Category: Unemployment

Introduction

Before UAE attained its independence, its economy was characterized by basic economic activities such as agriculture and fishing. After the discovery of oil, the economy of the country grew significantly as the oil industry accounted for about 35 % of the GDP. By 2005, UAE had recorded significant growth in oil production.

The revenue earned from oil was spent on education, infrastructure and creation. Increase in the prices of oil in the 1970s earned the Gulf Cooperation Council (GCC) countries financial resources which led to the growth of many economic development programs that required acquisition of non-national labor. However, oil prices dropped in the mid 1980s causing massive unemployment in UAE (emiritization now, 2011). This paper will examine unemployment in UAE.

Unemployment Overview in UAE

The increase in oil prices in the 1970s led to a surge in economic development programs in UAE and national labor shortage which was derived from the public sector. This implied that the country had to rely on foreign labor.

In the 1980s, more than 80 percent of the labor force was comprised of non-nationals. The oil prices fell in 1986 causing a decline in the share of non-national labor. This increased the number of nationals who were looking for jobs. The trend continued from 1990s onwards due to demographic pressures (Albuainain, n.d).

Unemployment in UAE is high since it is comprised of nationals and expatriates who enter the country constantly. In recent years, unemployment has turned into an acute problem due to increase in population and expansion in the number of graduates leaving high schools and universities.

The increased unemployment has affected both the economy and the society negatively. This situation has forced the government to deal with political pressure and spent huge amounts of money on social benefits. As a result, the stability of the economy has been affected and misallocation of resources has set in.

Causes of Unemployment in UAE

The increase in unemployment rates in UAE has been associated with various causes. Some of the causes have been addressed by the government while others have not been unaddressed. This implies that there is still the need to address the problem of unemployment in UAE in order to ensure stability of the country. Increase in unemployment rates causes instability and unrest in countries (Azri, 2010).

Unwillingness of Men and Women to Work in Certain Occupations

One of the factors that have been cited as a cause of unemployment in UAE is that both men women have not been prepared to work in certain occupations. This basically has implied that there are certain jobs that have been considered to belong to men while others have been considered to be women jobs. This has been a chronic problem in UAE that has contributed towards increase in unemployment.

For instance, women in UAE have been bound by cultural beliefs that have prevented them from working in non-segregated offices. Instead of fighting for positions in such offices with men, they have believed that they are not supposed to work in such places hence they have been shying away from job opportunities they could occupy.

For instance, women in UAE have believed that professions like engineering should only be reserved for men (Emirates economist, 2007). Consequently, they have contributed towards unemployment by choosing to be discriminatory with regard to the jobs they do.

This problem can be solved by providing women in UAE with the right knowledge about working in non-segregated offices. What they should understand is that the world has changed and there is nothing wrong with women working in such offices. In addition, women who have already joined the non segregated sectors should play an important role in educating the rest of the women who believe that they should not join such sectors.

By doing this, women will be prepared to take up jobs in the non-segregated industry and discard cultural beliefs that prevent them from taking up the positions. The eventual outcome will be a reduction in unemployment rates (Shaffer, 2012).

Men on the other hand have not been willing to work in jobs that have been considered low ranking. After they graduate from colleges, most men have been focusing on looking for jobs that have been considered prestigious and of a higher class. However, this is not what has always been happening due to limited job opportunities.

Since they have been considering themselves educated, they have not been taking up certain jobs even when they get the chances because they have been considering the jobs of lower ranks and jobs that would demean their social classes. This problem can be solved by educating men on the importance of taking up jobs that they get first as they look for the high-ranking jobs they wish to get.

The second reason why men in UAE do not take up certain jobs is because they lack the required education to fit in the jobs. There are certain jobs that require individuals who possess a certain level of education and unless they have the qualifications, this prevents them from accessing the jobs. As a result, unemployment rates among men in UAE continue to increase.

The problem of lack of education can be solved by encouraging men to go to school and receive education. They can be motivated by showing them the problems that accompany individuals who lack sound education since it becomes difficult for them to get good jobs.

Heavy Dependence on Foreign Labor

The second major cause of unemployment in UAE is the country’s heavy dependence on foreign labor. The first reason why the country relies on foreign labor is lack of individuals of Emirati nationality who have specialized skills.

There are certain fields that require specialized individuals with high knowledge and in the event that the country fails to get the personnel among the UAE nationals, reliance on foreign labor becomes an option.

As a result, this increases unemployment rates among UAE citizens. In order to solve this problem, the government should sponsor UAE nationals by giving scholarships for them to study and acquire the specialized skills required.

The second reason why UAE relies on foreign labor is that some organizations simply prefer employees from the west as opposed to employing Emiratis. They usually believe that the westerners have the capacity to provide quality services that improve their organizations.

On the contrary, the organizations do not believe that Emiratis have enough knowledge and expertise to provide quality services. This in turn leads to unemployment among UAE nationals. The government can address this problem by enforcing Emiritization laws and raising the number of UAE nationals that should be employed in the country’s organizations and corporations.

Conclusion

Unemployment is a serious problem that has been witnessed in UAE in the recent past. Both men and women have been suffering from unemployment since they have not been able to meet their needs. Different factors have been cited as the possible causes of unemployment in UAE. There are various solutions to the problems that should be initiated by the government but the society should be supportive of government efforts.

References

Albuainain, R. (n.d). Unemployment Rate in the United Arab. Web.

Azri, s. (2010). Unemployed Youth in the UAE: Personal Perceptions. New York: Diane Publishing.

Unemployment in the UAE. (2007). Web.

Unemployment among Emirati youth – findings of Emirates Foundation sponsored research. (2011). Web.

Shaffer, B. (2012). Beyond the Resource Curse. New York: University of Pennsylvania Press.

The current unemployment rate in the United States is 8.3%. This is an improvement from last year and the last quarter. The economy generated around 240,000 jobs with the private sector taking over 60% of this tally.

The economy is set to continue generating jobs in the next few months further reducing the unemployment rate to 7.8% according the bureau of labor statistics’ prediction. This is the best growth in economy since 1995 and it is set to continue at a steady but moderate rate of 3% as the country heads to 2013.

The inflation rate was at around 7%. The rate is not conclusive but hovers around that figure. This is because different indices measure rates of inflation. This includes Consumer Price Index, Producer price indices, Import and Export Prices, unemployment trends among others. Notably, improved unemployment rate leads to lower inflation levels.

The lowest rates of unemployment were recorded in 2010. This was at the height of the recession that continues to grapple the country with major negative implications in the economy. The highest rates of unemployment the economy recorded were in 2007. Economists attribute this sudden discovery and subsequent embrace of the internet in various institutions following its discovery in the previous years. This resulted to notable growth in the economic activity.

At its lowest peak in 2010, around 90% of the workforce had occupations as shown by unemployment rate of 9.7%. the second lowest was in 2011 recording an unemployment rate of 9.1%. This indicates that around 90% of the workforce in United States had work. The unemployment rate was lowest in 2007. In 2008, the country plunged into an economic crisis after the property and liquidity market bubble. This was preceded by robust economic activity in 2007. Hence, the high rates of employment.

Business Cycle and GDP Trends

Business cycle is the periodic up and down fluctuations in economic activity measured by changes in real GDP plus other numerous macroeconomic variables. Currently, the economy is at prosperity in the wake of a recession. The last signs of a recession were in 2009.

The economy has been prospering for the last 7 quarters. Before the recession that rocked the country in 2008, the economy was growing steadily since 2000. This was occasioned largely by growth in the tech world and the recession came because of a banking and property trade crisis.

Gross Domestic Product

Real GDP refers to the output of products (goods and services) which are produced in the United States of America. The production uses property and labor situated in the country. Unemployment was highest in 2000 with percentage from preceding period of 4.1 while it was lowest in 2008 with percentage change from preceding period of -0.3. This indicates that unemployment rate has a very critical bearing on the outcome of the economy.

It especially affects the GDP very drastically. Hence, it is paramount for the government to put into consideration this important factor and spur growth in employment to improve GDP levels steadily. The last recession before 2008 was in 1998. This was after the South American recession, which had started in Brazil. Later, the United States of America had its own recession moment.

It is highly attributable to the bilateral relationship that United States had with its neighbors economically. Hence, the shake-ups from the economic activity in the south affected the economy in the country. The economy was at its peak in 2007 and in early 2000 and the early 1990. The major factors include revolution in the internet world plus robust American borrowing, which increased their purchasing power. Incidentally, in 2008 this was the reason the economy went to a downturn according to government statistics.

How to Calculate CPI

CPI (Consumer Price Index) is a measure that economists use to calculate the rate of inflation in a country. Economists use it alongside other measures such as imports and exports, Producer Price index etc. There are indices for different groups of consumers. This includes CPI for all urban consumers and CPI for urban wage earners.

CPI = (Updated cost/Base Period cost)*100

Updated/current cost is the cost of a particular item in a certain year. Base period cost is the cost of that particular item in a year of reference. E.g. if we want to find the CPI in 2012 using price of bread, we take the price of bread in 2012 (say $1.5) and the price of bread in a certain base year (say 1980, $0.95).

CPI = 1.5/0.95*100

The factor interest rates are quite confusing when calculating CPI. This is because it leads to variability and changes. For example, governments through their monetary policies constantly adjust interest rates, which affect CPI. To handle this, it is important to look at averages critically and come up with a baseline.

Limitations of CPI are many. The most prominent is which products the government use and which base year should an economist should employ. Selecting base year affects the size of CPI. To solve this, economists look for the year with the greatest influence in the current economic situation or an ideal historical economic situation.

The whole world seems to recover from the 2009-2010 crisis and the development of different types of manufacturing and other spheres should improve. However, looking at the announcements from the Euro zone, the economical situation there is much worse than it was expected. The Euro zone has always been the example of stability and growth.

The economy of its region has never appeared in too complicated situation and difficulties. Having created the united zone and the same currency, the Euro zone has been developing and its economy has been flourishing. However, even such stable and constantly developing country could not hide from the crisis. David Jolly in the article “Unemployment and Inflation Rise in Euro Zone” published on March 1, 2012, dwells upon the main problems which has raised in the Euro Zone.

The author stresses on the level of unemployment and quotes some specialists who try to predict the level of the problem and the particular measures which may be taken to improve the situation as soon as possible. Many specialists predict that the problems are going to last for some period of time and the countries which are included in the Euro zone should try hard to remove the problem and to return to the pre-crisis activities.

Looking at the economics of European zone, it is easy to notice the increased unemployment rates. Different source announce that the unemployment rate has increased since the end of 2011 and it continues to rise in 2012. 17 countries in Euro zone report about rapid increase of the unemployment (Figure 1).

The official sources report that there has never been such critical situation from the day of the united currency implementation in 1999 (Figure 2). The unemployment in Euro zone has a lot of consequences which may lead to unpredicted situations and may result in greater disasters for other countries.

Considering the situation from aside, it is possible to state that the banks and the governments of the countries which have appeared under the critical consequences try to do all possible to reduce the number of unemployment. However, the situation becomes more and more complicated. If to check the situation from the side of the number of those who are involves in the manufacturing processes, it is possible to conclude that the increased rate of unemployment has reduced the manufacturing volumes.

Therefore, each company involved in the manufacturing processes is to reduce the pace which does not support the recovering from the critical situation. Therefore, the manufacturing activity is reduced to minimum and if nothing is going to happen, the reduction of the manufacturing activity may reach the critical level.

Additionally, there are many other factors which do not help the economy of the country to raise. Two main factors, the increase of the unemployment and the reduction of the manufacturing activity, lead to the predicted result. People begin spend less money as they are unable to allow the expenses they could make in the times with the normally functioning economy.

The regime of economy people have to follow leads to the fact that hey spend less money, of course, and it constrains the economy of the Euro zone. Therefore, it seems that there is no way out as one of the problems raises another one which does not give an opportunity for the first one to rehabilitate and continue its normal functioning.

Of course, the banks and financial establishments do not stay away from the problem and do all possible to improve the situation. The loan for three months of a sum of about $1.3 trillion is great money, however some specialists consider that this loan will help the Euro zone to improve its situation and recover from crisis.

However, some skeptics correctly announce that the intensive money supply may increase the inflation. It should be stated that he unemployment in the Euro zone is supported with inflation which creates additional difficulties on the way to the stabilization of the economics in the region. Therefore, one of the fears of some economists remains the rapid grows of money supply which may cause additional difficulties on the way to the economy recovery.

Of course, no one says that the problem the Euro zone suffers now from are too crucial to be solved. The situation is going to improve if much attempt is directed at the problem. However, there is no need to wait for too fast results as it is impossible to correct the problems which are impacted by the world issues. The problems in the economical situation in the Euro zone are caused by many factors and only the application to those factors may help to improve the situation.

Among some of the most complicated and unregulated factors which impact negatively the economic situation in the Euro zone remain the increased and rising prices on energy. These factors cannot be effected, therefore, it is important to make all possible to adjust to the situation and to create additional factors which may help the economy of the European zone to improve its positions.

Appendix 2

EA 17: Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland (Jolly n.p.).

EA 27: Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden and the United Kingdom (Jolly n.p.).

Works Cited

Jolly, David. “Unemployment and Inflation Rise in Euro Zone.” 2012. Web.

Millions of people experience short-term unemployment each year, which last a couple of weeks, during their switch of jobs due to the flexibility to the job market. The labour markets are a major source of power for any growing economy, but some people suffer from unemployment for months. The long-term unemployment means that they have to seek subsequent sources of income and find alternative lifestyles to cope with joblessness.

Causes of unemployment

According to Jevons (31), unemployment often emerges when jobseeker leavers the labour force for greener pastures, but ends up not get the anticipated job. The job hunting process may become strenuous because when it takes too long to secure another place, the job seeker stops the search and considers other alternatives like self-employment project, or seeking odd jobs that are based on contract.

Failure to complete basic education levels is another major cause of long-term unemployment. In line with Jevons (31), one in every ten people in the labour force, one in every six people who experience short-term unemployment and one in every five of those experiencing long-term unemployment in the United States are not high-school graduates. This is a clear indication that education is a major determiner of unemployment.

People are often challenged by work based evolutions or economic growths. The changes are concerned with technology dynamism that requires people to upgrade their work skills and knowledge. Lack of proper upgrading leads to work frustrations and thus one eventually prefers to quit or seek alternatives elsewhere.

Lastly, dynamism of the economy triggers the needs to change or seek better opportunities. Some of the dynamics deceive people to leave jobs and the temporary periods of unemployment during new hunts turn to long-term and eventually possible unemployment status.

According to Current Population Survey (CPS, 1), over seven million adults are unemployed in the United States. An average of 2.6 million people lose their jobs ever month either voluntary of forcefully. This is a clear indication that those who exit the employment sectors are more than those accruing employment.

The recent harsh economic trends in majority of the companies are causing them to find ways of cutting back on costs through minimizing the labour forces. The retrenchments are more and people are getting earlier retirements without replacements. According to Current Population Survey (CPS, 1) analysis, even during stable economic periods, when the labour forces are generally very healthy, most job seekers take too long to secure a job.

The job seekers may lack the required skills or have unrealistic expectations especially relating to remuneration packages. The job seekers may also fail to have the required skills of productively seeking jobs. Others who have no need of finding a job quickly; end up with stale skills that would not be applicable in future.

For instance, the information technology sectors require dynamism due to high rates of technological enthusiasm among developers and user. Staying out of employment for long means that one may gets stale and require refresher courses before reappointments. Today, majority of the companies are failing to hire fresh graduates due to expenses related to orientation and training.

Consequences of Long-term Unemployment

Unemployment means that there is high variability of household income that leads to poor lifestyles. People are losing work experience, and health insurance benefits. People are also forced to seek other sources of income such as individual projects.

Although firms are failing to employ more workers stating the harshness of the economy, the possible consequences of high unemployment include deflation of price. People are forced to spending less due to “Ailing economy”. The producers therefore suffer from lower demands and reduce prices of their goods or services to balance the supplies and avoid surplus. The falling of prices causes a more ailing economy.

Secondly, the Gross domestic product (GDP) growth depends on employment status of the citizens. The probability of having less production is high when less people are working in production industries. Lack of income cause social crime since people always finds other scrupulous means of finding sustainability. High unemployment rates therefore translate to high crime rates. Idleness also promotes the criminal activities, which become more preferable or an alternative.

The stress relating to financial demands in household needs also results to negative social effects such as domestic violence. Lastly, when people are not employed, the government spends more through the unemployment benefits schemes or aids to assist the households that fail to raise income for basic need such as health care (Jevons, 31).

Conclusion

Depending on the unemployment insurance benefits or insurance covers of a working spouse is economically risky. When firms are discharging workers and failing to reemploy new replacement, there are greater economic losses.

Identifying potential workers who have difficulties in securing a job and assisting them to get new employment can help in reducing amount of lost labour resource. Such a program would also benefit the job seeker as well as improve the ailing economy.

The basic statistics provided by government departments are not a clear indication or accurate reveals of unemployment since labour force fails to consider people who gave up looking for jobs as well as the underemployed Current Population Survey (CPS, 1). Many people are working fewer hours than they would like or can accomplish.

Works Cited

Current Population Survey (CPS). “A joint effort between the Bureau of Labour

Statistics and the Census Bureau”. 27 September, 2010. Web.

Jevons, Herbert. “The Causes of Unemployment: Pt. III. Trade Fluctuations and

Solar Activity”. CHARLESTON, SC: Nabu Press, 2010. Print.

Unemployment rate provides the percentage of the population above the age of 16 years that is not engaged in any form of employment. According to the US Bureau of Labor Statistics, March 2011 data, unemployment rate in the US was 8.8 percent (BLS). The present labor force in the US is divided into people who are above 16 years of age and are employed that constitute 58 percent of the labor force, 6 percent are unemployed, and 36 percent were not in labor force, who constitute those who have started looking for a job.

Figure 1: US Employment situation in January 2011, Source: Bureau of Labor Statistics

The unemployment rate in the country has been undergoing a seasonal change from 2005 through mid 2008. The unemployment rate every month recorded by the Bureau of Labor Statistics had shown similar trend in the change in rate and the rate was more or less stable. However, from mid of 2008, the unemployment rate started to increase. This is apparent from figure 1 where there is a distinct increase in the unemployment rate from middle of 2008 through 2010.

Figure 2: Unemployment rate (seasonally adjusted), Source: U.S. Bureau of Labor Statistics

The rise in the unemployment rate in 2008 can be termed as cyclical unemployment rate, i.e. the unemployment that occurs due to changes in business cycle.

If the unemployment rate and the GDP growth of the US are compared for a decade, it is observed that there is a distinct negative relation between GDP growth and unemployment rate. Figure 3 shows as the economic condition worsened with declining GDP growth from 2005, there was a gradual increase in unemployment rate. A decline in GDP growth indicates decline in production in all sectors.

Therefore, as the production weakens, there is a decline in demand for labor that eventually leads to less employment and greater unemployment in the economy. There was a sharp increase in unemployment rate as the GDP growth declined in 2007. Thus, the unemployment rate in the US had increased considerably since 2008, due to weakening of the GDP.

Figure 3: Unemployment rate and GDP Growth compared, Source: Bureau of Labor Statistics and Bureau of Economic Analysis (BEA)

An analysis of the unemployment rate in different industries shows that the annual average unemployment rate for the different industries as compared to the US national average for each year (see figure 4). The data demonstrates that unemployment rate in the agriculture and salaried professionals the unemployment rate has been higher than that of the US national average.

However, that of manufacturing sector, mining, and financial services sector, the rate has been lower. Nevertheless, the scenario changed for manufacturing sector in post-2008 era, as due to the financial crisis, there was higher unemployment rate. In all the sectors, the unemployment rate had been affected due to the decline in the GDP growth.

Figure 4: Unemployment rate by Industry, Source: Bureau of Labour Statistics

Difference in the unemployment rate due to the change in age demographics of the workforce is a serious consideration in an economy. As in case of the US, the highest unemployment rate is observed for younger workforce i.e. within the age group of 16 to 19 years and least for the highest age group of above 55 years. Though the overall unemployment rate in each age group followed the similar pattern of rise and fall through time.

Figure 5: Unemployment rate by Age, Source: Bureau of Labor Statistics

The unemployment rate for part-time workers is lower and relatively more stable than that of the full-tile workers, as there is a greater chance of increase in unemployment rate of full time workers due to the changes in business cycles. As is observed during the economic recession since 2007, with decline in GDP growth rate, the decline in the rate of unemployment was much higher for full-time workers than that of part-time workers.

Figure 6: Unemployment rate by nature of employment, source: Bureau of Labor Statistics

An interesting feature observed in the US economy is the effect of output gap on unemployment. It is observed that the output gap (Economy Watch) decreases with increase in unemployment. This is a paradoxical finding, as these should be positively related.

Figure 7: Comparison between unemployment rate and Output Gap, Source: BLS and Economy Watch

What are the consequences of an increase in unemployment rate in the US economy? The other effects of unemployment are that it would directly affect the income of individuals, as individual income will fall with less employment available to the people.

With decline in full time employment, the situation would worsen. Less income would imply that people would have less disposable income at hand to spend, therefore, decreasing their demand for consumable goods. This would decrease the overall demand in the economy. This would increase excess supply, as there would be higher amount of supply of goods in the economy, with less demand.

The excess supply created for goods would force industries to decline production, in order to reduce their inventory level. This consequently would lead to lower production in the economy. Therefore, the increase in unemployment rate in the US can be related to the lower demand of goods in the US market during the recession, as people had less money at hand to spend on durable or non-durable goods. This led to the reduction in production in the economy.

Works Cited

BEA. Bureau of Economic Analysis. 2011. Web. <https://www.bea.gov/>.

BLS. “Unemployment.” 2011. U.S. Bureau of Labour Statistics. Web. <https://www.bls.gov/data/#unemployment>.

Economy Watch. United States Output Gap . Web. <http://www.economywatch.com/economic-statistics/United-States/Output_Gap_Percent_of_Potential_GDP/>.

Unemployment refers to a situation whereby a group of persons within a given population has no jobs, yet they have ability to perform in the labor force. Unemployment takes on different types of sources; frictional unemployment occurs as a result of employers and jobseekers taking time to learn and explore the job markets. Such type of unemployment usually lasts for a shorter period and results into an efficient match between the employers and the jobseekers.

Seasonal unemployment occurs when there is a demand of certain labor skills because of the seasonal changes that occur throughout the year. Structural unemployment occurs as a result of either a complete lack of labor skills demanded by the employers, or that the skills are not available where they are required (the unemployed do not live where the jobs are available).

It occurs due to change in taste, technology, taxes, and competition increase the demand for certain skills while also reducing the demand of other available skills. Cyclical unemployment occurs when there is a fluctuation with the business cycle (fluctuations in production and or economic activity). It increases during the contractions (recessions) while reducing during the expansions.

Recession refers to a decrease and general slowdown in economic activity causing a rise in the rate of unemployment. It is a negative growth in the national gross domestic product (GDP) and gross national product (GNP). According to Nagle (2009), “it is when the value of what a country has to offer to its citizen and those of other nations has decreased within a specified period of time.”

Recession results into a slowdown of the economic growth, and as the economy drastically reduces, separations start rising and the job-finding rates begin to fall. This trend results into an increase in the rate of unemployment. During recession, companies and other sectors of employment optimize on cost and resources by reducing the rate of expenditure and reducing unnecessary work force, which in turn increases the rate of unemployment.

Causes

National unemployment has numerous causes; first, lack of required skills in the job market such that individuals lacking the basic skills that employers demand will end up being unemployed. Disparities along tribal and racial lines sideline a group of individuals from being employed. Other factors include poor policies regarding employment of individuals, tastes, and preferences by individuals, that is, those preferring white-collar jobs to other manual jobs.

Moreover, marginalization of other regions results into underdevelopment of employment opportunities. Another cause of unemployment is government wage controls where minimum wage legislation by the government contributes to a mismatch between demand and supply in the labor market, accentuating the unemployment of unskilled and handicapped labor (Lindbeck, 1993).

Recession comes as result of decline in the gross domestic product. It is caused by inflation (a rise in the prices of goods and services within a period of time). In this case, people will tend to cut down the rate of expenditure to save more. Inflation is caused by an increase in the cost of production of various goods and services, bad weather leading to poor crop production, stock market crashes, globalization, wars and political instability, higher energy costs, and the national debt (credit crunch) because of bad investment.

An example is the case of U.S. when there was an increased investment in housing which led to recession in 2008. The cutting and streamlining of expenditure by individuals and the business enterprises causes the gross domestic product to decline (McEachern, 2008).

Changes in unemployment due to the recession

Inflation is the major cause of recession. Companies will cut down the overall costs by reducing the work force required to perform certain tasks. As a result, more people will face the axe from their employment positions. This results into a number of individuals being unemployed during the period of recession.

The following chart shows the changes in unemployment because of recession over the years, courtesy of U.S economy forecast 2008 (Mauldin, 2008).

Source: US Economy Forecast 2008 – First Recession then Recovery.

Recession increases the rate of unemployment and hence a decreasing GDP output because many employers and companies are reducing their overhead costs by cutting down the number of people who are employed. Thus, such individuals will become unemployed and will not feature adequately in terms of their contribution to the national GDP.

Conclusion

The national unemployment rate has drastically increased because of the various factors. Such rates continue to increase when the society is faced with recession. Recession has resulted into an increase in unemployment, thus contributing to the decline in GDP and GNP because the population will not be able to indulge in activities that promote a rise in the economic levels and hence the overall economic growth.

Inflation is one of the factors contributing to national and global recession and occurs due to a number of contributing factors. Indeed, recession over a number of years affects the patterns of unemployment in different ways. When the recession is severe, there is an increase in the rate of national unemployment and hence a rise in the number of unemployed individuals in the society. It also has a drastic effect on the national and global economy.

References

Lindbeck, A. (1993). Unemployment and macroeconomics. Massachusetts: MIT Press. Web.

Mauldin, J. (2008). US Economy Forecast 2008 – First Recession then Recovery. Web.

McEachern, W. A. (2008). Macroeconomics: A Contemporary Introduction. OH: Cengage Learning. Web.

Nagle, J. M. (2009). How a Recession Works. NY: The Rosen Publishing Group. Web.

Unemployment problem is rising in most parts of the world. Economic crisis and spiraling prices, in an age of cost cut and job cuts, unemployment is on the rise. Similar case has been noted in Spain where the unemployment rate has reached a 15-year high (Brat, 2011).

The article discussed in the essay was published in Wall Street Journal in October 2011 (Brat, 2011). The article used for the essay is an online version of the printed newspaper. The aim of the paper is to summarize the article on unemployment and establish a connection between the article and the economic theories unemployment.

The article reports the increase of unemployment rate in Spain and the situation it has created for the unemployed people. Spain’s government spending has reduced greatly that has reduced the unemployment benefit given to the employed families. However, due to building pressure from international financial organizations to reduce budget deficit, the government was compelled to reduce its spending that subsequently reduced the unemployment benefits.

One main reason cited in the article for this 15-year high unemployment situation is due to three-year-old economic crisis that has left a high unemployment rate in Spain. In order to face the situation Spanish government has decided to boost up spending on job development. However, this may rise to increasing cuts in many areas, especially when the Euro zone is trying to reduce the spiraling debt situation.

The unemployment situation in Spain has become so dire that food assistance has to be increased. Many people are homeless, are moving to shelters, and have no money for food. The unemployment benefits are drying up for many and they are still unable to attain jobs. In such a situation, what economic reforms must be undertaken by the government that would bring forth a possible solution to the problem of unemployment in the country?

The Spanish unemployment demonstrates a job cut situation due to shrinking economic growth and recession. As the economic crisis has been looming over the country for almost 3 years, there has been a lack of economic growth and spiraling prices i.e. increasing inflation raises the rate of unemployment in the economy.

Figure 1: 20 year data on GDP growth, Unemployment rate, and Inflation in Spain. Source World Bank Databank (World Bank, 2011)

Figure 1 shows that the unemployment rate, GDP growth and inflation in Spain since 1990 through 2010. For the last 20 years unemployment rate is found to have a similar trend as the of inflation and GDP growth. In other words, as there is a decline in GDP growth, there is an increase in unemployment rate as is observed in 1993, 2002, and then again in 2009.

The figure shows that there is a continuous rise in unemployment rate since 2007 and it has reached the highest in 2010, supporting the observations in the article. Economic crisis in Spain is evident as there is a continuous decline in GDP growth in the country since 2007. This demonstrates that unemployment rate as a negative relation with GDP growth.

When the latter declines, the former increases and vice versa. This supports the argument put forth by Keynes that due to lack of economic growth, there is a decline in aggregate demand in the economy, which therefore, declines demand for labor, thus creating unemployment. Rise in inflation increases the cost of production that induces a decline in production, which in turn reduces labor requirement, therefore increasing unemployment. This is what has happened in Spain.

References

Brat, I. (2011, October 29). Benefits Run Out for Spain’s Jobless. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/SB10001424052970204505304577003864242042958

World Bank. (2011, November). World Development Indicators and Global Development Finance. Retrieved from World Bank Databank: https://databank.worldbank.org/data/home.aspx

Unemployment rates in the U.S. in the recent past had been unprecedented in the country’s history. During the period from 1948 to 2010, unemployment rate averaged at 5.7 % except for a historical high of 10.8 % in November 1982 and a historical low of 2.5 % in May 1953. And in October 2011, it was 9 %. (United Sates Unemployment Rate).

In November 2011, unemployment rate fell to a 2/12 year low. It has dropped to 8.6 % in November 2011 from 9 % prevailing since 2009. There were nonfarm payrolls which increased by 120,000 jobs. With this trend, the U.S. economy shows signs of recovery sustainability of which depends on the economy’s ability to create additional jobs (Mutikani).

By this, the number of unemployed people placed at 13.3 million, was reduced by 594,000 in November 2011 (UnitedStatesDepartmentofLabor). In the last labor market downturn, unemployment duration remained higher than the previous levels. The extended duration is one of the indicators of severe economic crisis in the country due to recession. Consequently, duration of unemployment insurance benefits also extended up to 99 weeks as against the normal duration of six months.

In fact, the 99 weeks of unemployment insurance benefits were facilitated by Congressional legislation that encouraged people to remain artificially unemployed. This would show that long unemployment spells might have been false, though historically unemployment duration tends to rise during recession. There are two explanations offered for this scenario (Kuang and Valetta).

Extended unemployment insurance benefits may reduce the incentive to search for jobs by the unemployed people. It is quite likely to be true because “it reduces the net gains from finding a job” (Chetty) besides serving as a cushion for households to maintain reasonable levels of consumption during unemployment shocks (Chetty).

The above said hypothesis of artificially inflated levels of unemployment rates is another explanation. This phenomenon is not new as the economists have always confirmed the correlation between “availability and the value of Unemployment Insurance (UI) benefits” and “unemployment spells.” (Kuang and Valetta).

Chetty (2008) has found that 10 % increase in the UI benefits have resulted in the increase of unemployment duration by 4.8%. Other studies that focus on the duration rather than monetary benefits, have found lesser levels of duration than the above (Card and Phillip).

These findings show some uncertainty of estimates of the impact of the unemployment duration. Further, the empirical study undertaken by Kuang and Valetta, has concluded that among the several unemployment determinants, UI benefits contribute to a smaller percentage of 0.4 out of 6 % increase in the unemployment rate during the recent past.

However, it should be noted that the percentage of 0.4 represents a population of 600,000 unemployable workers if they were to continue to receive UI benefits “indefinitely”. Though the same generous UI benefits are prevailing in the European countries with the resultant increased unemployed levels, Kuang and Valetta (2010) concludes that a permanent level of unemployment increase is not likely to continue indefinitely, given the past experience of the U.S. economic recoveries.

Recent study by the Federal Reserve Bank of Chicago in July 2011on the impact of UI benefits on unemployment levels, found that if the UI benefits had continued indefinitely, “unemployment rate would have been cumulatively about 0.1 to 0.3 percentage points higher between October 2009 and January 2011, which represents about 10 % to 25 % of the decline in the actual rate over that period” (Hu and Schechter 1).

Works Cited

Card, David and B Levine Phillip. “Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program.” Journal of Public Economics (2000): (78) 107-138 in Kuang, Katherine; Valetta, Rob,”Extended Unemployment and UI benefits ” Economic Research, Federal Reserve Bank of San Francisco, FRBSF Economic Economic Letter,( 2010) .Web.

Chetty, Raj. “Moral Hazard versus Liquidity and Optimal Unemployment Insurance.” Journal of Political Economy (2008):116(2) 173-234 in Kuang, Katherine; Valetta, Rob,”Extended Unemployment and UI benefits”, Economic Research, Federal Resreve Bank of San Francisco, FRBSF Economic Economic Letter, (2010) Web.

Hu, Luojia and Shani Schechter. “How much of the decline in unemployment is due to the exhaustion of unemployment benefits?” Chicago Fed Letter, Essays on Issues, The Federal Reserve Bank of Chicago (2011).288. Web.

Kuang, Katherine and Valetta, Rob. “Extended Unemployment and UI benefits, Economic Research, Federal Resreve Bank of San Francisco.” FRBSF Economic Economic Letter (2010). Web.

Mutikani, Lucia. “U.S. jobless rate drops to 2 1/2 year low.” Reuters (2011). Web.

“United Sates Unemployment Rate .” Trading Economics (2011). Web.

United States Department of Labor. “Economic News Release Employment Situation Summary.” Bureau of Labor Statistics (2011). Web.

Unemployment is a macro-economic situation whereby people are ready to work at the current wage rate but because of the prevailing factors of production are not in a position to get placement.

International Labour Organization defines unemployed people as those who are aged over 16 years and are willing to work and have actively sought employment during the previous four weeks and do not have any paid job. There are various types of unemployment namely: Cyclical unemployment, Frictional unemployment, Structural unemployment, Seasonal unemployment, Voluntary unemployment and under employment (Seymour 2005).

Cyclical Unemployment is a type of unemployment, which occurs because of decline in Gross Domestic Product (GDP) especially during periods of contraction/recession or any period when the economy fails to operate at its potential. It is controllable thus receives a lot of attention from macro-economic policy analysts. Additionally, it is characterised by temporary suspension without pay due to reduced demand of goods or services they produce and has to last for a period of seven consecutive days (Seymour 2005).

Frictional Unemployment is unemployment resulting from people leaving jobs that they do not like and are searching for new employment or people whom either entering or re-entering the labour force to search for a job. Time lapses between separation and discovery of new job.

Structural Unemployment represents unemployment caused by permanent shifts in the pattern of demand for goods or services or changes in technology. This requires the employees to undergo training or move to other locations to find new jobs (Seymour 2005).

Seasonal Unemployment is a type of unemployment, which is caused by seasonal conditions affecting specific factors. For example, the agricultural sector is dependent on rainwater. Hence, during periods of good rains there will be high economic activities creating jobs while during periods of dry season there will massive unemployment due to less economic activities.

Voluntary Unemployment is unemployment by choice experienced in most of the developed countries. This happens because of the unemployment benefits given by the UK government thus encouraging most youths to look for highly paying jobs. Therefore, in the short-run most of them remain unemployed. Such decisions by most youth have led to increased level of youth unemployment in UK (UK National Statistics).

Underemployment; under normal circumstances people are supposed to work for 6-8 hours a day. Therefore, if an individual works for less than six hours then they are underemployed. This is because the talent or effort is not fully utilized. It can also occur when an individual is working in a sector where their skills are underutilized (Seymour 2005). Most of the youth in UK are either working fewer hours such as part time while others work in sectors where their skills are underutilized (BBC News).

Unemployment rate measures the unemployment level. It is the proportion of economically energetic people who do not have jobs (i.e. number of people who are unemployed divided by number of those who are in paid jobs or employed, excluding those who are economically inactive from both numerator and denominators) (UK National Statistics).

Statistics of Youth Unemployment in UK

Economists and the government have carried out several researches over the years about the youth unemployment rate in the UK. According to Labour Force Survey (LFS), youth unemployment rate in the year 2004 rose from 12% to 15% in the year 2008 (BBC News).

The number of unemployed youth between the age of sixteen and twenty five years has risen in the current recession by over 4% since 2008 and then by over 5% in the year 2010. This means that the unemployment rate for people aged 16-24 years is now triple the rate for older people. The rate of unemployment for individuals over 25 years have also followed similar trajectory since 2004. Therefore, the unemployment rate for people over 25 years in 2010 was still lower than that in the early 1990 (BBC News).

The Office for National Statistics (ONS) says that the unemployed youth aged 16-24 has risen more than one million, which is the highest for 15 years. The total number of people unemployed is 2.62 million, which is the highest since 1994 according to ONS. The youth have borne the effect of economic slowdown.

Thus, out of the 2.62 million, 1.02 million are youth aged between 16 and 24 according to survey carried between July and September last year (HRM Guide 2012). This has led to people claiming job seekers allowance to rise by 5300 to 1.6 million last month according to ONS. The ONS says that this is the highest rate since they adopted the comparable method in 1992 despite the slight change in basis of calculation (HRM Guide 2012).

The Institute for Public Policy Research statistics have shown that the unemployment rate of youth aged 18 is 18.5% for boys and 15.3% for girls (HRM Guide 2012). This is the highest rate they have ever witnessed in the UK. It is attributable to the current euro crisis. According to Lord Stevens, the official statistics of the unemployment rate of the youth hit the one million mark for the first time thus more than a fifth of people aged 16 to 24 years do not have jobs (HRM Guide 2012).

Causes of Youth Unemployment in the UK

Financial Crisis of 2007-2010

The financial crisis that began in the United States caused by the bubble burst in the real estate industry affected several banks .It spread across Europe since most of the banks affected were multinationals with operations across Europe. This led to economic slowdown in the economy of UK. Thus, most of the firms scaled down there production capacity.

Consequentially, employers are forced to lay off some workers or were not hiring any more employees (Ruhm 2000). The effect of such circumstances has led to the rise of rate of unemployment among the youth since they are continuously completing colleges and are unable to secure employment (HRM Guide 2012).

The Cuts in the Public Sector

The government has been reducing its spending over the years. The reduction in public sector spending leads to decreased demand of certain goods and services since the government is the biggest consumer in an economy. Therefore, due to the decrease in demand, the production sector has to reduce its production.

Thus, some people become redundant leading to sacking. Some of the firms also stop hiring new staff or reduce the number of people employed compared to when the factors of production were being fully utilized. Therefore, the cuts in public spending have led to increased unemployment rate of the youth over the recent years (HRM Guide 2012).

Immigration from European Union

Since the integration of the UK in the European Union, people are free to move from one member state to another. This encouraged many people to migrate from other member states to UK in such for employment or business purposes. This has led to reduction of summer jobs that were available to university students from UK since most of the jobs go to the immigrants from other member states. Hence, such factors have led to the rise of the number of youth who are unable to secure paid jobs (UK National Statistics).

Lack of Required Qualifications

Researchers have link the lack of jobs by youths to their poor performance there studies such as in GCSE English and Maths. Most of the students have also not been able to proceed with their studies to acquire the necessary professional qualifications required in the job market thus unable to secure employment.

This is attributable to laziness from the part of the students to work hard in their academics. The support groups in conjunction with the relevant government sectors have been working hard to ensure the students work towards achieving the relevant qualifications required in the job market.

Influx of Goods from Euro Zone

After the UK joined, the European Union this allowed non-restrictive trade between member states. Such an agreement has led to the rise of goods exported to UK therefore increasing competition. This has resulted in the decrease in the demand for UK goods thus the decrease in the productivity of UK firms. They have resulted in lying down of workers and reduction in number of people employed. Therefore, this is one of the major contributions in the rise of level of youth unemployment in the UK.

Higher Taxation

The taxation rate in UK is high such that the cost of production is high. This leads to decreased demand of products thus firms end up retrenching some of the redundant workers.

Effects of Youth Unemployment in UK

Increase in Crime

The youth would need money for consumption for clothing, food or shelter and since they do not have paid job they feel frustrated and start blaming the society for their misfortunes, hence they end up resulting to criminal activities to get money. Lord Stevens acknowledged this when he said that unemployed youth would fuel disorder in the streets since dissatisfied youth lack hope for the future. He said disorder like the one experienced last year is evidence of the disquiet of youth due to lack of employment (Poverty Site 2012).

Increased Chances of Workers Experiencing Unemployment in Adulthood

The continued rise in the rate of youth unemployment increases the probability of a worker experiencing unemployment in his adulthood. The result of this the rise of number of people unemployed thus leading to increase of people claiming job seekers allowance which an increase in government expenditure in terms of transfers which is not healthy for the economy (Poverty Site 2012).

Loss of Productivity

The youth are the most active people in the society therefore when they are not employed statistics show that this equates to 10 million pounds a day of lost productivity. This translates to a direct cost of unemployed youth of close to 5 Billion pounds annually. Such statistics are worrying since this is a lot of potential wasted. The high levels of unemployment lead to too many people being idle thus high loss of productivity in the overall economy (Poverty Site 2012).

Increase in Dependency Levels

The rise of levels of youth unemployment has led to high levels in dependant population since they need basic human needs but do not have any source of income. Therefore, the rise in unemployment has increased the number of people depending on the government allowances for job seekers thus increasing the government expenditure.

Responses

Replacement of Future Jobs Fund with Apprenticeship Scheme

The labour Party government initiated the Future Jobs Fund policy. It aimed at creating jobs in the future for the youth. The Conservative –Liberal Democrat coalition government viewed this not to very effective method to address the menace of youth unemployment.

It replaced it with the current policy of apprenticeship scheme whereby the youths attached to organizations where they will be working under skilled workers thus they end up acquiring necessary skills. This policy will be more effective in solving the youth unemployment problem than the future jobs fund.

Overhaul of Schools Career Guidance

The Recruitment and Employment Confederation have proposed an overhaul of the school’s career guidance to encourage students to work hard to acquire the necessary skills for job employment. This encourages students to achieve the necessary professional qualifications necessary for employment. Such policy will lead to students being prepared to join the apprenticeship scheme thus improving the level of youth employment.

Scrapping of National Minimum wage

Dominic Raab called for the scrapping of National Minimum Wage for the 16-21 year olds people thus increasing the level of youth employment. The minimum national wage is a hurdle to organizations since they incur certain expenditure thus they end up being limited on the number of employees employed. Therefore, the scrapping of the minimum wage will lead to firms employing more people thus reducing the level of unemployment (Poverty Site 2012).

Entrepreneurship Encouraged

The government and non-governmental organizations have been implementing programmes that instil entrepreneurship skills in people. Such programmes have led to an increase in the level of people who are self-employed. This has led to rise of people who are self-employed in the UK over the years. It has been a very effective method of addressing the problem of youth unemployment (The Guardian 2012).

Reference List

BBC News, Economy Tracker. Web.

HRM Guide 2012, UK Unemployment: Labour Market Statistics. Web.

Poverty Site 2012, Youth Adult Unemployment. Web.

Ruhm, C. 2000, Are Recessions Good for Your Health. Quarterly Journal of Economics, 115(2): 617–650.

Seymour E. H. 2005, The New Economics: Keynes’ Influence on Theory and Public Policy. London: Kessinger Publishing.

The Guardian, Unemployment and Employment Statistics. Web.

UK National Statistics, Guide to Unemployment. Web.

Introduction

The article by Mehdi Hasan discusses the announcement of rising unemployment rates to a record high of 10.7% recorded in the January economic figures (Graph 1). This announcement is amid at ongoing financial crisis in the euro zone. However, the biggest problem of the author is the way he explains the actions by Europe’s political and financial leaders with little regard to unemployment, while placing too much emphasis on inflation and output growth through what he terms their overly obsession with “austerity junkies” (Hasan, 6).

The writer is of the opinion that job creation is more important for the euro zone populace than solving the problems of inflation and GDP growth. To augment and solidify this opinion, the author further presents three observations related to the actions of Europe’s elites in their attempts to quell the current debt crisis.

Firstly, he points out the growing unemployment statistics across the 27-member EU. The most affected regions are Spain and Greece. In only these two economies, he notes, unemployment rates have risen above 20% in Spain holding the record of 23.3% and about 5.3 million people unemployed and Greece’s 20% unemployed (Graph 2).

The austerity measures in these two economies are EU imposed, and despite some countries such as Spain are fruitless when expressing requests for leniency on the imposed spending cuts, the EU leadership would hear none of that. In contrast to the approach taken by the EU leadership, the writer notes the US successful job creation path in 23 consecutive months through a fiscal stimulus supported by the American Recovery and Reinvestment Act after the country suffered one of the worst recessions in decades.

Secondly, he based his argument on ideas advanced by John Meynard Keynes, the father of modern economics. According to Keynes “look after unemployment and the budget will look after itself” (Hasan, 7). In regard to this popular remark, the writer observes the irony in EU leadership actions which seem to have completely neglected unemployment yet as the writer poses, “unemployment is the biggest barrier to deficit reduction” (Hasan, 7)

Thirdly, the writer takes the delicate subject of social welfare to justify his deduction. He laments that employment “is about human dignity and self worth”. He says that the unemployment crisis in the euro zone cannot be solved but that the leaders are reluctant to do what is necessary by labeling it unavoidable.

Critique

The writer provides valid arguments with indispensable facts, but he fails to convince why he thinks the EU leadership has taken the wrong direction to solve the EU debt crisis. First, the writer fails to solidly define the problem, as he does not provide any background check as to the real cause of unemployment.

His deduction is based on a completely wrong footing and this partly explains his biased approach to the issue. By biased approach here I mean, the writer does not in any way critically explain to the leader why the approach taken by the EU leadership has failed or why he thinks will never solve the EU problems.

Secondly, his approach is more of a short term measure rather than a long term measure. He fails to understand that the current unemployment problem is more a result of non-fundamental factors rather than one based on temporal variability on unemployment and inflation (Sloman, 67).

This means that in addition to advancing bail outs (which the EU leadership has advanced to ailing economies), it must not be left out that there are more pressing no-fundamental factors such as the fear that some economies might completely sink into bankruptcy which widen the already bad situation instead of addressing it.

Conclusion

In conclusion, in addition to critique provided, the writer should not forget that the current problem of the euro zone is a multi-nation problem rather than a one nation problem. It is therefore incorrect to compare the euro debt crisis with the US recession.

This is because, unlike in the US scenario, some member nations that are yet to sink into debt would be very reluctant to pump more money into ailing economies (as is the case now with Germany) for fear that they will also be dragging themselves deeper into the crisis. The fact that the problem affects more than one nation and by varied magnitudes means that in addition to an economic solution, a political deal is also necessary for a more acceptable solution across the board.

Works Cited

Hasan, Mehdi. “Unemployment matters more than GDP or inflation.” The Guardian. 04 Mar 2012. Web.

Sloman, John.. Economics 7^th ed, New York: Pearson Education, 2009. Print.

Graphs

Graph 1.

Source: “Euro Area Unemployment Rate“. Tradingeconomics.com Eurostat. Web.

Graph 2.

Source: The Online Magazine of the American Enterprise Institute. Web.