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Unemployment can be defined situation where someone who has of the working age is not able to get any job but would like to get a full time employment. For one to be considered to be unemployment, they must be actively involved in seeking jobs for some time. For instance, we cannot jump into a conclusion that a person who has searched for job within a day is unemployed. One has to have searched for the job at least for some time.
Underemployment is closely related to the issue of unemployment. However, the two have different implications. Underemployed person is the one who is willing to work full time but does not have an opportunity. For instance, a company may be forced to hire people for a half a day to minimize the operational cost.
The problem of unemployment has for long time being the major stumbling block in many economies. Unemployment leads to economic instability. This problem of unemployment is made complex by the fact that it is impossible to an economy to maintain reduce the level of unemployment and reduce the inflation rates at the same time. With respect to this, the situation has been very difficult to manage.
Types of unemployment
There are several types of unemployment. One of the main types of unemployment is the demand deficient unemployment. The demand deficient unemployment mostly occurs in the period of recession or low growth (Economics help, 2010). The level of the aggregate demand is the main determinant of the firms' output. If there is insufficient aggregate demand, firms will consequently cut down the level of output. Consequently, the firm will require less number of workers to meet the new demand. This can be done through lying off some of the workers or even lowering the recruitment rate. The severity of this type of unemployment is determined by the level of recession or economic down turn.
Another common type of unemployment is the structural unemployment. This type of unemployment is caused by inefficiencies in the labor market. According to the Economics help guide, this may occur due to the mismatch of skills or geographical location (2010). One category of this form of unemployment is occupational immobility. There can be jobs in the market but people may lack the relevant skills required for these jobs. Another category of this type of unemployment is geographical immobility. There can be job opportunities but if it is difficult for the unemployed people to reach there or stay there, then it cannot be of any help to them.
Real Wage Unemployment is also type unemployment. This type of unemployment occurs when wages are kept above the equilibrium. This situation leads to excess supply of labor assuming that the labor market is competitive.
Voluntary unemployment occurs when workers decides not to take the job at the wage rate offered. A worker may decide to leave the work if they think that the job does not satisfy their expectations.
Frictional unemployment is another common form of employment. This type occurs when people are between jobs. For instance, fresh graduates may take time to find jobs. Frictional unemployment is a common in economies as people search for the jobs feasible with their skills.
Causes of unemployment
Government wage control is another factor which contributes in creating unemployment in the economy. In most cases, government is engaged in wage control mechanisms as a way of protecting employees from exploitation. According to Lindbeck (1993), government wage regulation can lead to a mismatch between demand and supply in the labor market and hence raise the level of unemployment and the disabled labor and also the workers in declining geographical regions (p.30). In other words, government involvement in the wage control has interrupted with the mechanism of the labor market. For instance, the government may set a minimum wage which is too high depending on the returns from the service provided by the employee. In order to reduce the costs related to the manipulation of the wages by the government, an organization will be forced to reduce the number of employees by either laying some of the existing employees. They can also do this by reducing the rate of recruitment of new employees. This raises the level of unemployment in the economy. Through the minimum wage, the government manages to improve the well being of the working poor but at the expense of those who may be laid off.
Another cause of unemployment is the mismatch of locations. Gupta observed that the workers and the jobs are not perfectly mobile geographically (2004, p.336). The law of immigration restricts the mobility of the labor across countries. With respect to this, there may be a shortage of the workforce in a certain country but the geographical differences deny the unemployed people a chance to get these opportunities.
Job separation can also be another source of unemployment. Sometimes employed people may change their jobs due to frustration in jobs and changes in career and location preferences and also when they are fired from their employment (Gupta, 2004, p.336). Individual's preferences over the type of jobs and areas they like to work with changes with time since their environment is not static. Their expectations are also in a perpetual change. Every person will therefore tend to be rational by choosing the jobs which best fits their expectations.
Effects of unemployment
Unemployment has very many effects on different sectors of the economies. The effects of unemployment on different sectors of the economy are connected since the sectors are also connected in one way or another. For instance, the government sector gets its revenue through taxes levied on the goods and services bought by the households.
Unemployment has posed very serious problems on the government sector. To start with, the government relies on the taxes imposed on goods and services as the main source of its revenue. When there is a high level of unemployment in the economy, the tax revenue will automatically fall since less people will be paying less value added tax (VAT) and income tax. As noted earlier, when there is a high level of unemployment, the victims will tend to lower their levels of consumption. Consequently, the level of aggregate demand will fall. This cuts down the tax revenue imposed on the goods and services purchased by the households. The income tax imposed on the employed people will also fall down as a result of unemployment (Economics help, 2010). As a result of this effect of unemployment on the level of government revenue, government's level of borrowing will rise.
Unemployment increases the level of government expenditure. The government will spend more money on the employment benefits. This is the money spent by the government in compensating the unemployed people. Therefore, the higher the level of unemployment, the higher the amount of the money spent by the government on employment benefits.
Unemployment will also lower the level of GDP for the economy. As the level of unemployment increases, the Gross Domestic Product will fall (Mikeroeconomics, 2009). In most case, the countries which have high level of unemployment are characterized by a low level of GDP. According to Baumol and Blinder (2009), when the economy grows more slowly than its potential, then it cannot succeed in creating new jobs for the growing labor force which increases the level of employment in the economy (p.495). On the other hand, GDP growth faster than the country's capacity reduces the rate of unemployment.
A high level of unemployment is a form of resource wastage (Baumol and Blinder, 2009, p.495). Unemployment level rises when the economy fails to create jobs enough for every person who is willing to work. When a person who has skills fails to get any opportunity to utilize these skills, this is a big loss to the government since it invests a lot of money in fostering different kinds of skills. In addition, the goods and services which these persons could have produced are lost forever and can never be recovered. In other words, unemployment is a resource loss to the government and the entire economy.
High rate of unemployment raise the level of social problems. In most cases, areas of high levels of unemployment tend to have a high rate of crime and vandalism (Economics help, 2010, 10). Unemployed people are usually faced with the difficulties of meeting their needs. Consequently, these people may engage themselves in criminal activities like burglary as a means to meet their needs. This increases the costs to the government in terms of security maintenance.
Unemployment causes stress to the unemployed people. It also lowers the health status of members of the state. This increases the government expenditure on the health sector. This money incurred by the government on treatment expenses could have been used in economy building activities.
A rise in the level of unemployment has an effect of altering the rate of inflation (Parks, 2011, 2). This has led to market instability. This has negatively affected the business sector. Most of the companies have been forced to undergo such hardships like maintaining the global value of companies. This has negatively affected the economic activities in the economy which has incurred the government sector a lot of costs.
In conclusion, this discussion has clearly shown the effects of unemployment. The study has revealed that unemployment has posed a very big danger on the government and household or consumer sector. Unemployment cuts down the level of domestic income. Households are then forced to cut down their level of consumption. Consequently, the level of aggregate demand will fall which will further worsen the situation. The problem is therefore very serious when it sets in. There is a need for the government to come up with different measures to solve the problem of unemployment. For instance, the government can invest on education to reduce the level of illiteracy. This will equip the citizens with the necessary skills so that they can grab any opportunity which comes along. It is also advisable for the governments to concentrate on developments which can generate employment. Such developments include infrastructure and industrial relations. Unemployment can also be reduced by implementing the appropriate monetary policies. By so doing, the government will solve the problems that results from unemployment.