Frictional Unemployment

Frictional unemployment also known as search unemployment distinguishes the time period between jobs when a worker is searching for or transitioning from one occupation to the next. Unemployment that exits in a fast growing economy with an expanding mobile, elastic and adaptable labor force of having many different options. With this type of structure can be beneficial to workers because it allows them to seek for positions they desire most or jobs that best suit their qualifications. This also becomes a plus for companies who want skillful workers because it allows them to be selective in there candidates for hire. The extinction of frictional unemployment would keep people in the same jobs for life, creating rifts in a system that suppresses innovation and rusticates skills. More importantly, frictional unemployment matches the demand for workers with the supply. The last several years our nation has struggle with this barrier because of lack of education or not enough experience in a certain field. Frictional employment arises from those candidates that are just graduating for college and those who are unemployed because they are looking or changing occupation. Frictional unemployment is present now because there is imperfect data in the labor market and workers have to search for employment suitable for their skill set.

The system of trading goods and service has been a part of civilizations since BC. The option to sell or buy an item or service has been very profitable as well. For example in the early 1800s when the New World discovered that coffee beans from South America were an awesome good to have. Even with the traditional substitute of tea being what the New World was accustom to, we bought tons coffee beans. With that being established, free trade was key in this process. Absolute and comparative advantage became the foundation of the trade market. For example, in the United States Florida is known for the best oranges, Idaho produces the best potatoes, and states like Ohio and Illinois are known for wheat and corn. This has to do with Mother Nature and how certain plants and things grow a certain way.

This gives advantages to states and countries when trade is done. The reason for free trade among the United States is because we strive on competition, low prices between goods and services, and net worth as a country. Also, the competition will bring about innovation within products because the struggle will be so tough. At one time, we as a country had the highest GDP in the world. Small business strived and profits were being made. Now that life is more viral on the internet, trades are more international than ever. The reason why free trade is not necessarily between the countries is because there is no such thing as an international constitution that can regulate trade. Countries are free to set up taxes and other barriers to trade with other countries if they want. For example, America’s government may want to protect American corn farmers, so it will set a tariff, or tax, on imported corn so that American corn will be cheaper and sell more. This is also revealed in Article 1 Section 9 which limitations are set by Congress that is not limited or applicable on foreign governments.

A fixed exchange rate is a currency’s value is fixed against the value of another single currency or to basket of other currencies. This type of exchange is utilized to stabilize the worth of a currency against the currency it is pegged to. With trades and investments between different countries makes it stress-free and useful for small economies in which external trade forms large part of their GDP. More importantly it can be used to control inflation. Economists Robert Mundell and Marcus Fleming created a model which expressed that with perfect capital mobility, fixed exchange rates prevent a government/organization from using domestic monetary procedures in order to reach macroeconomic constancy. A flexible exchange rate or better known as a floating exchange rate is a currency’s value is allowed to fluctuate according to the foreign exchange market. With a flexible exchange rate, it leaves monetary procedures up to makers to pursue other goals such as stabilizing job security or prices. In the Mundell-Fleming model they make the argument that the economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. Stating that only to can be chosen for control and leave the other for market forces.

References

(2012, 12). Investopedia – Educating the world about finance. Currency Exchange: Floating Rate Vs. Fixed Rate. Retrieved February 2, 2013, from http://www.investopedia.com/articles/03/020603.asp#axzz2KSYK6X7h

UMKC School of Law. The Powers of Congress.. Retrieved February 7, 2013, from http://law2.umkc.edu/faculty/projects/ftrials/conlaw/congpowers.htm

, S. (2010). Open Economy Macroeconomics. Worth Publisher