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Unemployment refers to the number of individuals who are willing and able to work at the current wage rates but cannot find a job. Unemployment rate is the percentage of the unemployed individuals compared to the total labor force in a given region. Unemployment in most countries is caused by political instabilities and bad governance. Seasonal unemployment occurs due to the changes in labor supply and demand. In most instances, unemployment may occur if the job seekers do not have the professional skills that may be required. In countries where there is high population, unemployment levels are very high due to a large labor supply. The economists have various ideas on curbing the problem of unemployment, and they advise governments to increase demand for workers and use expansionary monetary policies. The governments need to increase the aggregate demand for both goods and services, thus reducing the number of unemployed people.
Causes of Unemployment
The major cause of unemployment is the introduction of new technologies in the various economies. The use of machines, computers and robots in the recent times has caused major - of employees’ layoffs. Machines are fast, effective and apply uniformity in the production of goods. The use of computers to operate the machines makes it more sufficient. This ensures that the final products are verified and proven to be of the required quantity and standard before being taken to the market. The issue of online marketing and advertization in the media has cost many salespeople their jobs (Carlberg 162). Workers need to be trained in order to meet the requirements associated with new technologies.
The world sometime experiences economic crisis or recession. This is the situation when most world economies perform poorly and experience low aggregate demand. These economies import most of theproducts at high prices, hence causing their prices to increase locally. Production costs go up hence contributing to the layoff of some employees. Economists usually advice governments to prepare deficit budgets so as to increase expenditure during economic recession times. This will increase aggregate demand, hence increase the levels of employment.
Many firms are prone to move to new business areas. Firms such as Multinational Corporations tend to relocate to new markets. They may move due to the high competition from rival firms as well as high costs of hiring labor. If a firm happens to move to another market, the previous employees are left jobless. If many firms relocate, then most people are left unemployed and depend on the few employed people for their daily needs.
Consumer demand is another factor that affects the rate of unemployment in the economy. Sometimes the consumer demand may experience a very slow growth or negative growth. This leads to too much reduction in profits for business organizations and, as a result they lay off their workers. Businesses should enjoy protection by the government from external economic factors that may threaten their existence. Procedures to fund these businesses during economic hardships should be implemented in order to avoid future employees’ layoffs. The banks should reduce interest rates during hard economic times in order to allow money to remain in circulation and hence increase in aggregate demand. With a constant or increased aggregate demand, employment levels will either remain constant or will increase. Other illegal activities such as hoarding, smuggling and black markets should also be eliminated in order to protect prevailing businesses and their employees.
A rapidly growing population means that in a very short period of time, there is an entry of the new job seekers. As much as the population may command a high demand for goods and services, the absorption of new employees in the job market may not be growing at the same rate as that of the population. Although most governments would wish to reach full employment, this goal cannot be achieved due to those who are on voluntary unemployment. The most developed nations such as the United States have unemployment rates of 7-10% as shown in the recent statistics recorded by the labor movement (Haugen 57). The increase in minimal wage for laborers has also contributed to unemployment.
Unemployment and Inflation
Unemployment and inflation are inversely proportional to each other. Inflation is the general increase in the prices of goods and services in the economy. As the cost of living increases, employees are forced to demand higher wages to cater for their daily needs. Businesses and firms may find it hard to support a large wage bill at the time inflation is high, hence there is the need to lay off some workers. The government may interfere in the economy to control inflation through appropriate fiscal and monetary policies. Inflation rates should be maintained at a low percentage levels in order to keep employment rates high.
Unemployment is a major issue in all economies of the world. Each government is trying its best to ensure that its population is fully absorbed in the labor force. Governments collect most of its revenue from the salaries of the employed people. Employing more people means that governments will raise their revenue collections and will be able to offer better services to the people. Dependency ratio will reduce, savings will increase, and many people will be willing to undertake various investment projects. Enhancing appropriate skills to the young population and training them on various types of jobs is a key factor aimed at reducing the number of unemployed people. Investing in young people is the only way to curb social crimes that are associated with young people.