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Causes And Effects Of Unemployment

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There are many reasons for unemployment in the United States and around the world. Some of these causes are created by the individual and others are out of their control. No matter what the cause for unemployment, it has a devastating effect on the individual, family, and economy. Unemployment defined by the Encyclopedia Britannica is the condition of one who is capable of working, actively seeking work, but is unable to find any work. In addition, to define a person as unemployed, the person must be an active member of the labor force in search of work. (Encyclopedia Britannica, 2012) Unemployment can be caused by several different factors. Depending on the reasons for unemployment, they are classified as such: frictional, structural, and cyclical. There will always be a certain number of people that are frictionally or structurally unemployed due to varying reasons in the economy. Frictional and structural unemployment are usually specific to a person or small region, however, cyclical unemployment only happens when an economy is in a downturn.

It signifies a decrease in the gross domestic product or GDP. Unemployment affects not only the unemployed but also society as a whole and the effects can be monetary and/or social. Overcoming certain barriers to job creation can help reduce frictional and structural unemployment. Cyclical unemployment requires government intervention. Using Keynesian economics, government spending must increase to shift the demand curve to the right, which causes employment to rise. Overall, any type of unemployment is an issue but there are ways to reduce the unemployment rates and keep our economy at least close to full employment thus reducing the unpleasant effects of unemployment. Types and Causes of Unemployment

Cyclical Unemployment Cyclical unemployment, which differs from frictional and structural unemployment, is when the economy is in a downturn. This happens when employers cannot sell enough goods to keep their employees and has a direct link with the GDP. As the GDP goes down, the unemployment rate grows. This drop in GDP signifies a recession. (Tucker, 2008)

Structural Unemployment Structural unemployment is caused by structural changes in industries and happens when an employee does not have the skills that match the existing job openings. Occupational immobility, geographical immobility, and technological changes are causes of structural unemployment. Occupational immobility is the difficulty for a person to learn a new skill to enter a new industry. Geographical immobility is the difficulty for a person to relocate to new location to get a job. Technological changes lead to unemployment due to developments of labor saving technology. This allows for less demand of the labor force in the industry. Structural unemployment, essentially, is the mismatch of skills of the person to the jobs available. There are numerous reasons for structural unemployment. Due to this, economists expect there will always be some level of structural unemployment. (Tucker, 2008)

Frictional Unemployment
Frictional unemployment is the type of unemployment that happens in normal economic conditions and occurs when people are changing jobs, students graduate from college and begin their job search, or time between jobs for seasonal employees. Frictional unemployment generally happens within a shorter time period than structural unemployment. (Tucker, 2008)

Effects of Unemployment
Just like there are numerous causes of unemployment, there are also numerous negative effects from people being unemployed. The main categories for these effects are monetary and social. It is not only the unemployed that are affected but the entire population as a whole is impacted by the growing unemployment rates.

Monetary Effects
Because unemployed people receive benefits from the government, there is a correlation between unemployment and increased government spending. The Employment Act of 1946 gave the government the responsibility of maintaining a high employment level of labor and price stability. The effects of this increased spending for unemployment benefits is that other government programs suffer a loss in their financial support. It also causes a decrease in the growth of the GDP. There are less people working so less goods and services are being produced and with fewer people to spend money in the economy there are less goods and services being purchased. This causes a decrease in demand of products and causes producers to lower their selling price to avoid a surplus. When the producer lowers their selling price, it causes the consumer price index to fall.

Social Effects
Various social effects spring from the people who are unemployed. They affect both our communities and the unemployed. The skills and knowledge from the unemployed is lost to our economy which keeps our economy from reaching its full potential. There is also an increase in crime and social strife during times of high unemployment. Bruce Weinberg, associate professor of economics at Ohio State University, Eric Gould, Hebrew University, and David Mustard, University of Georgia conducted a study of the national crime rates between 1979 and 1997 and found a direct correlation in falling wages and rising unemployment rates of men without college educations. (The Ohio State University, 2002) There are several private costs to an unemployed person and depending on the length of time a person is unemployed these private cost can increase. Stress over lost jobs and income can lead to family violence, family breakups, drug and alcohol abuse, health problems, and even suicide.

Associate Professor Maw-Der Foo, University of Colorado, and Professor Zhaoli Song, National University of Singapore, examined daily stresses felt by married couples where one spouse was employed and the other unemployed, and how that stress affected each spouse. Professor Foo stated, “One of the key findings in this study is that couples are better at sharing their burden than helping alleviate it…Going into the study we thought that marital support might help alleviate the stress of unemployment on the family unit, but it didn’t turn out to be the case.” (Foo, 2011) What the study ultimately found was that the spouse that was employed decreased their support to the unemployed spouse, which increased stress for the unemployed spouse. Again proving unemployment affects all members of society.

Solutions to Unemployment
The most important step in decreasing the rate of unemployment is to start creating new jobs. Making it easier and more profitable to start a business can be accomplished by decreasing or reforming regulations and taxes. A business that spends its resources to pay taxes or follow high regulations has less money to invest in its business ultimately hurting its bottom line. This would be very helpful for smaller businesses since the effects of regulations and taxes are felt more than they are in larger business. There are also public and private programs that can be put into place to help reduce structural unemployment. Examples of these programs are retraining programs for unskilled workers, paying subsidies to businesses to provide training for displaced workers, monetary programs to relocate unemployed people to where jobs are available, and programs to promote the unemployed to begin or resume their education.

Making employment information more readily accessible to the unemployed would also help reduce frictional unemployment. The internet is a wonderful tool for this but, internet or computer access is not always available. Providing the unemployed access to the internet or a computer when it is not readily available to them would help get employment information to them quicker. Reducing frictional and structural unemployment is easier than reducing cyclical unemployment. To reduce cyclical unemployment, many economists believe that aggregate demand must increase. John Maynard Keynes believed that an increase in non-price level determinants, such as government spending, causes the demand curve to shift right leading to a higher aggregate demand, which leads to the employment level rising. (Tucker, 2008)

Using Keynes theory, we can reach full employment. Full employment is not a situation where every person is employed nor is there a fixed number for full employment because it depends on the demographic makeup of the labor force. Full employment, also called the natural rate of employment, is when everyone that is willing to work has a job. It is an economy where cyclical unemployment does not exist and the economy is achieving its potential output. (Tucker, 2008) Conclusion

Unemployment, no matter what the cause for it may be, causes fundamental cost to the economy. Its effects can be detrimental to the unemployed person, their family, and society as a whole. The economy loses the potential goods and services that the unemployed person could be providing, as well as the money that the person could be putting back in to the economy. The unemployed person’s social life can be affected negatively and may only worsen as the length of time of the unemployment increases. With help from the government and the creation of jobs we can help alleviate the stress caused by unemployment as well as the number of unemployed persons in the country


Encyclopedia Britannica(2014)
Retrieved from: http://www.britannica.com/EBchecked/topic/614368/unemployment Fink, S. (2011, December 9). Barriers to job creation must be removed.
Retrieved from: http://www.delawareonline.com/article/20111210/OPINION07/112100320/Barriers-job-creation-must-removed Foo, M. (2011, February 21). Stresses of unemployed spouse can hurt job performance of other spouse, study finds. Retrieved from: http://www.colorado.edu/news/releases/2011/02/21/stresses-unemployed-spouse-can-hurt-job-performance-other-spouse-study The Ohio State University. (2002, April 10). Higher crime rate linked to lower wages and unemployment, study finds. Retrieved from: http://researchnews.osu.edu/archive//crimwage.htm

American Psychological Association (2013). Basics of APA style tutorial Retrieved from: http://flash1r.apa.org/apastyle/basics/index.htm Purdue University (2013). Tips and examples for writing thesis statements

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