Effects of unemployment - Unemployment Essay Example
Economic doctrines tell us that the wealth of a nation could be measured by its income or in economic jargons, by its Gross National Product (GNP) and Gross Domestic Product (GDP). By definition, wealthy countries are the one which have a relatively high sustained GNP and GDP. We have also observed that countries with the greatest GNPs and GDPs are the ones who top the list of the richest countries in the world like the United States and Luxemburg. GNP is basically the value of all the goods and services produced in a country intended or consumption, while the GDP calculates products produced located within the boundaries of a country.
As mentioned, “goods and services” are very important components in attaining economic stability of a country. And this concerns the employment of workers or laborers who are responsible in the productions of the “goods and services. ” Thus, work force or labor force plays a very crucial role in reaching great GNP and GDP. Without the labor force, no one will work to turn raw materials into consumable products. The labor force itself could also be the ‘product’ that could be exchanged in the market place. So, having a low rate of employment means there is a very limited goods and services produced by a country.
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Unemployment negatively affects the economy because it means lower production of goods and services—meaning, lower income for a country. According to Hyman (1994), the unemployment rate measures the ratio of the number of people classified as unemployed to the total labor force. Meanwhile, the labor force is the number of people over the age of 16 who are either employed or actively seeking a job. People who are unemployed are usually the people who lack proper education and training. The development policy on human capital or resources could also be factor.
Unemployment has been a national issue long has been waiting to be solved. The United States Bureau of Labor Statistics, reported this year that the country’s employment increased in last month incurring an unemployment rate of 4. 4 percent. Non farm payroll employment grew by 92,000 in October following gains of 148,000 in September and 230,000 in August (as revised). Also during this month, the job growth continued in a number of industries providing services, while employment declined in manufacturing and construction. Furthermore, the average hourly earnings of workers rose by six cents over the month.
The situation of the United States, by looking at the figures mentioned are definitely much better as compared to the other countries most especially to Third World Countries. The figures mentioned connotes a stable economy if we look at the unemployment rate maybe because of the vast of opportunities available in the country and the citizens’ willingness to work and eventually earn. Another issue related to employment is the minimum wage. Most of the countries—if not all have imposed minimum wages to be given to workers that may very according to the social conditions, nature of work, and or area where a person works.
When talking about labor issues, we would usually relate minimum wages. Minimum wages are an example of a price floor that governments establish for labor services. Governments enforce minimum wage laws by penalizing employers who pay less that the stipulated hourly wage. At present, the U. S. Department of Labor has set minimum wages with varying amounts based on the state where you are working. The amounts vary from $4 up to $7 per hour. The minimum wages in the United Sates are definitely higher than other countries like in some countries in Asia or in Third World countries.
This may be caused by the kinds of products being produced in the United States and its local and international demand in the marketplace. Because of minimum wage laws, employers are often having a difficulty on how they can deploy the ideal number of workers while complying with the minimum wage law. Some employers could not afford the costs so they would opt to hire less number of people while maintaining the prescribed wage of the workers or a higher rate. Minimum wages are also the usual reasons why a dispute between the company and the workers arise—labor unions sprung up.
Sometimes, companies also get bankrupt because it cannot sustain the wages of its employees especially when the employees have a string of benefits aside from the wages they receive. These reasons, most of the times, leads to a higher rate of unemployment. On the technical aspects of unemployment, market equilibrium says much about this—on how the demands on employment meet with the supply of labor. As the number of companies or the number of labor market entrants increases, the demand for labor also increases.
It could be inferred that unemployment is basically an imbalance between the demand and the supply of labor in a society. On the issue of market equilibrium, let us say for instance, market equilibrium wage for the service of unskilled workers is $4 per hour. At that wage, the quantity of labor services demanded per week just equals the quantity supplied of 3M hours. The minimum wage is set at $5 per hour. At that floor, the quantity of labor supplied is 4 M hours per week, while the quantity demanded is only 2M hours.
There is therefore a weekly surplus of 2 M labor hours. This means that some workers seeking employment at the minimum wage will be unable to find jobs, an inevitable market equilibrium wage. Cognizant of the fact that the more workers and equipment available, given a nation’s population and natural resources, the greater the nation’s productive potential, the issue on unemployment brings us to more complicated issues on wasted resources. Apart from the human costs incurred by many of the unemployed, unemployment imposes economic costs on society.
Economically, the costs of an unemployment is the lost of output that could have been produced by unemployed workers. An unemployed worker, regardless of economic need, is an unemployed resource, and society loses the benefits of the goods and resources that the unemployed worker could have produced. Furthermore, those benefits are lost forever because it is impossible to replace a day of worker lost by an unemployed worker. Aside from the labor force that would be wasted, exchange in the marketplace would be lesser due to unemployment.
The marketplace is where people can exchange products and services with prescribed payment or compensation. Competition in the marketplace would also be decreased and monopoly could arise. Bradley (1985) stated that unemployment imposes other costs on society as a whole, in addition to the loss of goods and services that could have been produced by the unemployed workers. The number of families fall below the poverty line rises as the unemployment rate rises, and this generally increases the amount that society must pay in welfare program for the poor.
If the number of families falling under poverty line, the government will be pushed to provide more social services thus incurring more losses in the national budget or income. The resources of the country that would be given to those families could have been allocated to the other needs of the country. Unemployment weakens the economy in general because it gives lower income for a country. Unemployment means a drop in national production. This implies a reduction in income for the nation. When business receipts decline and firms have unused capacity, profits decline.
When workers lose their jobs, they also lose the labor income that they would have otherwise earned. The loss in wages and profits is part of the costs of unemployment. As income and business revenues decline during recession, governments also suffer, because they experience a decline in their tax revenues. The reduction of unemployment is thought to be a central arm of development policy, for to reduce unemployment is to raise consumption levels, especially of those who are most in need. Unemployment is considered a social evil that must be kept at an “acceptable” level.
Unemployment can be somehow eradicated by scrapping minimum wages for workers for this delimits opportunities for other skilled workers who are often not given the chance to be admitted by a company because of monetary setbacks regarding the minimum wage. If there are unemployed persons who are willing to work, the price of the labor of simply called the wage will fall up to the time when all of the labor force is utilized or employed. But this will only happen if intervention to the market place from the government would not take place.
To help maintain a standard of living to all workers, the government imposes a minimum wage, which synthetically blows up the wages of the workers if at the bottom of the wage scale above what the firm would usually compensate at stability or equilibrium. This will cause the people above the minimum wage earners to insist more pay and those above them to do the same. The workers earn more when the wage becomes higher than what is needed; but in response companies will cut jobs to get back the money they are losing, increasing unemployed workers.
Raising the minimum wage therefore also increases unemployment. The imposition of minimum wage sets the stage for the formation of labor unions which are in effect serve as threat to the company who are paying the workers. The labor unions could assert for a higher minimum wage to the government leaving the companies with much bigger losses in terms of profit or could even lead to the closure of the company. There are actually suggestions from the governments of Australia, New Zealand, Canada Britain and the United States to provide social security efficiently and accountably..
They can and do estimate how much they ‘save’ by cutting people off income support when they do not meet the entirety of eligibility requirements for any definite advantage which is called as the accounting or target efficiency. They seem impartial in how people who are refuse benefits get by, or what social costs are gained in the wake of decision to eliminate income support from such citizens. Target efficiency processes do not give quantification of how efficient the system of social security is.
Since the vital matters which should be taken into account when evaluating the effectiveness of a social security system are not considered. Nevertheless, minimum wage could still exist but the company’s wages should be supplemented so the number of jobs available to workers would increase. If the company would have a larger profit, it could admit more workers that would lower the unemployment rate. The production process of the firm could best determine its income and the demand of the products being produced.
If the firm or company is producing and is asked of a very high demand the workers could be given a good pay and even employ more employees for them to meet the high demand of labor force. Other factors could still be considered. The national government could allow more foreign investors come in their country to put up businesses that could provide employment to the citizens of that country. The benefits will be mutual since the foreign investor will earn just like the workers to be employed and the country where the business would be put up.
The government might also want to provide a livelihood program for the unemployed people wherein both the national government could earn what they need. For example, the government might put up a small-scale company which produces clothes. The government will then admit employees who are at that time unemployed to work for the company while they still get the profit that could be allocated to more development projects. Another possible solution is to give equal access to opportunity to work and let workers work in fewer hours.
This would give way to other who need the opportunity because not all companies are capable of hiring much employees to work for them because their income or profit is not enough for them to do so. Because employing too much employees might cause the companies to shut down. Unemployed people, given they have enough capital on hand, might want to start up a small business while remitting the right taxes to the national government. They might want to put up their own shops or small fast foods where they earn without the fear of being terminated.
While earning their own profit, they could also help to augment the national budget. Bottom line is, unemployment is a social predicament that should be grappled and wrestled to have a booming and eventually, a sustained economy. Lower unemployment rate means more job opportunities for the people which also means more goods and services to be produced. A lower unemployment rate would mean lesser spread of poverty. A lower unemployment rate would mean higher income and a bigger national budget. Unemployment cannot be simply resolved by proving empirical studies and looking at the statistics.
It could be resolved by putting into action the empirical findings at hand. Unemployment may be considered as the main protagonist of living a well-off life. The government, together with its people, should be willing to implement the suggested solutions for they will have mutual benefits upon the implementation of such. It is such a utopian idea to completely eradicate unemployment in a country in a short span of time. It may take some time to do it but it is a must if we really want to provide equal opportunities to everyone.
Because a lower unemployment rate means a wealthier and healthier economy and a more developed country. Therefore, unemployment is a economic problem needing an immediate solution since the economy is the one which suffers the most which consequently affects the most number of people in a country.
Hyman, David M. 1994. Macreconomics. USA: Richard D. Irwin, Inc. Bardley, Michael. 1985. Macroeconomics. USA: Scott, Foresman and Company. Galenson, Walter. 1992. The Labor and Economic Growth in 5 Asian Countries. USA: Praeger Publisher. http://en. wikipedia. org/wiki/Unemployment