During recession times, an economy undergoes high rates of unemployment (Sullivan 12). The unemployment rate is usually expressed as a percentage by dividing the sum number of those currently in the labor by the sum number of those out of labor. Unemployment is experienced in both the developed and developing world. Thus, it is a universal concern. In the year 2011, it was reported by a business week that over 200 million people worldwide were out of work. There are variant debates on this issue of unemployment regarding its causes, implications, and possible solutions. To understand the complexities of unemployment, it is important that one understands the different types of unemployment.
Broadly, unemployment can be classified as voluntary or involuntary. Voluntary unemployment results from individual decision, whereas involuntary unemployment is due to the influences of the socio economic environment, as well as the structure of the market. The socio economic environment comprises of such factors, as the labor demand, government policies, and the market structure (Sullivan 47). Individual decisions, however, could result in rejection of employment due to low wages. Whereas frictional unemployment is basically voluntary, structural is involuntary.
Structural unemployment focuses on the inefficiencies in the labor market and in the economy. Structural unemployment, thus, results due to a mismatch, amid the skills possessed by the laborers, and those required in the labor are likely to be unemployment (Keynes 56). Alternatively, a worker possessing skills that are not required in the labor market cannot be absorbed into the labor market easily. Structural unemployment is, thus, a major problem, as it is regular, and as it tends be long-term in nature. However, when it is seasonal, it is less problematic.
Cyclical unemployment occurs during the periods of economic recessions and depression. During such periods, the demand for goods and services goes down, and some companies respond by cutting down the number of employees, as well as the production. Thus, the labor market will be having more skilled workers than it needs. When the economy recovers from recession and depression, companies increase their production; the workers are absorbed into employment, thus, cyclic unemployment disappears naturally (Sullivan 34).
Sullivan states that a worker shifts from one job to another; he suffers from unemployment for a short period of time (67). This is termed as frictional unemployment. Frictional unemployment could also be as a result of many other factors. When, for instance, one moves to a new place, he is likely to be out of work for some time, or when a woman on maternity leave reenters the labor force after giving birth. When fresh students move into the work force for the first time, they also suffer unemployment. This type of unemployment is usually not problematic, since it lasts for a short period. The new technologies have also made it easy for most people to find jobs (Keynes 45).
The difficulty of reducing unemployment arises from the nature of the problem itself. First, unemployment is a problem around the globe. Though the developed countries like the U.S. and England suffer from the problem, it is more pronounced in the developing countries. Second, with the current slowdown in employment worldwide the social development, as well as the economy of most countries is threatened. In addition to this, unemployment is the major cause of crime, poverty, backwardness, and frustration amid people (Stanley 67).
The problem is not confined to a specific group or class of people, but is all infiltrating. There are many educated, skilled, and well-trained people who are looking for employment. Those who are semiskilled and unskilled also suffer unemployment (Stanley 36). Another difficulty arises from the fact that some people who are employment are utterly not satisfied, since the wages are too low and they cannot sufficiently cater for their needs during these difficult economic times. Motoko in his article concludes that the problem of unemployment, therefore, is a big challenge to governments and economic planners all over the world (9).
The obvious solution to reduce unemployment has an implication of creating more jobs in the labor market.This could be realized through economy stimulation by creating demands (Stanley 45). However, due to the complexities of unemployment, this has been very difficult to solve. For instance, those who volunteer to be unemployed would still remain so, even if an opportunity presented itself.
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Keynes hypothesizes that the complexities of this problem have given rise to serious theoretical debates on how to solve it (78). The classical economics and new classical economics propose that market mechanisms could be effective in resolving unemployment crisis. They argue that the external involvements compelled on the labor market, e.g., taxes, formation of unions, and minimum wage policies, among others, have greatly discouraged firms from hiring workers, thereby causing unemployment (Keynes 67). Moreover, Keynesian economics focuses on reduction of unemployment during the recession periods. The argument is that government interventions that lead to high demand of the workers should be implemented. Some of the interventions include creation of new jobs, and expansion of the existing opportunities.
Currently, the problem of unemployment is intensified by increasing regulations and policies. The future is a risk, too, because it is uncertain. This implies that the government is taking more from entrepreneurs, thus, they are not certain of what the future portends. In Paul’s article, he notes that President Obama’s April 2013 speech clearly stated that he would increase tax rates for earning more than $250,000 a year (17).
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With regards to all the complexities involved in reducing unemployment, the basis of any policy suggested should be the economy. There, the economy has to be progressing in order to end unemployment. A stable economy would automatically increase the demand of workers. This could only be possible with the government’s intercession through policies that could be effective (Keynes 89). These policies are discussed as follows.
The monetary policy could be powerful and efficient in addressing the problem of high rates of unemployment. The monetary stimulus should originate from the Federal Reserve. This policy could lead to reduction of interest rates in all sectors of the economy. Low interest rates would enable people to purchase and borrow more easily. Consequently, an increase in the demand could lead to stabilization of the economy. Businesses could, therefore, access sufficient capitals to hire more workers (Keynes 123). With enough capital, business will prosper promptly, thereby promoting employment, and hence, flourishing the economy.
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Keynes resolves that in cases where the monetary policy proves ineffective, the fiscal policy is usually demanded (78). In this situation, the government has to reduce tax rates or increase spending. This is significant in hastening economic growth. This policy is usually slow, since different parties have to first agree on the solution. However, it is more effective when implemented, as it provides confidence. Also, when the taxes are cut, the consumers have more money to spend, and this stimulates an increase in demand. Since the costs of businesses are reduced, they can readily hire more workers (Sullivan and Stephen 78).
According to Motoko’s article, mass study reveals that fiscal policy is not effective in reducing unemployment (18). It argued that not all the money created by cutting down taxes is spent. Some money could pay debts or it could be saved (Motoko 19). For instance, $1 billion dollars in tax cuts created only 10 779 jobs, since only half of it was spent.However, a study by congressional budget office proposes that small businesses should be given priority in tax reliefs, as they are the key driver for 65% of new jobs created (Paul 17).
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Sullivan and Stephen (56-59) argue that the fiscal policy is also very risky, as it adds to the government budget deficit, as it creates more debts. As the debt grows, it slows down the processes of economic growth; hence, the investors lose demand for the debt. The side supply economics argue that eventually the economy would stabilize to compensate for the revenue lost to tax cuts (Keynes 34).
In conclusion, the problem of unemployment is complex, and a single policy could not effectively reduce it. Therefore the best approach could be to combine different policies where applicable, since not all policies could be viable in all circumstances. Any solution to be adopted should also incorporate sustainability. For any policy to successfully reduce unemployment, it should be able to create demand, hence, stimulate the economy. The problem of unemployment, thus, cannot be divorced from economy. It is the status of the economy that dictates the demand of goods and services. A stable economy could eliminate unemployment. Therefore, unemployment is a universal problem, which yields controversies that result in other issues, especially during recession. Thus, solution to unemployment is paramount for the survival of the global economy, particularly during hard economic times, as identified in the discussion. What nations should avoid is going into much debt because it would slow down the economic growth, thereby increasing unemployment.