify the situation a bit, so that the economic lesson of the story is easier to see graphically, and say that productivity had not been increasing at all in earlier years, so the intersection of the labor market was at point E in Figure 1 (b), where the demand curve for labor (D 0 ) intersects the supply curve for labor. As a result, real wages were not increasing. Now, productivity jumps upward, which shifts the demand for labor out to the right, from D 0 to D 1 . At least for a time, however, wages are still being set according to the earlier expectations of no productivity growth, so wages do not rise. The result is that at the prevailing wage level (W), the quantity of labor demanded (Qd) will for a time exceed the quantity of labor supplied (Qs), and unemployment will be very low—actually below the natural level of unemployment for a time. This pattern of unexpectedly high productivity helps to explain why the unemployment rate stayed below 4.5%—quite a low level by historical standards—from 1998 until after the U.S. economy had entered a recession in 2001.

Average levels of unemployment will tend to be somewhat higher on average when productivity is unexpectedly low, and conversely, will tend to be somewhat lower on average when productivity is unexpectedly high. But over time, wages do eventually adjust to reflect productivity levels.

Public Policy and the Natural Rate of Unemployment

Public policy can also have a powerful effect on the natural rate of unemployment. On the supply side of the labor market, public policies to assist the unemployed can affect how eager people are to find work. For example, if a worker who loses a job is guaranteed a generous package of unemployment insurance, welfare benefits, food stamps, and government medical benefits, then the opportunity cost of being unemployed is lower and that worker will be less eager to seek a new job.

What seems to matter most is not just the amount of these benefits, but how long they last. A society that provides generous help for the unemployed that cuts off after, say, six months, may provide less of an incentive for unemployment than a society that provides less generous help that lasts for several years. Conversely, government assistance for job search or retraining can in some cases encourage people back to work sooner. See the Clear it Up to learn how the U.S. handles unemployment insurance.

How does U.S. unemployment insurance work?

Unemployment insurance is a joint federal–state program, established by federal law in 1935. The federal government sets minimum standards for the program, but most of the administration is done by state governments.

The funding for the program is a federal tax collected from employers. The federal government requires that the tax be collected on the first $7,000 in wages paid to each worker; however, states can choose to collect the tax on a higher amount if they wish, and 41 states have set a higher limit. States can choose the length of time that benefits will be paid, although most states limit unemployment benefits to 26 weeks—with extensions possible in times of especially high unemployment. The fund is then used to pay benefits to those who become unemployed. Average unemployment benefits are equal to about one-third of the wage earned by the person in his or her previous job, but the level of unemployment benefits varies considerably across states.

One other interesting thing to note about the classifications of unemployment—an individual does not have to collect unemployment benefits to be classified as unemployed. While there are statistics kept and studied relating to how many people are collecting unemployment insurance, this is not the source of unemployment rate information.

View this article for an explanation of exactly who is eligible for unemployment benefits.

On the demand side of the labor market, government rules social institutions, and the presence of unions can affect the willingness of firms to hire. For example, if a government makes it hard for businesses to start up or to expand, by wrapping new businesses in bureaucratic red tape, then businesses will become more discouraged about hiring. Government regulations can make it harder to start a business by requiring that a new business obtain many permits and pay many fees, or by restricting the types and quality of products that can be sold. Other government regulations, like zoning laws, may limit where business can be done, or whether businesses are allowed to be open during evenings or on Sunday.

Whatever defenses may be offered for such laws in terms of social value—like the value some Christians place on not working on Sunday—these kinds of restrictions impose a barrier between some willing workers and other willing employers, and thus contribute to a higher natural rate of unemployment. Similarly, if government makes it difficult to fire or lay off workers, businesses may react by trying not to hire more workers than strictly necessary—since laying these workers off would be costly and difficult. High minimum wages may discourage businesses from hiring low-skill workers. Government rules may encourage and support powerful unions, which can then push up wages for union workers, but at a cost of discouraging businesses from hiring those workers.

The Natural Rate of Unemployment in Recent Years

The underlying economic, social, and political factors that determine the natural rate of unemployment can change over time, which means that the natural rate of unemployment can change over time, too.

Estimates by economists of the natural rate of unemployment in the U.S. economy in the early 2000s run at about 4.5 to 5.5%. This is a lower estimate than earlier. Three of the common reasons proposed by economists for this change are outlined below.

The Internet has provided a remarkable new tool through which job seekers can find out about jobs at different companies and can make contact with relative ease. An Internet search is far easier than trying to find a list of local employers and then hunting up phone numbers for all of their human resources departments, requesting a list of jobs and application forms, and so on. Social networking sites such as LinkedIn have changed how people find work as well.
The growth of the temporary worker industry has probably helped to reduce the natural rate of unemployment. In the early 1980s, only about 0.5% of all workers held jobs through temp agencies; by the early 2000s, the figure had risen above 2%. Temp agencies can provide jobs for workers while they are looking for permanent work. They can also serve as a clearinghouse, helping workers find out about jobs with certain employers and getting a tryout with the employer. For many workers, a temp job is a stepping-stone to a permanent job that they might not have heard about or gotten any other way, so the growth of temp jobs will also tend to reduce frictional unemployment.
The aging of the “baby boom generation”—the especially large generation of Americans born between 1946 and 1963—meant that the proportion of young workers in the economy was relatively high in the 1970s, as the boomers entered the labor market, but is relatively low today. As noted earlier, middle-aged workers are far more likely to keep steady jobs than younger workers, a factor that tends to reduce the natural rate of unemployment.

The combined result of these factors is that the natural rate of unemployment was on average lower in the 1990s and the early 2000s than in the 1980s. The Great Recession of 2008–2009 pushed monthly unemployment rates above 10% in late 2009. But even at that time, the Congressional Budget Office was forecasting that by 2015, unemployment rates would fall back to about 5%—lower than it currently is, though not by much. As of early 2015, policymakers still think that unemployment has not yet reached its natural rate.

The Natural Rate of Unemployment in Europe

By the standards of other high-income economies, the natural rate of unemployment in the U.S. economy appears relatively low. Through good economic years and bad, many European economies have had unemployment rates hovering near 10%, or even higher, since the 1970s. European rates of unemployment have been higher not because recessions in Europe have been deeper, but rather because the conditions underlying supply and demand for labor have been different in Europe, in a way that has created a much higher natural rate of unemployment.

Many European countries have a combination of generous welfare and unemployment benefits, together with nests of rules that impose additional costs on businesses when they hire. In addition, many countries have laws that require firms to give workers months of notice before laying them off and to provide substantial severance or retraining packages after laying them off. The legally required notice before laying off a worker can be more than three months in Spain, Germany, Denmark, and Belgium, and the legally required severance package can be as high as a year’s salary or more in Austria, Spain, Portugal, Italy, and Greece. Such laws will surely discourage laying off or firing current workers. But when companies know that it will be difficult to fire or lay off workers, they also become hesitant about hiring in the first place.

The typically higher levels of unemployment in many European countries in recent years, which have prevailed even when economies are growing at a solid pace, are attributable to the fact that the sorts of laws and regulations that lead to a high natural rate of unemployment are much more prevalent in Europe than in the United States.

A Preview of Policies to Fight Unemployment

The Government Budgets and Fiscal Policy and Macroeconomic Policy Around the World chapters provide a detailed discussion of how to fight unemployment, when these policies can be discussed in the context of the full array of macroeconomic goals and frameworks for analysis. But even at this preliminary stage, it is useful to preview the main issues concerning policies to fight unemployment.

The remedy for unemployment will depend on the diagnosis. Cyclical unemployment is a short-term problem, caused because the economy is in a recession. Thus, the preferred solution will be to avoid or minimize recessions. As Government Budgets and Fiscal Policy discusses, this policy can be enacted by stimulating the overall buying power in the economy, so that firms perceive that sales and profits are possible, which makes them eager to hire.

Dealing with the natural rate of unemployment is trickier. There is not much to be done about the fact that in a market-oriented economy, firms will hire and fire workers. Nor is there much to be done about how the evolving age structure of the economy, or unexpected shifts in productivity, will affect the natural rate of unemployment for a time. However, as the example of high ongoing unemployment rates for many European countries illustrates, government policy clearly can affect the natural rate of unemployment that will persist even when GDP is growing.

When a government enacts policies that will affect workers or employers, it must examine how these policies will affect the information and incentives employees and employers have to seek each other out. For example, the government may have a role to play in helping some of the unemployed with job searches. The design of government programs that offer assistance to unemployed workers and protections to employed workers may need to be rethought so that they will not unduly discourage the supply of labor. Similarly, rules that make it difficult for businesses to begin or to expand may need to be redesigned so that they will not unduly discourage the demand for labor. The message is not that all laws affecting labor markets should be repealed, but only that when such laws are enacted, a society that cares about unemployment will need to consider the tradeoffs involved.

The Mysterious Case of the Missing Candidates

After reading the chapter you might think the current unemployment conundrum may be due to structural unemployment. Indeed, there is a mismatch between the skills employers are seeking and the skills the unemployed possess. But Peter Cappelli has a slightly different view on this—it is called the purple squirrel. The what?

In human resource parlance, a purple squirrel is a job candidate who is a perfect fit for all of the many different responsibilities of a position. A purple squirrel candidate could step into a multi-faceted position with no training and permit the firm to higher fewer people because the worker is so versatile. During the Great Recession, Human Resources (HR) positions were reduced. This means today’s hiring managers are drafting job descriptions and requirements without much, if any HR feedback. “It turns out it’s typically the case that employers’ requirements are crazy, they’re not paying enough, or their applicant screening is so rigid that nobody gets through,” Cappelli stated in a 2012 Knowledge@Wharton interview about the findings in his book, Why Good People Can’t Find Jobs: Chasing After the Purple Squirrel . In short, managers are searching for “purple squirrels” when what they really need are just versatile workers. There really is not a shortage of “normal squirrels”—candidates who are versatile workers. The managers just cannot find them because their requirements, screening processes, and compensation will filter out all but the “purple” ones.

Key Concepts and Summary

The natural rate of unemployment is the rate of unemployment that would be caused by the economic, social, and political forces in the economy even when the economy is not in a recession. These factors include the frictional unemployment that occurs when people are put out of work for a time by the shifts of a dynamic and changing economy and any laws concerning conditions of hiring and firing have the undesired side effect of discouraging job formation. They also include structural unemployment, which occurs when demand shifts permanently away from a certain type of job skill.

Self-Check Questions

Is the increase in labor force participation rates among women better thought of as causing an increase in cyclical unemployment or an increase in the natural rate of unemployment? Why?
Many college students graduate from college before they have found a job. When graduates begin to look for a job, they are counted as what category of unemployed?

Review Questions

What term describes the remaining level of unemployment that occurs even when the economy is healthy?
What forces create the natural rate of unemployment for an economy?
Would you expect the natural rate of unemployment to be roughly the same in different countries?
Would you expect the natural rate of unemployment to remain the same within one country over the long run of several decades?
What is frictional unemployment? Give examples of frictional unemployment.
What is structural unemployment? Give examples of structural unemployment.
After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?
landscapers laid off in response to drop in new housing construction during a recession
coal miners laid off due to EPA regulations that shut down coal fired power
a financial analyst who quits his/her job in Chicago and is pursing similar work in Arizona
printers laid off due to drop in demand for printed catalogues and flyers as firms go the internet to promote an advertise their products
factory workers in the U.S. laid off as the plants shut down and move to Mexico and Ireland

Critical Thinking Questions

Under what condition would a decrease in unemployment be bad for the economy?
Under what condition would an increase in the unemployment rate be a positive sign?
As the baby boom generation retires, the ratio of retirees to workers will increase noticeably. How will this affect the Social Security program? How will this affect the standard of living of the average American?
Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.
Is it desirable to pursue a goal of zero unemployment? Why or why not?
Is it desirable to eliminate natural unemployment? Why or why not? Hint : Think about what our economy would look like today and what assumptions would have to be met to have a zero rate of natural unemployment.
The U.S. unemployment rate increased from 4.6% in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?

As the baby boomer generation retires, what should happen to wages and employment? Can you show this graphically?

Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Accessed March 6, 2015 http://data.bls.gov/timeseries/LNS14000000.

Cappelli, P. (20 June 2012). “Why Good People Can’t Get Jobs: Chasing After the Purple Squirrel.” http://knowledge.wharton.upenn.edu/article.cfm?articleid=3027.

Answers to Self-Check Questions

The increase in labor supply was a social demographic trend—it was not caused by the economy falling into a recession. Therefore, the influx of women into the work force increased the natural rate of unemployment.
New entrants to the labor force, whether from college or otherwise, are counted as frictionally unemployed until they find a job.

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Essay on Unemployment: 100 to 300 Words

Updated on
Mar 30, 2024

Writing an essay on unemployment provides an opportunity to explore a critical issue affecting societies worldwide. Unemployment, a multifaceted problem, has far-reaching consequences that touch upon various aspects of individuals, families, and nations. In this essay, we will delve into the complexities of unemployment, examine its causes and consequences, discuss government initiatives, and shed light on potential solutions.

Table of Contents

1 What is Unemployment?
2 Essay on Unemployment in 100 words
3 Essay on Unemployment in 200 words
4 Essay on Unemployment in 300 words
5 Tips to Ace in Writing An Essay

Must Read: The Beginner’s Guide to Writing an Essay

What is Unemployment?

Lack of jobs leads to unemployment. It is a very serious economic and social concern that is happening all around the globe leading to many social ills. This issue is a major one and hence many governments are trying to address it. When people of a nation are employed, that leads to the economic and social well-being of that nation. To address it, the education system needs to be modeled differently so as to increase the employability of people. In democracies, political parties use unemployment as a core issue in their election manifestos.

Essay on Unemployment in 100 words

Unemployment refers to the condition when individuals, capable and willing to work, are unable to secure gainful employment. It is a pervasive issue across the globe, with varying degrees of impact on societies. Unemployment results in financial instability, and emotional distress, and hampers individual growth. Governments and organizations must collaborate to create opportunities for employment through skill development and policy implementation.

Essay on Unemployment in 200 words

Unemployment, a pressing concern globally, stems from multiple factors that hinder the workforce’s engagement in productive activities. It affects both developed and developing nations, contributing to economic imbalances and social disparities. The consequences of unemployment include reduced income levels, increased poverty rates, and strained government resources. Moreover, the psychological toll it takes on individuals and families can be severe, leading to stress, depression, and strained relationships.

Essay on Unemployment in 300 words

The intricate web of unemployment is spun from a mix of causes, ranging from economic fluctuations to structural shifts in industries. Cyclical unemployment, driven by economic downturns, and structural unemployment, resulting from a mismatch between skills and job openings, are widespread forms. Additionally, technological advancements lead to technological unemployment as machines replace human labour.

Unemployment has cascading effects on societies. Diminished purchasing power affects market demand, thereby impacting economic growth. As unemployment rates rise, so does the burden on social welfare programs and the healthcare system. The phenomenon also fuels social unrest and political instability, making it a challenge governments cannot ignore.

Governments worldwide have initiated strategies to tackle unemployment. Skill development programs, vocational training, and entrepreneurship initiatives are designed to equip individuals with market-relevant skills. Furthermore, promoting labour-intensive industries and investing in sectors with growth potential can generate employment opportunities.

In conclusion, unemployment is a complex issue that necessitates a multi-pronged approach. Governments, industries, and individuals must collaborate to alleviate its impact. Effective policy implementation, education reforms, and the cultivation of entrepreneurial spirit can pave the way towards reducing unemployment rates and fostering a more stable and prosperous society.

Tips to Ace in Writing An Essay

Before we dive into the specifics of unemployment, let’s briefly discuss some tips to enhance your essay-writing skills:

Understand the Prompt: Ensure a clear understanding of the essay prompt to address all its components effectively.
Research Thoroughly: Gather relevant information from credible sources to build a comprehensive and informed essay.
Organize Your Thoughts: Create an outline to structure your essay logically, allowing your ideas to flow coherently.
Introduction and Conclusion: Craft a compelling introduction to engage your readers, and a succinct conclusion to summarize your key points.
Use Clear Language: Express your ideas using clear and concise language, avoiding jargon or overly complex vocabulary.
Provide Examples: Illustrate your points with real-life examples to enhance understanding and credibility.
Edit and Proofread: Revise your essay for grammar, punctuation, and coherence to ensure a polished final draft.

Also Read: Unemployment v/s Underemployment – What’s Worse?

Manasvi Kotwal

Manasvi's flair in writing abilities is derived from her past experience of working with bootstrap start-ups, Advertisement and PR agencies as well as freelancing. She's currently working as a Content Marketing Associate at Leverage Edu to be a part of its thriving ecosystem.

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Unemployment and Policy Trade-Offs (Revision Essay Plan)

Last updated 4 May 2019

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Here is a revision essay plan on this title: “Evaluate the view that falling unemployment inevitably has trade-offs with other macroeconomic objectives. Discuss with reference to a country or countries of your choice.”

KAA Point 1

Falling U – may cause an acceleration in wage inflation in labour market – leads to a rise in cost-push and demand-pull inflationary pressures – this is a trade-off suggested by the short-run Phillips Curve analysis. Bargaining power of workers rises + skilled labour shortages & increased demand for raw materials and components can all drive variable costs higher – inward shift of SRAS, leading to a higher rate of inflation.

EVAL Point 1

Not automatic that inflation will rise. Improved supply-side flexibility of the labour market might have caused a fall in the NAIRU (non-accelerating inflation rate of unemployment) – this means that U can fall further without threatening rising wage inflation. External factors (e.g. lower commodity prices, impact of global competition) can also act as off-setting factors even if wages are rising more quickly.

KAA Point 2

Falling U – leads to rising real wages – increased household incomes – causes surge in demand for imports of goods and services – especially if the marginal propensity to import is high – in the absence of offsetting factors, a rise in M will lead to a worsening of the current account of the BoP. E.g. unemployment in UK now less than 4%, in 2016 the UK ran a record current account deficit of more than 5% of GDP.

EVAL Point 2

Falling U might be result of improved supply-side performance e.g. increased labour productivity which makes UK export industries more competitive. Or export sales might have grown because of a depreciation of the exchange rate (e.g. 2016) which (assuming Marshall-Lerner condition holds) will improve the net trade balance whilst also stimulating output and employment in sectors such as cars and tourism.

FINAL CONCLUSION

Phillips Curve for the UK seems to have flattened i.e. improving trade-off between unemployment and inflation. UK might be able to get close to full-employment and stay within the 2% inflation target. But weak productivity and low investment (17% of GDP) mean that strong GDP growth often associated with a worsening of the external trade accounts.

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Macro Economic Essays

These are a collection of essays written for my economic blogs.

Exchange Rate Essays

Effects of a falling Dollar
Why Dollar keeps falling
Discuss Policies to Stop the Dollar Falling
Does Devaluation Cause Inflation?
Benefits and Costs of Falling Dollar
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Benefits of High-Interest Rates (and recessions)
Who Sets interest rates – Markets or Bank of England?

Economic History

Economics of the 1920s
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Home — Essay Samples — Economics — Employment — Reasons For Unemployment

Reasons for Unemployment

Categories: Employment Unemployment

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Published: Mar 14, 2024

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Unemployment Essay

500+ words essay on unemployment.

Unemployment is a serious problem among young people. There are thousands of people who do not have any work to do and cannot find work for themselves. Unemployment refers to the situation where a person wants to work but cannot find employment in the labour market. One of the major reasons that contribute to unemployment is the large population of India and the limited availability of resources. In this essay on unemployment, we will discuss all these issues responsible for unemployment in India and how we can overcome this problem. Students must go through this unemployment essay to get ideas on how to write an effective essay on the topic related to unemployment. Also, they can practice more CBSE essays on different topics to boost their writing skills.

Unemployment is measured by the unemployment rate, defined as the number of people actively looking for a job as a percentage of the labour force. The unemployment rate for the year 2013-14 in rural India was 4.7%, whereas it was 5.5% for urban India. In the short term, unemployment significantly reduces a person’s income and, in the long term, it reduces their ability to save for retirement and other goals. Unemployment is a loss of valuable productive resources to the economy. The impact of job loss in rural and regional areas flows through the local community, damaging businesses.

Reason for Unemployment

An unemployed person is one who is an active member of the labour force and is seeking work but is unable to find any work for himself. There are multiple reasons behind the unemployment of a person. One of them is the slow economic growth, due to which jobs in adequate numbers are not created. Excessive dependence on agriculture and slow growth of non-farm activities also limit employment generation. Unemployment in urban areas is mainly the result of substantial rural migration to urban areas. This has also resulted in a labour workforce in cities. The lack of technology and proper machinery has also contributed to unemployment.

The present educational system is based on theoretical knowledge instead of practical work. Thus, it lacks the development of aptitude and technical qualifications required for various types of work among job seekers. This has created a mismatch between the need and availability of relevant skills and training. This results in unemployment, especially among the youth and educated people with high degrees and qualifications. Apart from it, the lack of investment and infrastructure has led to inadequate employment opportunities in different sectors.

Steps to Eliminate Unemployment

Various strategies and proposals have been implemented to generate employment. Many Employment programmes and policies have been introduced and undertaken to boost self-employment and help unemployed people engage in public works. The Government of India has taken several policy measures to fight the problem of unemployment. Some of the measures are the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), National Skill Development Mission, Swarna Jayanti Shahari Rozgar Yojana (SJSRY), Regional Rural Banks (RRBs).

Despite the measures taken by the government, India remains a country experiencing severe unemployment problems. It can be resolved by imparting education in such a way that youth get the necessary skills so as to get employment easily. Setting up various vocational training and vocational courses for undergraduate and postgraduate students will help in finding employment for youth. The government needs to emphasise these courses at the primary level and make them a compulsory part of the curriculum to make students proficient in their early stages of life. Career counselling should be provided within schools and colleges so that students can choose a better career option based on their interests and ability. Government should create more job opportunities for the youth and graduates.

India is a fast-growing economy. There is an enormous scope for improvement in the unemployment sector. The various measures and steps taken by the government to increase the employment rate have succeeded to a great extent. The widespread skill development programmes have gained popularity across the nation. With better enforcement of the strategies, the employment level can be significantly improved. Although, we have to go a long way before we can say that all the people in India will get employment.

We hope this essay on unemployment must have helped students in boosting their essay-writing skills. Keep learning and visiting the BYJU’S website for more study material.

Frequently Asked Questions on Unemployment Essay

Is unemployment still an existing problem in india.

Yes, unemployment is still a serious issue in our country. Steps need to be taken by the government and also by the youngsters in India to improve this situation.

Is it necessary for schoolchildren to be informed about unemployment?

Students at this young age should definitely be informed about this topic as it will motivate them to study and aim for higher scores in exams.

What points are to be added to an essay topic on Unemployment?

Add details about different age groups of people suffering from this state of employment. You can focus on the fact that poverty is an indirect reason for unemployment and vice-versa. Then, suggest steps that can be taken to bring about an improvement in education and increase the percentage of literacy.

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Economics: Unemployment, Its Causes and Types

This essay sample explores solutions, types, and causes of unemployment. Read it to get ideas for your essay about unemployment.

Unemployment Essay Introduction

Unemployment, types of unemployment, causes of unemployment, conclusion for unemployment essay.

Unemployment has become a major problem in almost every society. The challenges posed by unemployment are both social and economical in nature. Under normal circumstances, unemployment leads to despondency since a section of society lacks ways of earning a living.

This affects not only the economic status of the society but also the political and social aspects. It is against this background that a lot of efforts are put in place so as to address the issue of unemployment. Job creation is one sure way of ensuring that unemployment is under control.

This involves concerted efforts to bring about opportunities to work through which income can be generated. However, unemployment is of different types, and a better understanding of the same is crucial in the event of finding a meaningful solution.

Furthermore, unemployment is caused by several factors which are responsible for the whole situation. The aim of this paper is to navigate through the light of unemployment, thoroughly analyzing the causes and types of the same.

Unemployment refers to a situation in which qualified people are seeking employment but remain unemployed. This is primarily due to the scarcity of job opportunities or other different causes. Unemployment, therefore, leads to a lack of a source of income, thus affecting the economic condition of the society. Unemployment takes different forms and shapes (Harris, 2001).

The condition of unemployment differs from society to society, depending on the factors responsible for the situation. This brings out the fact that unemployment does not occur in a uniform manner; it rather takes different forms depending on the various forces in the social, economic, and political arenas.

Unemployment is a major problem that needs to be addressed by all means. However, a better understanding of the causes and types of unemployment is necessary for the event of finding an appropriate solution to the whole situation.

Unemployment occurs in different forms. Under normal circumstances, the type of unemployment is denoted by the nature of factors that have brought about the situation. As a result, unemployment is categorized by forces that play a role in the creation of the situation (Hooks 2003).

Another important factor in the categorization of unemployment is the manner in which the situation occurs and for how long it occurs. In such a situation, certain forms of unemployment tend to be repetitive in nature, while others only take place once.

The seriousness of the unemployment problem also forms a good basis for its categorization. Under normal circumstances, unemployment is categorized in economic terms. Therefore the dynamics of economics play an important role in the whole scenario.

There are several types of unemployment that occur in different forms and are brought about by different situations and circumstances. The following are the types of unemployment;

Hidden unemployment
Cyclical unemployment
Seasonal unemployment
Long-term unemployment
Underemployment
Hardcore unemployment
Structural unemployment
Frictional unemployment

Hidden unemployment refers to cases of unemployment that are not represented in the official records of unemployment. This happens since many cases of unemployment are unreported, and statistics given by government agencies don’t represent them. Seasonal unemployment, on the other hand, refers to those jobs that are seasonal in nature.

These kinds of jobs only operate during certain times and not others (Abbot 2010). During the seasons, when the jobs are not on, the workers are considered unemployed. When there are certain structural changes in the status of the economy, there are kinds of changes that take place, which lead to loss of jobs and a reduction of opportunities for work.

This situation is referred to as structural unemployment. It is brought about by structural changes in the economy. Unemployment caused by personal reasons is called hardcore unemployment.

These reasons might be mental, psychological, or physical in nature. Individuals who engage in two different careers can find themselves unemployed due to the nature of their occupation. This kind of unemployment is called frictional unemployment. It is brought about by the conflict between two different jobs rendering people unemployed.

Unemployment is caused by several factors, and there is no single factor that is responsible for unemployment. As a result, there are a number of factors that combine to bring about a lack of opportunities and the fact of qualified people remaining unemployed (Symes 1995).

Fundamentally the causes of unemployment are economic in nature. As such, the plight of unemployment is brought about by factors that are inherently economic in nature. Economic forces and activities, to a large extent, determine the nature and cause of most unemployment problems. Also, factors that deal with labor and personnel are responsible for a large number of unemployment cases.

The following are causes of unemployment;

Economic growth
Microeconomic policies
Constraints in economic growth

The process of economic growth has a lot of relevance to the plight of unemployment. Under normal circumstances, unemployment is an economic problem. The forces that bring about unemployment are economic in nature.

Economic growth, for instance, has a lot of significance to the whole situation of unemployment. The level of economic activity prevailing at any given moment has a lot of significance on the state of unemployment at the time.

During the process of economic growth, there is a trend that follows; this normally involves a decrease in employment opportunities. This automatically leads to a rise in the levels of unemployment. Therefore economic growth has a negative effect on the rate of unemployment in the economy. Technology also leads to high levels of unemployment; this is primarily due to the replacement of humans with machines.

With the increase in the innovation of technology, more tasks are performed by machines making it unnecessary to employ people. This makes people lose their jobs to machines since it becomes cheaper to use machines than employ people. Another factor in the same vein of technology is the use of the capital intensive mechanism. As a result, the jobs that can be performed by people are done by machines (Stretton 1999).

The role played by policies of microeconomic nature in the creation of unemployment in society cannot be underestimated. These policies normally lead to a sudden change in the economic environment making certain adjustments that lead to unemployment.

This happens when new policies are set out in place. During the initial times of implementation, the economic environment responds with fear and panic, thus causing a sudden disappearance of opportunities for career.

Constraints in economic growth lead to uncertainty among various economic players making the chances of unemployment to reduce. There is usually rampant unemployment during times of economic uncertainty. Two reasons, first, most companies won’t employ anyone during the times of economic constraints. Secondly, many companies lay off their staff during times of slackness and low economic activity.

Unemployment is a problem that is economic in nature. Most of the factors that bring about unemployment have an economic connotation. However, the effects of unemployment go beyond the economic arena. There are several types of unemployment that are grouped according to various factors that cause the plight.

Furthermore, unemployment is not caused by one single factor; there are several forces that cause unemployment in different ways. The paper has taken an analytical look at the whole concept of unemployment. Priority has been given to the causes and types of unemployment.

The paper thus found out that unemployment is caused by various forces that are economical, social, and political in nature. At the same time, the paper found out that there is a different categorization of unemployment. This is normally done with the purpose of defining the essence of the unemployment problem in question.

Abbot, L. (2010). Theories of the Labour Market and Employment: A Review. Washington: Industrial Systems Research.

Harris, N. (2001). Business economics: theory and application. London: Butterworth-Heinemann.

Hooks, J. (2003). Economics: fundamentals for financial services providers. Washington: Kogan Page Publishers.

Stretton, H. (1999). Economics: a new introduction . Washington: Pluto Press.

Symes, V. (1995). Unemployment in Europe: problems and policies. New York: Routledge.

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StudyCorgi. (2020, January 12). Economics: Unemployment, Its Causes and Types. https://studycorgi.com/economics-unemployment-its-causes-and-types/

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The Best Essay on Unemployment | Macroeconomics

Here is an essay on ‘Unemployment’ for class 8, 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Unemployment’ especially written for school and college students.

Unemployment can be divided into different types according to the reasons for its occurrence. For example, there is frictional unemployment, which arises when a person is temporarily unemployed while moving between jobs. Similarly, there is structural unemployment, when people find their skills are not employable because they have become technologically redundant or there is no demand for them in certain regions of the country where they live.

These types of unemployment are easy to explain. By comparison, there is an enduring controversy associated with the attempts to unravel what, if any, are the differences between classical and Keynesian unemployment. The classical economists believed in the Say’s Law of Markets and in wage-price flexibility. The operation of the Say’s Law (which states that demand creates its own supply) and sufficient wage-price flexibility, they believed, would ensure automatic full employment.

Thus, in the classical theory, there was no possibility of unemployment. If there occurred any unemployment it would be of a purely temporary nature. The cause of such unemployment was too high a real wage. And such unemployment would disappear quickly due to fall in real wage.

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The intuition behind the classicists’ analysis of unemployment comes from the standard apparatus of supply and demand curves. They have reached the conclusion that if the labour market does not equilibrate, it must be because the price, i.e., the real wage, is set at an inappropriate (and not at the market-clearing) level.

The demand for labour originates from the profit-maximising decisions of firms. Under competitive conditions, this leads firms to equate the real wage with the marginal product of labour. Hence the demand for labour schedule is a direct reflection of the marginal physical product of labour (MPP L ) function.

With a well-behaved aggregate production function, the MPP L will be a decreasing function of the level of employment, and so the demand for labour varies inversely with the real wage. Consequently, if the supply of labour exceeds the demand and there is a problem of unemployment, then the solution lies with a fall in the real wage as this will increase the quantity of labour demanded and close the unemployment gap.

In his General Theory Keynes disputed the classical analysis of unemployment and the associated policy prescriptions. He introduced the concept of involuntary unemployment that had something to do with inadequate demand in final commodity markets and which could be remedied with the management of demand by fiscal policy and possibly by monetary policy too.

In explaining the cause of unemployment, Keynes focuses on the role of nominal wage inflexibility. In his view, unemployment results from an inflexible money wage which prevents the real wage from adjusting downwards to increase the demand for labour. Thus the unemployment problem originates from an inappropriate real wage.

According to Keynes, the equality of the real wage to the marginal disutility of employment corresponds to the absence of ‘involuntary’ unemployment. (Keynes makes the simplification that the marginal utility of income is constant so that the marginal disutility of employment is the same as the marginal rate of substitution of income for leisure.) Keynes excluded frictional unemployment from involuntary unemployment.

However, it is important to note that Keynes also excluded unemployment “due to the refusal or inability of a unit of labour, as a result of legislation or social practices or of a combination for collective bargaining or of a slow response to change or of mere human obstinacy, to accept a reward corresponding to the value of the product attributable to its marginal productivity”.

Thus, Keynes chose to exclude union wage differentials as well as minimum wage legislation as sources of involuntary unemployment. Clearly, Keynes wanted to focus on a particular type of involuntary unemployment.

Don Patinkin also used the static labour supply definition in his well-known analysis of involuntary unemployment:

The norm of reference to be used in defining involuntary unemployment is the supply curve for labour as long as workers are ‘on their labour supply curve’—that is, as long as they succeed in selling all the labour they want to at the prevailing real wage rate—a state of full employment will be said to exist in the economy.

The above definition of involuntary unemployment based on the labour supply curve was used by the ‘classical’ economists. For example, in 1914 A. C. Pigou proposed measuring involuntary unemployment of a group of persons by the number of hours that these persons would have been willing to provide at the current rate of wages under current conditions of employment.

According to Keynes, however, classical theories (such as Pigou’s) did not admit the possibility of involuntary unemployment by union wage differentials or minimum wage legislation. But Keynes chose to classify this as voluntary.

The Natural Rate of Unemployment (NRU) :

There are two conceptually’ separate reasons why the real wage may fail to adjust to the competitive equilibrium value. Firstly, the institutions of the economy may not correspond to those of a competitive economy: information may be costly, there may be traces of monopoly, etc.

Within this institutional context, markets are assumed to clear and the associated level of unemployment is termed as the ‘natural’ rate of unemployment.

In the language of Milton Friedman:

“The ‘natural rate of unemployment’ is the level that would be ground out by the Walrasian system of general equilibrium equations, provided there is embedded in them the actual structural characteristics of the labour and commodity markets, including market imperfections, stochastic variability in demands and supplies, cost of gathering information and so on”.

Consequently, one way that unemployment might be tackled is through policies which attempt to lower the ‘natural’ rate by removing market imperfections.

A ‘natural’ rate of unemployment is the level of unemployment where inflation is anticipated. For this reason the term the non-accelerating inflation rate of unemployment (NAIRU) is often preferred to the title ‘natural’ to describe the level of unemployment.

The current view is that the natural rate of unemployment is the rate towards which the dynamic system is converging for a given underlying general equilibrium stochastic structure. It takes into account the actual structural characteristics of the labour and commodity markets, including market imperfections, search and mobility costs.

In simple terms, it may be regarded as that level of unemployment which nonetheless remains at full employment.

In truth, NRU is essentially a long-term phenomenon. It is the rate of unemployment towards which the economy gravitates in the long run, subject to the existing imperfections in the labour market which make it difficult for workers to find jobs easily and quickly.

According to Milton Friedman who introduced the term ‘natural rate’ argues that the term ‘natural’ is useful in separating the real forces from the monetary sources. Viewed from this perspective an important feature of the natural rate as emphasised by Friedman (1968) and E. Phelps (1967, 1970) is that it does not correspond to any particular rate of inflation. For any appropriately defined long run, the key implication of this is that there is no long-run trade-off between inflation and unemployment.

Following the Friedman lead, the natural and cyclical rates of unemployment are most often treated as separate and independent components. According to this view, cyclical unemployment is characterised as being included by temporary fluctuations in conditions resulting in temporary deviations of the actual rate from the natural rate of unemployment.

Empirical evidence, however suggests considerable covariance between cyclical and structural unemployment. For example, structural unemployment is likely to increase during recessions since firms in declining industries may find it optimal to accelerate eventual reductions in their labour force at such times. Significant covariance’s of this sort raise fundamental questions about the causality of unemployment as well as whether the natural rate of unemployment is an operative concept.

Since structural unemployment is most often interpreted as a component of the natural rate, this raises serious questions about whether natural and cyclical rates of unemployment are separate, independent and indentifiable components.

To sum up, there are two features of the NRU. Firstly, it is an inherently dynamic concept. Secondly, the natural rate is clearly not a fixed and immutable constant. Variations in the composition of the labour force, the rate of structural change, the flow of information and other factors affecting labour force mobility will change the natural rate.

There is widespread agreement in macroeconomics that when there are informational inadequacies leading to sticky prices and difficulties in forming expectations, unemployment may deviate from its ‘natural’ level.

According to Friedman, the government’s demand management policies may influence the ‘natural’ rate. He argues that the variability of inflation is directly related to the level of inflation.

So, more noise enters into price signals at higher rates of inflation with the result that the ‘natural’ rate rises with the rate of inflation,

In 1980 Tobin argued that “the operational NAIRU gravitates towards the average rate of unemployment actually experienced. Among the mechanisms which produce that result are improvements in unemployment compensation and other benefits enacted in response to higher unemployment, loss of on-the-job training and employability by the unemployed, defections to the informal and illegal economy, and a slowdown in capital formation as business firms lowers their estimates of needed capacity.”

If such hysteresis effects are accepted, then an expansionary demand policy — which leaves unemployment ‘temporarily’ below the ‘natural rate — will have a permanent influence because it contributes to reducing the ‘natural’ rate itself.

Job Search and Frictional Unemployment :

In recent years economists have been concerned with frictional unemployment. One proximate cause of unemployment is the mismatch between workers and jobs. Since labour is not homogeneous, a job loss does not immediately lead to job finding. Workers who are laid-off do not find a job easily and quickly.

Job finding itself is a resource-consuming and a time-consuming endeavour. The unemployment caused both the time required by a worker is called frictional unemployment. Such unemployment occurs because we do not live in the wonderful world of the classical economists.

It occurs because information about job availability is not freely available to workers and, even when it is available, it is imperfect. Moreover, workers are not geographically mobile. There are various barriers to labour mobility.

These two factors conjointly reduce the rate of job finding. Moreover, since workers differ in their abilities and performances and jobs also differ in their characteristics (in terms of rewards and sacrifices) different jobs require different skills and offer different wages. This is why an unemployed worker prefers to spend time and money to search out a job of his liking rather than accepting any job that comes along the line.

Frictional unemployment is also related to shift unemployment. Some unemployment occurs due to shifts in demand for consumer goods used by households and producer (capital) goods used by firms.

Since the demand for labour is an indirect (derived) demand, change in the pattern of demand for goods leads to a change in the demand for labour that is required to produce those goods.

Likewise, since different regions of a country produce different goods, the demand for labour may rise in one region (such as Maharashtra or Gujarat) and fall in another region (Orissa or Bihar). Such unemployment caused by a change in the composition of demand among industries or regions is called shift unemployment.

This is another type of frictional unemployment. Since sectorial shifts are occurring all the time in a dynamic economy, and since workers take some time to move from one sector to another due to lack of marketable skill or adequate information, frictional unemployment is a rule rather than an exception.

Frictional unemployment occurs for various other reasons, for example, when old firms face problems of demand recession (such as the workers of Hindustan Motors), when workers’ job performance is inadequate when judged by any standard, and when workers’ particular skills are not in demand any more. This has happened in cases of silent movie actors or typists or tram drivers in most parts of the world.

Frictional unemployment also occurs when workers voluntarily leave their jobs or move from one part of the country to another part (and try to search out better jobs).

Frictional unemployment occurs due to inter-sectoral imbalance between demand and supply forces, i.e., where there is excess supply of labour in one sector offering higher wages due to the fact that some workers from numerous low-paying sectors have crowded the few high- paying sectors.

Efficiency Wage :

A proximate cause of real wage rigidity and involuntary unemployment is associated with the efficiency wage theory. This concept is based on the famous Marshallian concept — the economy of high wages. Marshall first hypothesized that high wages promote efficiency and low wages retard it.

The idea was put into effect in the American manufacturing industry by Henry Ford who followed the practice of giving higher than the prevailing market wage so that the rate of labour turnover came down to a minimum. Ford’s basic objective was to ensure that his most productive workers did not quit after a short association with the organisation.

The efficiency wage theory explains why firms do not cut wages even when there is excess supply of labour. The theory is based on the belief that a wage cut would lower a firm’s wage bill no doubt, but it would also reduce a firm’s profits by lowering worker efficiency.

Various explanations have been offered to explain how wages affect labour productivity:

(i) Improved Health and Enhanced Productivity:

In less developed countries like India, high wages enable workers to improve their health by having a more nutritional diet. Healthy workers are usually found to be more productive than half-fed worker. So, it is in the Tightness of things to give workers a wage above the equilibrium level in order to maintain a healthy work force.

(ii) Low Labour Turnover:

The higher the wage rate, the stronger the incentive of workers to stay with the firm. If the quit rate can be reduced to a minimum, a firm can achieve economy in terms of the time spent recruiting and training new workers.

(iii) Reducing Adverse Selection:

The overall quality of a firm’s labour force depends on the wages it pays to its employees. A wage cut will force a firm’s best workers to take jobs elsewhere in other firms, leaving the firm with inferior employees who have hardly any opportunity outside the firm. This is an example of adverse selection since workers are more informed about their alternative opportunities outside the firm than the firm (the employer).

This is also known as hidden characteristics. So by paying a low wage, a firm may take the risk of hiring inferior workers (who do not have any opportunity outside the firm). One way of reducing adverse selection is to pay a wage above the equilibrium level. This improves the average quality of the work force. So, labour productivity automatically improves.

(iv) Overcoming the Moral Hazard Problem:

High wages also improve worker effort. The truth is that it is not always possible to monitor the work effort of employees. It is the task of the employees themselves to decide how hard to work. This is known as moral hazard, also known as the hidden action.

This refers to the hidden tendency of workers to put sub-optimal effort if their activities are not perfectly monitored. One way of reducing this moral hazard problem is to pay a high wage. The higher the wage, the higher the cost of the worker of being dismissed.

One way of increasing labour productivity is to pay a higher than market wage. This induces more and more of a firm’s employees not to shirk. The common theme of various efficiency wage theories (presented above in a summary form) is that by paying its workers a high wage, a firm can operate more efficiently.

This is why many firms choose to pay more than the market clearing wage. This induces workers to stay with their firms and not to engage in job search activities. But efficiency wage increases the magnitude of involuntary unemployment and creates real wage rigidity.

Economic Insight: Four Models of Efficiency Wage:

There are four models of efficiency wage. The common feature of all the models is that higher than competitive wage can be profitable. All the models are based on the hypothesis that output depends on worker effort and effort, in its turn, varies directly with the wage rate. The more a firm pays, the more effort it gets.

The models originating from the presumed source of positive effort-wage relationship are of the four types:

1. Shirking Models:

In most jobs, workers enjoy some discretion in deciding how hard they work. Piece rates are often impractical because it is not only difficult but virtually impossible to count the “pieces” and counting is costly. In the shirking models, firms pay above the market wages, engage in some monitoring and fire those workers caught shirking.

By paying above market wages, firms decrease the incentive to shirk, since defection then entails loss of rents. According to shirking models, high wage industries are those with high monitoring costs and/ or industries which bear a relatively high cost of employee shirking.

2. Turnover Models:

Firms may also wish to pay above market clearing wages to reduce turnover. High wages are paid to reduce quits. So it follows, by deduction, that the high-wage industries are those in which turnover costs are the highest.

3. Adverse Selection Models:

According to these models, employers cannot gain an insight into the ability of workers, either as potential entrants or on the job, in a costless fashion. It is assumed that the average quality of the applicant pool increases with the wage rate. The main prediction of these models is that industries which are more sensitive to quality differences, or have higher costs of measuring quality, will offer higher wages.

4. Fair-Wage Models:

The premise of these models is that workers will exert more effort if they feel that they are being treated fairly. This premise gives firms an incentive to pay wages above competitive levels whenever their workers’ perceived fair wage exceeds the competitive wage.

If workers believe that fairness requires firms to share rents with employees, then fair wage models predict that industries with high profits will be those which pay high wages. In Fig. 1, we show profit-wage trade-off. In short, industries’ high wages lead to low profits as is shown by the profit-wage curve pw 1 .

If the wage rate is pushed up from w 1 to w 2 , the rate of profit falls from π 1 to π 0 . In other industries high wages lead to high profit as shown by the curve pw 2 . If the wage rate is pushed up from w 1 to w 2 , the rate of profit goes up from to π 0 to π 1 .

The fair wage models also predict high wages in industries where teamwork and worker expectations are particularly important. However, the four models are not mutually exclusive. Firms might well pay above competitive wages to reduce shirking and, thus, attract high-quality applicants and improve worker morale.

Effect of Minimum Wage on Employment :

Since the government does not hire surplus labour in the way it buys surplus agricultural output, a labour surplus takes the form of unemployment which tends to be higher under minimum wage laws than in a free market. In general, those whose employment prospects are reduced most by minimum wage laws are the young, less experienced and less skilled.

As in all cases, a ‘surplus’ is a price phenomenon. Unemployed workers are not surplus in the sense of being useless or in the sense that there is no work for them. Most of these workers are perfectly capable of producing goods and services, even if not to the same extent as more skilled workers. The unemployed are made idle by wage rates artificially set above the level of their productivity.

Moreover, unemployed youth are prevented from acquiring the job skills and experience which could make them more productive—and, therefore, higher earners—in near future. Due to minimum wage laws, unemployment in European countries is higher than that in the USA. Since Switzerland and Hong Kong do not have minimum wage laws, they have very low unemployment rates. In recent years, some countries have allowed their real minimum wage levels to be eroded by inflation.

Major Causes of Unemployment: Job Search and Wage Rigidity
Difference between Voluntary and Involuntary Unemployment
Keynes’ Money-Wage Rigidity Model of Involuntary Unemployment
Unemployment Rate Calculation Formula

Enhanced Unemployment Insurance Benefits in the United States during COVID-19: Equity and Efficiency

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2024-15 | May 6, 2024

We assess the effects of the historically unprecedented expansion of U.S. unemployment insurance (UI) payments during the COVID-19 pandemic. The adverse economic impacts of the pandemic, notably the pattern of job losses and earnings reductions, were disproportionately born by lower-income individuals. Focusing on household income as a broad measure of well-being, we document that UI payments almost completely offset the increase in household income inequality that otherwise would have occurred in 2020 and 2021. We also examine the impacts of the $600 increase in weekly UI benefit payments, available during part of 2020, on job search outcomes. We find that despite the very high replacement rate of lost earnings for low-wage individuals, the search disincentive effects of the enhanced UI payments were limited overall and smaller for individuals from lower-income households. These results suggest that the pandemic UI expansions improved equity but had limited consequences for economic efficiency.

Unemployment | A-Level Economics Model Essays

Model 25 mark essay to get an A*. Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives.

Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives (25 marks)

Unemployment is the percentage of people who are willing and able to work but are unable to find work. Trade-offs from lower unemployment can include some of the other policy objectives , such as a stable price level and a stable balance of payments on the current account.

If there is lower unemployment, it is likely that AD has shifted to the right. This is especially the case if cyclical unemployment has fallen, as it is the unemployment caused by a lack of AD in the economy, for example during the financial crisis or COVID. If AD shifts to the right, real GDP rises and unemployment falls, but there would be an increase in price levels, from P1 to P2, as seen below.

Inflation (rise in average price levels) happens because higher AD (C+I+G+X-M) is linked to more spending from consumers, firms and the government. For example, if more people have jobs then more people will have a higher disposable income, which will lead to greater spending in the UK economy. Also, to reduce cyclical unemployment in the first place, it is possible that the government introduced fiscal policy, which means more government spending, also leading to higher AD and higher inflation. Also, if there is higher inflation, relative prices will be lower abroad, so more people may buy goods and services from abroad, leading to higher imports and lower exports (as goods are more expensive in the UK). This means that the current account deficit may also worsen due to lower unemployment. Overall, lower unemployment has trade-offs with the inflation and balance of payments objectives.

In evaluation, we only considered reducing cyclical unemployment by increasing demand so that doesn't mean that trade-offs are inevitable. Also, if there is a high amount of cyclical unemployment, there may have been a recession before, suggesting we are in a negative output gap and have high spare capacity. Increasing employment from a low output does not cause a large increase in inflation, as inflation was already low.

Unemployment can also be reduced in another way without causing any major trade-offs. This can be done by using supply-side policies. Supply-side policies are policies that aim to increase LRAS by improving incentives. For example, if new infrastructure and roads are built, then this can lead to an increase in LRAS. This is the case in real life with HS2, which itself creates jobs to implement, but increases mobility of labour even further by easily allowing people to travel across the UK. If the government are able to increase LRAS at the same time that AD rises, then this will reduce the strain on the economy as there would be greater capacity and productive potential.

The diagram above shows that we would be able to increase employment from y1 to y2, while only seeing a small rise in inflation because the supply-side policies can complement short-run economic growth by increasing capacity and reducing strain on price levels. Overall, there would be little conflict between macroeconomic objectives.

However, it is important to consider that supply-side policies are not easy to implement as they require a lot of spending and time. This means there is a high opportunity cost, which can lead to worse outcomes in relation to health, policing, or equality. Also, supply-side policies can take years to put in place, with HS2 being planned to launch after roughly 10 years.

Overall, lower unemployment can often lead to other issues such as inflation or worsened balance of payments but this is not inevitable, as the conflict can be prevented by using supply-side policies.

Intro: definitions and objectives

AD goes up. Diagram. Main trade-off is inflation. Inflation can lead to more imports.

We only considered reducing cyclical unemployment (AD going up), we don't know where the economy was before (was there spare capacity?)

Argument 2: lower UE does NOT always lead to trade offs e.g. ...

Overall, falling unemployment often leads to trade-offs such as higher inflation but this is not inevitable, for example (refer to something that you said).

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Incentive-Compatible Unemployment Reinsurance for the Euro Area

We model a reinsurance mechanism for the national unemployment insurance programs of euro area member states. The risk-sharing scheme we analyze is designed to smooth country-level unemployment risk and expenditures around each country’s median level, so that participation and contributions remain incentive-compatible at all times and there are no redistributionary transfers across countries. We show that, relative to the status quo, such scheme would have provided nearly perfect insurance of the euro area member states’ unemployment expenditures risk in the aftermath of the 2009 sovereign debt crisis if allowed to borrow up to 2 percent of the euro area GDP. Limiting, or not allowing borrowing by the scheme would have still provided significant smoothing of surpluses and deficits in the national unemployment insurance programs over the period 2000–2019.

We acknowledge fruitful discussions and comments from seminar participants at the BIS, the ESM, and the IMF research department, as well as from Giovanni Dell’ Ariccia, Katharina Bergant, Matthias Gnewuch, Enisse Kharoubbi and Frank Smets. The views expressed in this paper are solely those of the authors and not necessarily those of the Bank for International Settlements or the National Bureau of Economic Research. Karaivanov gratefully acknowledges financial support from the Social Sciences and Humanities Research Council of Canada, grant 435-2018-0111.

MARC RIS BibTeΧ

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Analysis Why are Australia's unemployment payments so inadequate? Experts say they have been deteriorating for decades

A blurry image of people queueing to enter a Centrelink office to apply for unemployment benefits.

The Albanese government's Economic Inclusion Advisory Committee released its second report recently.

For some reason, it released the report on the Friday between Anzac Day and the weekend, so it didn’t get much media coverage.

That was unfortunate, because the committee tackled some important questions.

Why are Australia's unemployment payments so inadequate? And why has the gap between unemployment payments and age pensions been widening for decades?

Here's what the committee had to say about them.

What did the committee call for?

The committee made 22 recommendations to the federal government on ways to best improve economic inclusion and create a more equal and prosperous nation.

It said its recommendations had been made with regard to their fiscal impact, their effect on workforce participation, and the long-term sustainability of the social security system.

But the committee said its five priority recommendations were to:

" Substantially increase JobSeeker " and related working-age payments, and immediately improve the indexation arrangements of the payments.
Increase the rate of Commonwealth Rent Assistance to better reflect the high rents actually charged in the private rental market.
Commit to a " full-scale redesign " of Australia's employment services system to underpin the government's goal of full employment, and to replace the current system, which "worsens economic exclusion" with one that "promotes economic inclusion".
Implement a national early childhood development system that is available to every child, beginning with abolishing the activity test for the child care subsidy to guarantee access to a minimum three days of high-quality care.
Renew the culture and practice of Australia's social security system to support economic inclusion and wellbeing.

The committee's experts said that last point was really important.

"Australians who receive income support payments can face strong antipathy, commonly finding themselves misrepresented as 'dole bludgers', 'welfare cheats', 'rorters', 'leaners' and so on, when the actual evidence for welfare fraud and intentional evasion of mutual obligation requirements is miniscule," they said.

"This has fostered a punitive attitude that extends from parts of the media to the parliament, the government, and the administration of the social security system.

"The result is a social security system insufficiently informed by the real-life circumstances of people it is supposed to support.

"Such demonstrably false premises lead inevitably to poor public policy, with services that are often harmful, unfair, complex, costly to administer, counterproductive and bound to fail.

"Starting with government and social security agencies, leadership is needed to replace ill-informed, negative and discriminatory language and attitudes towards people receiving income support with ones that are accurate, positive and conducive to good policy making."

Would a rise in JobSeeker affect incentives for paid work?

The committee said the "negative effect" of a higher JobSeeker payment on someone's incentive to work was likely to be small.

It said that was likely to be true even if the JobSeeker payment was increased to 90 per cent of the Age Pension.

Why? Because the JobSeeker payment is currently so low that if you increased it to that amount, someone would still be much better off financially in paid employment.

As at September 20, 2023 (the numbers used in the report):

JobSeeker payment (single, no children): $379 a week ($54 a day)
Age Pension payment (single), including supplements: $548.35 a week ($78 a day)
National Minimum Wage (38 ordinary hours at $23.23 an hour): $882.80 a week ($126 a day)

That means the Jobseeker payment is only worth 69 per cent of the Age Pension and 42.9 per cent of the minimum wage.

If you increased the JobSeeker payment by 30 per cent (by $16.36 a day) to $70.36 a day , it would still only be worth:

90 per cent of the Age Pension
55.9 per cent of the minimum wage

Is there evidence to suggest that increasing JobSeeker by that amount would have a "disincentive effect" on employment?

The committee said when thinking about that question, you have to focus on the size of the gap between an income support payment and the wages someone could earn by moving to employment.

But, it said, when looking for authoritative studies to understand what might happen to employment in Australia if JobSeeker was lifted by that amount, there's a problem: the level of the JobSeeker payment was so low compared to other countries, and Australia's minimum wage was relatively high, that international studies weren't really relevant to Australia's situation.

It noted the level of benefits for the short-term unemployed in Australia was the lowest in the OECD.

See the graphic below.

The committee said since the level of JobSeeker — when compared to average labour market earnings in Australia — was much lower than in most other developed countries, the welfare gain from an increase in JobSeeker would likely be much higher than in comparable countries.

"This is reinforced by evidence that JobSeeker recipients on average are forced to decrease their spending after moving onto the payment; for example, by 10.5 per cent in the first year after job loss," it said.

The committee also pointed out that the gap between Australia's Age Pension and the JobSeeker payment had been steadily increasing since the late 1990s.

See the image below.

Real gap between Age Pension and JobSeeker

Why has the gap between unemployment payments and age pensions been growing?

The committee said levels of social security payments had been set in Australia by parliament "through a complex historical process, usually involving long periods of inaction or "set and forget", interspersed with bursts of activity that have been necessary as a result of previous inaction".

But the most important influence on the deteriorating adequacy of unemployment benefits comes from changes to indexation arrangements almost 30 years ago.

"In March 1996, the lower single adult rate of [unemployment] payment was around 92 per cent of the basic rate of the pension," the committee said. "Including the supplements available to pensioners but not available to people unemployed, the total payments were about 90 per cent of the support available to pensioners. "In 1997, the Howard government legislatively 'benchmarked' pensions to 25 per cent of Male Total Average Weekly Earnings; this meant that if the price indexation increased in March and September each year left the single rate of pension below this, then it was raised to this level. "As the change did not apply to the higher rate or the partnered rate of allowances for people unemployed, over time a gap developed between the pension rate and the partnered and higher single rates of benefit/allowance."

The committee said that legislative benchmarking began to have a discernible effect after 1998, and the gap had grown over time through different economic and political cycles.

And last month, a group of high-profile economists wrote to Prime Minister Anthony Albanese urging him to "substantially increase" JobSeeker and related payments in the upcoming budget.

"Against any measure, these payments are inadequate to support people with no or limited employment and entrench disadvantage in the community," they warned in their letter.

"The current rate of JobSeeker … falls below all existing measures of poverty, budget standards and other income support payments like pensions.

"People receiving JobSeeker report not having enough money for food, healthcare, and housing, and routinely end up in debt."

The signatories included professors Jeff Borland, Roger Wilkins, John Quiggin, Guyonne Kalb, Beth Webster and Deborah Cobb-Clark, associate professor Ben Phillips, economists Saul Eslake, Chris Richardson, Nicki Hutley and Angela Jackson, and former Liberal Party leader John Hewson.

But Treasurer Jim Chalmers has told his Labor colleagues to dampen their expectations about this month's federal budget containing big welfare spending measures.

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In the next year the agricultural sector contracted by 16% and the economy shrank by 8%. UNIT 13 ECONOMIC FLUCTUATIONS AND UNEMPLOYMENT. 564. self-insuranceSaving by a house- hold in order to be able to maintain its consumption when there is a temporary fall in income or need for greater expenditure.
Unemployment and Policy Trade-Offs (Revision Essay Plan)
Phillips Curve for the UK seems to have flattened i.e. improving trade-off between unemployment and inflation. UK might be able to get close to full-employment and stay within the 2% inflation target. But weak productivity and low investment (17% of GDP) mean that strong GDP growth often associated with a worsening of the external trade accounts.
Macro Economic Essays
Top 10 Reasons For Studying Economics. Inflation explained by Victor Borge. Funny Exam Answers. Humorous look at Subprime crisis. A collection of macro-economic essays on topics Inflation, Economic growth, government borrowing, balance of payments. Evaluation and critical analysis of all latest issues of the current day.
The Causes and Impacts of Unemployment Essay
Essay Writing Service. High unemployment rate in a country leads to social and economic problems in the community as a whole. Economic problems result in less production of goods and services, less distribution of income, loss of tax revenues, fall in GDP rate etc. (www.economywatch.com). Social problems cause's social ills and shows effect ...
Unemployment In The United States Economics Essay
However, the most recent economic survey shows that the rate of unemployment in the US has been on the decline and stood at 8.10% in August 2012 down from 8.30% in July and 9.10% in the year 2011 according to the US economic survey 2012 (Yates, 1994). Data from the Bureau of Labor Statistics on August 2012 also shows varying rates of ...
Reasons For Unemployment: [Essay Example], 467 words
This essay will explore the primary reasons for unemployment, examining how economic conditions, technological advancements, education levels, and government policies all play a role in shaping the job market. By analyzing these factors, we can gain a deeper insight into the root causes of unemployment and develop strategies to address this ...
Unemployment Essay
The unemployment rate for the year 2013-14 in rural India was 4.7%, whereas it was 5.5% for urban India. In the short term, unemployment significantly reduces a person's income and, in the long term, it reduces their ability to save for retirement and other goals. Unemployment is a loss of valuable productive resources to the economy.
Economics: Unemployment, Its Causes and Types
Conclusion for Unemployment Essay. Unemployment is a problem that is economic in nature. Most of the factors that bring about unemployment have an economic connotation. However, the effects of unemployment go beyond the economic arena. There are several types of unemployment that are grouped according to various factors that cause the plight.
The Best Essay on Unemployment
ADVERTISEMENTS: In explaining the cause of unemployment, Keynes focuses on the role of nominal wage inflexibility. In his view, unemployment results from an inflexible money wage which prevents the real wage from adjusting downwards to increase the demand for labour. Thus the unemployment problem originates from an inappropriate real wage.
Unemployment and Its Impact on Living Standards │ Unemployment
The relationship between unemployment reduction and living standards is a subject of ongoing debate. While a reduction in unemployment can bring potential benefits, it also raises concerns and potential drawbacks. This essay critically examines whether or not a reduction in unemployment always leads to an increase in living standards.
Enhanced Unemployment Insurance Benefits in the United States during
We assess the effects of the historically unprecedented expansion of U.S. unemployment insurance (UI) payments during the COVID-19 pandemic. The adverse economic impacts of the pandemic, notably the pattern of job losses and earnings reductions, were disproportionately born by lower-income individuals. Focusing on household income as a broad measure of well-being, we document that UI payments ...
Unemployment
Evaluate. Conclusion. Overall, falling unemployment often leads to trade-offs such as higher inflation but this is not inevitable, for example (refer to something that you said). Model 25 mark essay to get an A*. Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives.
Weekly jobless claims rise to highest level since August
Aaron M. Sprecher/AP. New York CNN —. First-time applications for unemployment benefits rose last week to 231,000, the highest level since August, in another sign that the white-hot labor market ...
US Jobs Post Smallest Gain in Six Months as Unemployment Rises
5:14. US employers scaled back hiring in April and the unemployment rate unexpectedly rose, suggesting some cooling is underway in the labor market after a strong start to the year. Nonfarm ...
Incentive-Compatible Unemployment Reinsurance for the Euro Area
DOI 10.3386/w32396. Issue Date May 2024. We model a reinsurance mechanism for the national unemployment insurance programs of euro area member states. The risk-sharing scheme we analyze is designed to smooth country-level unemployment risk and expenditures around each country's median level, so that participation and contributions remain ...
Portland's true unemployment rate shows how layoffs affected ...
Portland's true unemployment rate last year was 20%, compared with its official rate of nearly 3.9%, according to a study from the Ludwig Institute for Shared Economic Prosperity (LISEP).. Why it matters: Unemployment in Portland has steadily recovered from pandemic highs, but a more nuanced look at the region's workforce data reveals a larger chunk of individuals who can't find a living-wage job.
World Economic Outlook Database, April 2024
The WEO is released in April and September/October each year. Use this database to find data on national accounts, inflation, unemployment rates, balance of payments, fiscal indicators, trade for countries and country groups (aggregates), and commodity prices whose data are reported by the IMF. Data are available from 1980 to the present, and ...
Why are Australia's unemployment payments so inadequate? Experts say
The Albanese government's Economic Inclusion Advisory Committee released its second report recently. For some reason, it released the report on the Friday between Anzac Day and the weekend, so it ...