Discussion of the Causes of Unemployment

Introduction

Employment is viewed as one of the important social issues since it does affect not only the economic development of the society but also the stability of the society. Unemployment is defined as the number of individuals who are willing to work at the current wage rate in the society but are not currently employed. According to the international labor organization guidelines a person is considered unemployed if he or she is not working, if the person is seeking work and if the individual is currently available for work. The unemployment rate can, therefore, be defined as the percentage of the labor force that is unemployed. In this study, I will discuss the causes of unemployment in the United States which includes, technological advancement, entry of new workers in the labour market and the low consumer demand.

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According to Lazear (2012), United States annual employment rate decreased in 32 states, and little change was observed in 18 states and the district of Colombia. The United States government have reported a decline in the employment rate by 0.5 percent from the previous years to 4.4 percent while the national employment-population ratio increased by 0.4 percent (United States Department of Labor - Bureau of Labor Statistics 2012). Every month, the United States bureau of labor statistics conducts surveys on the population, whereby they ask them of their employment status for the previous one month, this helps in determining the unemployment rate in the country. There are various types of unemployment, this includes. Frictional unemployment, structural unemployment and cyclical unemployment..

The Causes of Unemployment in the United States

Various factors have led to the increased rate of unemployment, such factors include:

• The Entry of New Workers in the Labor Market

The increased Unemployment rate is due to the flooded entry of new workers in the labor market. This can be either short-term or long-term and mainly occurs due to factors that include, people changing jobs and new entrants in the labor market such as college or university graduates who are in search of employment that appropriately meets their skills and qualification. Workers with high education standards face considerably lower rates of unemployment. According to a study by Lazear,(2012), the unemployment rate for those with less than a high school diploma was approximately 12 percent, 9 percent for the high school graduate, 6 percent for those with college degrees and 4 percent for those with a university degree or higher. The labor market which is constantly changing is unable to absorb the flooded number of unemployed people. However, approximately 38 percent of companies across the United States train their employees to equip them with skills not directly related to their job qualification (Lazear, 2012). Companies believe that with the high unemployment rate they can still find skills necessary for any employment should job opening arise. For general health of the economy, it is important that people should constantly be matched with the things that they are better skilled in.

• The Improved Technological Advancement

Technological advancement leads to unemployment in instances such as when robots replace workers in the job market. Advancement in technology requires the workers to get training that meets the current standards of technology before they acquire a new job in the field. In this type of unemployment, the number of job opportunities may be equal to the number of job applicants, but the applicants cannot get the job since they are not qualified as per the standards of the tasks. Research indicates that in the 21-century technological unemployment may be on the increase worldwide. For example, it is estimated that 47 percent of jobs in the United's States are at risk of automation (Weidner, 2011). Technological unemployment has been destroying jobs faster than it creates them leading to stagnation of the median income and growing inequality in the United States. With this trend, humans are likely to become obsolete within the white-collar jobs and creative fields.

• The Low Consumer Demand

Low consumer demand refers to a situation whereby the amount of products consumed is very low compared to the rate of production leading to the accumulation of products in the market. Companies tend to lose a lot of profits when there is a decrease in demand for products; this mainly occurs during recession periods of the business cycle. If the business does not expect the sales to pick anytime soon, the companies are forced to lay off the workers leading to cyclical unemployment. Cyclical unemployment is associated with the theory of J.M Keynes that was developed against a backdrop of the huge depression in the United States. During the great depression, unemployment soared in the United States due to the reduced demand and fall in the money supply. In December 2007 the national unemployment rate in United States was 5 percent, and it had been much lower during the previous months. At the end of the recession period in June 2009, the unemployment rate was at 9.5 percent, months later after the recession the unemployment rate reduced at 10 percent (The United States Department of Labor - Bureau of Labor Statistics 2012).

• Job Outsourcing

Outsourcing refers to a move by companies to minimize on cost or improve efficiency through shifting tasks and operations to an external contracted third party for a given period. In the United States, job outsourcing occurs when companies hire foreign workforce instead of employing the American workers which acts as a contributing factor to the increased unemployment rate. Companies hire foreign workers to minimize on cost since labor is cheap in countries that have a low cost of living, this helps the companies in the United States to remain competitive in the global market. Job outsourcing leads to increased unemployment in the United States since the 14 million jobs that are outsourced are double the 7.5 million unemployed Americans. Therefore, if the jobs were to be offered to the American workers, it would lead the creation of more employment for the 5.7 million more workers who work on a part-time basis and would like to work on full-time positions (Anderson, 2006). The four main companies that are affected by job outsourcing include the technology companies, call centers, human resource, and the manufacturing companies. For example, the American IT companies sends their jobs to India and China where the workforce is cheaper, resulting to the company only paying $7000 a year in China and $8400 in India annually (Anderson, 2006).

Conclusion

This paper has covered in details the causes of unemployment in the United States, the objective of the research has been achieved whereby the major contributing factors of unemployment have been identified. Each contributing factor is seen to have a particular contribution to the increased rate of unemployment in the United States. Some of the causes of unemployment are periodic or seasonal while others may occur throughout the employment period.

References

Weidner, J., & Williams, J. C. (2011). What is the new normal unemployment rate?. FRBSF Economic Letter, 5.

Anderson, B., Ruhs, M., Rogaly, B., & Spencer, S. (2006). Fair enough? Central and East European migrants in low-wage employment in the UK. Joseph Rowntree Foundation.

United States Department of Labor - Bureau of Labor Statistics. (2012). Labor Force Statistics (CPS).

Lazear, E. & Spletzer, J. (2012). The United States Labor Market: Status Quo or A New Normal?