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Governments all over the world strive to ensure that their citizens are meaningfully employed and therefore able to afford a decent standard of living. As such, one of the most significant problems that a government faces is the issue of unemployment among its citizens.
The US which is the world’s largest economy is not spared from this issue and as a matter of fact, it has a large number of unemployed citizens. While there has always been a number of unemployed, the rate has historically been modest. The last few decades have seen the situation reversed and the unemployment rate in the US hit a record high of 10% in 20091.
This situation has escalated and at the present, there is increasing unemployment in the US. This paper will set out to document the main reasons behind the increasing unemployment in the US. The impact that this problem is having on the population will also be highlighted and measures for curbing unemployment suggested.
Causes of rising Unemployment
The credit crunch that was experienced between from 2007 to 2009 greatly battered the private sector labor market and resulted in a decline in the number of people who are gainfully employed in the US. The private sector is an important player in the economy since as Baumol and Blinder report, in the year 2009, 68% of all non-farm workers in the US were employed by the private service industry2.
The Emerging Markets Monitor reveals that the past decade was characterized by weak job creation and a culling of the workforce as a result of the 2007-2009 recessions3. While the economy has experienced significant recovery from this market crush, jobs have not yet returned. Reports indicate that unemployment has actually continued to rise despite economic recoveries been made4.
The increasing population in the US is also to blame for the current unemployment rise. The US labor force has increased by 15million in the cause of the last decade5. While population growth has remained fairly constant over the decades, the same cannot be said for job opportunities. Conversely, the private sector which in 1999 employed 109 million people recorded a decline to 108.7 people employed as of 20096. Increase in population results in a more people joining the country’s work force. There are therefore more people today competing for the same jobs which results in increased unemployment.
The Emerging Markets Monitor states that there has been a noticeable stagnation in wages in the goods-producing sector. This stagnation has been blamed on low-skilled jobs being exported to low-cost countries such as China and Indonesia which have a large pool of low-skilled labor.
Data collected by the government corroborates the fact that the impact of jobs recession has therefore been felt more by the least educated group. For people with no high school education, the unemployment as of 2009 was 15.6% compared with 4.7% for those with high school diplomas or higher education7.
Technological advances which have been made in the last few decades have also contributed greatly to the rise in unemployment in the US. Many companies in the US have and continue to look for ways to automate their processes therefore increasing their productivity while at the same time reducing costs8.
As a result of this move, companies have laid off many workers whose role has become redundant since machines can perform the same work more efficiently. Bur points out that “Companies are investing in manufacturing equipment and information systems to increase the productivity of the workers they already employ, rather than investing in more employees”9. Notably, majority of the workers laid off are the low-skilled ones which means that they have low probabilities of obtaining other employment.
Another cause of the rising unemployment is the decline in growth of key sectors in the labor market. Traditionally, sectors such as financial services, retail, construction and manufactory have been the biggest sources of employment for people.
While these sectors have historically exhibited growth and expansion, the last decade has witnessed significant decline in this sectors. EMM state that the decline in these key sectors causes unemployment which in turn causes further decline in these key sectors. This is because higher unemployment means reduced income for many people which translates to weaker consuming power.
Yoon suggests that another cause of unemployment in the US is the government policies which are meant to protect American industries and union workers from competition. Yoon points out that following the outbreak of the financial meltdown in 2007, the Bush and Obama administrations have dedicated significant portions of public funds to aid ailing corporations and therefore stimulate the economy.
As a result of this bailout programs, the government now has tight regulations to control the behavior of the private financial sector which results in inefficiency10. Therefore, these government policies which are meant to stimulate economic recovery have the opposite effect since they result in shrinking consumption and investments11.
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The measures therefore delay economic recovery making it hard for the private sector to employ people. The policies that the US has put in place for a sustainable economic recovery are therefore partly to blame for the unemployment issue that the country now faces.
Globalization has also contributed to the increase in unemployment in the US. Globalization is characterized by the interaction of economies and this process has been aided by advances in transport and communication means. As a result of globalization, many US based multinational companies engage in outsourcing of production and services.
Outsourcing is beneficial to business since it enables them to exploit favorable environments such as low taxes and availability of cheap labor. This has led to many companies stopping operations in the US or decreasing their staff significantly and redirecting operations to countries which have surplus cheap labor. A study by Thibault revealed that in the sportswear manufacturing industry, there has been significant increase in unemployment levels as companies outsource intensively12.
American companies have to face fierce competition from other nations which deal with similar products and services. In some cases, the outside countries are able to produce products that are significantly cheaper therefore infringing on the market that the US companies previously enjoyed13. This competition has forced some companies out of business or made them to reduce their workforce so as to remain profitable. This has led to increases in unemployment levels in the US.
Traditionally, companies encouraged employees to specialize in their tasks and a person only played a specific work function in the company. This has changed and today, many companies are requiring their workers to possess more than one set of skills. As such, a person may be required to fulfill the roles that were previously done by a number of employees in the company.
This emphasis on multiple roles means that more people are kept out of employment as one person engages in the tasks that they would have previously been employed to do.
Small businesses are a source of employment for a significant number of Americans. Bur asserts that despite small businesses being essential to the nation’s economy, these business entities suffer from inadequate credit to help them develop14. With limited credit, these businesses are unable to take in new employees and the job security of existing employees is also not guaranteed.
This is in contrast to the situation faced by big businesses which are assured of government support in harsh economic times. Small businesses do not enjoy the same protection and their collapse leads to even more people being unemployed.
Dealing with Unemployment
The trend towards rising unemployment is projected to go on due to the various reasons explained in this paper. Unemployment results in a decrease in the standards of living for the citizens and hurts the economic well being of the country. Measures therefore need to be taken up to ensure that unemployment rates are restored to low levels.
Since migration of jobs to other countries through outsourcing has led to unemployment, the US government should address this issue. Bur proposes that by creating a market environment that is attractive for investors, the US can prevent companies from moving their production offshore15. This will create more jobs for Americans and hence alleviate the unemployment problem.
As has been noted, small businesses play a very important role in the US economy. With this consideration, the government should come up with measures to ensure that the businesses prosper. Tax relief which would ensure that businesses make profit even in hard financial times therefore guaranteeing their continuity. Incentives can also be offered to encourage businesses to expand and with this expansion, more employees would be taken in by the business.
Steps should also be taken to deal with the excessive competition that US companies face from the international market. Economists agree that China which has flooded the world market with cheaper goods manages to keep her goods low since the Chinese currency is low. This makes Chinese goods cheaper and hence more attractive in the market.
The US can adjust her exchange rate such that US produced goods are cheaper. Having cheaper goods of high quality will lead to more sales and hence increased productivity by companies. The companies will therefore be able to maintain their workforce and even
This paper set out to highlight the reasons behind the increasing unemployment witnessed by the US in the past few years.
To this end, this paper has market out the 2008 credit crunch, increased population, outsourcing, and technological advances as the main causes of unemployment. Lack of growth in key sectors in the market and protective government policies have also been seen to cause unemployment. The paper has also delved into the actions that can be taken to deal with unemployment issue.
If these issues are tackled effectively, the US will be able to overcome unemployment and hence maintain her position as the world’s greatest economy.
Amadeo, Kimberly. US Economy: Unemployment Rate. Web.
Baumol, William and Blinder Alan. Macroeconomics: Principles and Policy. Connecticut: Cengage Learning, 2010.
Bur, James. 2010. Causes of High Unemployment in the U.S. Web.
Emerging Markets Monitor (EMM). US Cannot Afford Another ‘Lost Decade’ For Employment. NY: Business Monitor International Ltd, 2009.
Mooney, Linda and Schacht Caroline. Understanding Social Problems. Connecticut: Cengage Learning, 2010.
Ryan, Meghan. Handbook of U.S. Labor Statistics 2010: Employment, Earnings, Prices, Productivity, and Other Labor Data. Princeton: Bernan Press, 2010.
Summers, Lawrence. The Concise Encyclopedia of Economics: Unemployment. Web.
Thibault, Leo. Globalization of Sport: An Inconvenient Truth. Journal of Sport Management. No. 23 (2009): 1-23
Yoon, Joon. The Great Recession of the US and Lessons from the Past. SERI Quarterly, 2011.
1 Emerging Markets Monitor (EMM), US Cannot Afford Another ‘Lost Decade’ For Employment, (NY: Business Monitor International Ltd, 2009), 2.
2 William Baumol and Alan Blinder, Macroeconomics: Principles and Policy, (Connecticut: Cengage Learning, 2010), 28.
3 EMM, 1
4 Amadeo Kimberly, US Economy: Unemployment Rate.
5 Meghan Ryan, Handbook of U.S. Labor Statistics 2010: Employment, Earnings, Prices, Productivity, and Other Labor Data, (Princeton: Bernan Press, 2010), 404
6 EMM, 2.
7 EMM, 3.
8 Linda Mooney and Caroline Schacht, Understanding Social Problems, (Connecticut: Cengage Learning, 2010), 34.
9 James Bur, Causes of High Unemployment in the U.S.
10 Meghan. 201.
11 Lawrence Summers, The Concise Encyclopedia of Economics: Unemployment.
12 Leo Thibault, Globalization of Sport: An Inconvenient Truth, Journal of Sport Management, 23(1), 2009, 1
13 Linda and Caroline, 231.
14 James, 1.
15 James, 1.