Unemployment is a social economic phenomenon, suggesting the absence of jobs for the people that make up economically active population. According to the International Labor Organization (2012), individuals at the age of 10-72 years old are considered unemployed if during the critical week of the survey on employment they possess such features:
- Absence of job
- Are looking for a job
- Are ready to start working
The unemployment rate is a quantitative index that allows comparing unemployment for different populations (for different countries or periods in the same country). The unemployment rate is calculated as the ratio of unemployed to the total number of people employed in the market or the number of interest groups (unemployment among women, youth, rural population, etc.). Most often it is evaluated by percentage rate.
The costs of unemployment may vary from country to country, but generally include the following:
- short received manufacture – deviation of actual and potential GDP as a result of underutilization of the total labor force (the higher the unemployment rate, the greater GDP fall down);
- reduction in federal budget revenues due lower tax revenues and lower revenue from the sale of goods;
- direct losses of personal disposable income and lowering of living standards of unemployed individuals and their families;
- higher costs for protecting workers from losses caused by unemployment: benefits, implementation of programs to stimulate the growth of employment, vocational training and employment of the unemployed, etc. (Ostrup, 2000).
The survey carried out for this paper was based on the definition of “unemployment” offered by the Bureau of Labor Statistics, according to which unemployed people are “only those who are not currently working, but who are looking for a job”. Questions were asked in person. The survey is based on questions about current employment status, reasons for being unemployed, duration of unemployment, benefits, and demographic characteristics (including age, sex, race, education, etc.). Total number of respondents (…).
The study helped to show the depth of psychological trauma of millions of people who had lost their jobs across the country (the number of unemployed in the U.S. is about 10%). In addition, there was an increase in the number of citizens unemployed for very long period of time. Despite the general improvement in the labor market since 2009 the problem is still very acute.
Unemployment has led to serious problems concerning the mortgaged property. A quarter of respondents has either lost homes or has received letters with warnings about the sale of property or threats of eviction in case of non-payment of debts for rent or mortgage. About a quarter of the respondents receive food stamps. More than a half has cut spending on entertainment and other essentials. More than a half describes their family’s financial situation as pretty bad or very bad.
About half of the respondents described present time as severe stage, which has greatly influenced their lives. In general, the longer people cannot get a job, the greater financial and economic difficulties they are experiencing. A quarter of respondents, who reported that they experienced anxiety and were depressed, turned to a psychiatrist. Moreover, women reported occurrence of psychological difficulties more often than men.
Approximately, half of the respondents are ashamed of being unemployed. Possibly, men are more likely to experience this feeling, as they traditionally are considered to be breadwinners in the family. During questioning, there was a feeling that for many people the American dream has failed. Approximately half of the respondents fear that soon they will be completely in distress. This fear is particularly strong among those who have lost their jobs more than six months ago. The working class is in greater danger.
Many of those who had lost their jobs changed their lifestyle. About a half has moved or is going to move to other states or countries offering more jobs. More than a third of respondents plan to change the sphere of activity; about a half goes to retraining courses in various educational institutions.
Meanwhile, one fifth of all respondents are aided by religious or charitable organizations. Among those whose husbands or wives have jobs, one half said that their spouse works overtime or works part time to somehow make ends meet.
As for the reasons for high unemployment rate, most of the unemployed blamed former President George W. Bush. Other answers include banks, politicians, and transfer of business abroad. Little number of people (about 3%) blames Barack Obama.
Methods of Overcoming Unemployment
Various economic theories offer different options for reducing unemployment rate. In terms of Keynesian theory, self-regulating economics cannot overcome unemployment. Proponents of this theory believe that the level of employment depends on the value called the “effective demand” (in simple words – the level of consumption and investment). John Maynard Keynes believed that the trend toward subemployment—characteristic of the society of that time—has its roots in the under-consumption. According to him, the causes of under-consumption include psychological factors that encourage consumers to conserve their revenues; it reduces investment and, ultimately, causes a decline in production and growth of unemployment. Thus, the Keynesians, pointing to the inevitability of the market economy crisis, found it necessary for the state to take measures of economic impact for the achievement of full employment. The most important tasks, according to this theory, are increasing the effective demand, reducing the lending rate and increasing investment.
Monetarists believe Keynesian methods to be ineffective. In 1967 Milton Friedman suggested the existence of “natural unemployment” strictly defined by conditions of the labor market and unchangeable by public policies. Using traditional methods of budget and credit methods of raising demand for maintaining employment above the “natural rate”, in their opinion, will have a lasting effect and will only lead to higher prices. An important argument of monetarists against the Keynesian policy of controlling unemployment is the unpredictability of the results of state intervention because of the large delay in the manifestation of the effect of these measures. Monetarist methods of regulating employment suggest major changes in the labor market. Monetarists believe that benefits allow unemployed people to refrain from looking for work. Hence they recommend canceling these benefits to get people to work. Monetarists consider it necessary to abandon stimulating economic growth by increasing demand.
There are measures which are widely applied, but have no real effect. Thus, changing the size and composition of the economically active population may have a different impact on the situation. Reducing the number of immigrants has no significant effect. Redistribution of jobs in favor of local people is not an effective measure, since in this case, the immigrants remain jobless. In addition, violation of labor legislation in respect of migrants makes it possible to pay lower for their labor than for the labor of the local population. As a result, foreign citizens get significantly lower incomes than they desire, what often initiates their involvement in criminal activity, and isolation of existence in a foreign country contributes to the formation of ethnic criminal groups. Flexibility of wage system, contrary to expectations, has no effect on unemployment (Ottosen, 1996).
Common to all types of unemployment measures include creation of new jobs, labor exchanges and other types of employment services. Other measures to combat frictional unemployment include steps for improving information management system for the labor market and creation of special services for this. Furthermore, in order to combat structural unemployment it is worth mentioning that it is important to create opportunities for training and retraining unemployed, support for private and public services in charge of it. Measures to combat marginal unemployment include social protection for unprotected groups and crime prevention. Technological unemployment can be eliminated by training employees, deterring of technological progress and/or slowing down the implementation of its results. For cyclical unemployment it is recommended to conduct stabilization policy and create additional jobs.
Conclusion and Recommendations
After thinking about the scale of mass unemployment the question arises: what can be done to reduce the size of this disaster? U.S. authorities have extensive experience in dealing with mass unemployment. In 1933, when unemployment affected a quarter of the workforce in the country (of 51.6 million of economically active population), the government of Franklin D. Roosevelt developed a program of public works and plan to restore the national economy. The main idea of that program was the contract between the state and corporations in the sphere of public works.
Given the experience of the Roosevelt’s New Deal, the current presidential administration may organize public works. The country needs talented and experienced organizers who know scientific methods of work organization. President Obama said that his financial plan provides for 3.5 million new jobs, including not only the sphere of material production, but also the services sector (education, health). In addition, the statistics says that there are still 3 million vacant jobs that will be taken by people that enhance their skills. It would seem that unemployment will be reduced by half, but it is not. Hence, urgent measures to accelerate public works are needed. For example, the construction sphere has more than 1.5 million unemployed. Therefore, it is necessary to implement the plan of investment in infrastructure.