Introduction
According to the International Labor Organization, unemployment is a phenomenon, which happens when the people, who currently don’t have a work are seeking for it (1982). The main indicator of unemployment situation in the country is unemployment rate, which shows the percentage of unemployed people in the total number of labor force (the number of all people of working age). It is calculated by dividing the number of the individuals, who don’t have work at the certain moment of time by all individuals able to work at the same moment of time (The Saylor Foundation).
The unemployment influences the nation in a number of different ways. It is the most obvious that unemployment impacts the economic growth rate and often accompanies the country’s economic crisis. But there are also other significant kinds of unemployment effects. They can include individual consequences for the unemployed person, affect (mostly negatively) the general social situation in the state. High level of unemployment can even become the cause of the political crisis and civil unrest. All these effects will be covered in the first part of the paper. The dynamics of the unemployment in the United States starting from the 1960 as well as factors influencing it during different periods of time will be analyzed in the paper’s second part.
What does the unemployment state about the nation?
Alongside with such macroeconomic indicators as gross domestic product and inflation rate unemployment rate is also a very popular way of estimating situation in the national economy. The unemployment has a significant influence on the stock markets, because all of them are mainly based on the volume of investment, which usually starts declining after more people lose jobs, because as a result they have less opportunities to earn money and spend it on investment. And as investment is also important considered to be one of the key economic indicators, unemployment rate gets one more reason to be focused on.
When a person becomes unemployed, he or she starts causing numerous effects on the economy. The first and the most direct effect is that this person stops paying taxes. He doesn’t pay income taxes anymore, because he now doesn’t have a job and corresponding income. The sales taxes will also be received from this person in less volume, because in such situation the person becomes more aware of his or her financial security and therefore cuts all unnecessary expenditures due to less amount of available money.
When there are a lot of the people like the abovementioned person, the government may face serious financial problems connected with debt payments, because the country’s authorities now have less payment opportunities due to decreased amount of the taxes received from the people. All this can impact financial stability and eventually lead to decrease of confidence in future economic growth and consequent stock market crisis.
Additionally, the unemployed person becomes able to receive money via government unemployment insurance programs and thus takes even more funds from the economy instead of contributing it into the economy in form of taxes and other compulsory fees.
If the situation doesn’t change in a long-term scope, it can lead to ripple effect in the economy. The state authorities will be likely to increase tax rates in order to compensate losses in taxes volume and thus decreasing dispensable income of the people, now both having and not having jobs. This leads that less money can be spend, which leads to the bankruptcy of the companies and causes further increase of unemployment rate. It becomes an unlimited cycle until structural changes are made in government policy. There were a lot of examples of such logic in US economic history: one of the most striking examples is the unemployment dynamics during Great Depression in 1929-1932 (Hudson, 2013).
As for impact of unemployment on general situation in the society, the main consequence of the high number of unemployment rate is decrease in the level of human capital quality. In the situation of high unemployment rate the person will be more likely to accept any job offered, because the demand of the jobs in this case is significantly higher than available supply. As a result, the person’s professional skills now become unclaimed, therefore the operations performed by this person at work are less qualified than they could be in case of healthy economic situation in the country. This eventually declines the general efficiency level of both economy and society (Friedman, 1990).
Continuous high unemployment rate can also cause increase of xenophobia in the society, because workers tend to fear that their jobs can be given to immigrants, because they are ready to work for the lower salary. In case the government policy is pointed towards protecting domestic workers, in this situation the authorities start implement a set of measures focused on establishing legal barriers regarding immigrant’s opportunities to be hired in the country as well as general tightening of migration policy (Rotte & Steininger, 2008).
Finally, high unemployment can lead to crime rate increase. As people have less amount of disposable income, they will be more likely to commit offences in order to compensate losses caused by losing of a job.
Inability to earn money leads to person’s inability to meet his or her financial obligations. Failure to either make mortgage payments or to pay for apartment rate can lead to foreclose of the real estate object or eviction and consequent homelessness (CBS News, 2010). In case of 2008 economic crisis in the United States it led to emerging of large-scale tent cities, in which homeless people had to live after losing their houses as a result of mortgage crisis (Burkeman, 2009).
Failure to find a work often becomes a reason of various problems with health like depression, anxiety and suicide. This leads to higher medication use by the unemployed people as well as increased smoking, alcoholic and drug addiction (Meade, 2013). The recent study by Lancet Psychiatry revealed the scale of the suicide problem caused by unemployment. During the period of 2000-2011 as many as 45,000 suicides were committed globally due to unemployment (Boseley, 2015).
Another widespread personal consequence of unemployment is its influence on relationships. Studies analyzing connection between the unemployment and a number of divorces showed that divorces happen more often in case one partner of the couple is unemployed. This causes personal conflicts between spouses mostly on a financial basis (Covizzi, 2008). There is also another common model of marriage relationships in the situation of unemployment: some people prefer to stay in “unhappy” marriage rather than getting divorced due to the fear, that in case of divorce they will be unable to cope with corresponding financial problems (Amato & Beattie, 2011).
All the examples of unemployment impact on economy, society and people’s personal life show the importance of the unemployment thorough management on a nationwide level, because in most cases uncontrolled increase of unemployment rate leads to ripple effect in numerous spheres simultaneously, which in turn increases risks of sustainable nation development.
Analysis of the United Stated Unemployment Rate Dynamics and its Factors(Starting from 1960)
Now let’s turn to analysis of the United States unemployment rate dynamics. All kinds of activities regarding unemployment statistics are performed by the United States Bureau of Labor Statistics. These actions include gathering information, its measurement, classification of the people by different indicators relating to different kinds of employment and unemployment, further information analysis and, finally, publishing labor statistics.
The information about employment and unemployment is gathered on a monthly basis via two kinds of labor force surveys. The first one is Current Population Survey (CPS), which is based on a sample of nearly 60,000 households. The unemployment rate in this survey is measured according to the formula by International Labor Organization mentioned in the introduction of this paper. The second one is Current Employment Statistics Survey (CES), which is based on a sample of 400,000 employers, which altogether represent about 160,000 business and government agencies. This survey has a different methodology comparing to CPS survey, therefore, their results may be slightly different (United States Department of Labor, 2015). There are also other indirect sources of unemployment information like unemployment insurance claims information by Employment and Training Administration of US Department of Labor, which is published weekly (2016).
Dynamics of unemployment rate for the period of 1960-2015 is presented in figure 1.
Figure 1. Dynamics of unemployment rate in the United States for the period of 1960-2015 according to CPS survey data (United States Department of Labor, 2015).
Since 1960 the United States has faced 8 economic crises, which were different by their scale, but all of them led to the unemployment rate increase. During these 55 years the United States authorities introduced various methods of fighting unemployment problems, which will be covered in this part of the paper.
The first notable example of post-war recession was economic crisis of 1956. In order to cope with it, President Dwight Eisenhower signed the Federal Aid Highway Act, which aim was the construction of the modern US interstate roads system. This project is fairly considered to be one of the biggest and greatest projects involving public work as well as one of the main personal achievements of Eisenhower (US Department of Transportation, 2015). Apart from improving transport situation in the country, this project allowed to decrease the unemployment rate from 6.8% to 5.5% (United States Department of Labor, 2015).
The next brief recession started in 1960, when President Kennedy was in the office. Unlike Eisenhower, Kennedy focused on stimulating demand rather than organizing large-scale infrastructure projects. According to his plan, this should have allowed the companies to gain more profits and thereby be able to hire more people. In order to stimulate demand, US government expanded social security program, unemployment insurance compensations, increased minimum salary and decreased taxes. All these actions allowed people to have more amount of disposable income and therefore be able to spend more money. As the result, the country as a whole didn’t get into vicious unemployment circle described before (Amadeo, 2016). These actions allowed the unemployment rate to become as low as 3.5% at the end of decade (United States Department of Labor, 2015).
The next long-term economic crisis lasted from the early 1970s until middle 1980s. It started after introduction of Arab oil embargo. President Richard Nixon, who was in charge in 1969-1974 introduced salary and price controls in response to inflation rate increase. As these action didn’t correspond with the rules of free-market economy, Nixon didn’t manage to fight inflation. Moreover, the effect was opposite causing the new phenomenon of stagflation meaning simultaneous slowing down of economy growth (and unemployment increase as well) and inflation increase (Amadeo, 2014). This situation resulted in sharp rise in unemployment till the mid-1970s peaking 8.5% in 1975 (United States Department of Labor, 2015).
The next US President, Jimmy Carter, started the process of the oil and gas industry deregulation by establishing a Department of Energy. This still didn’t help in combatting the economic crisis. By the year of 1980, when Carter left the office, the inflation rate had reached 13.5%, which was very high for the United States comparing to previous periods (Smitha, 2015). And the unemployment rate at the same time increased to almost 10%: this had been the first time the unemployment rate was so high since the Great Depression (United States Department of Labor, 2015).
The abovementioned crisis ended during the presidency of Ronald Reagan and his economic policy, which was introduced in 1981 and was called Reaganomics. It included the government expenditures reduction, income tax rates decrease, regulation reduce and inflation reduce by more thorough controlling of the money supply in the economy. According to the logic presented in the first part it allowed to increase the overall dispensable income of the people, which in turn increase the demand volume and consequently improved the situation in private and public sector (Niskanen, 2002). All this had eventually allowed to reduce unemployment rate to nearly 5.5% by the end of 1980s (United States Department of Labor, 2015).
The United States faced the next recession in 1990. Though the Congress developed the plan aiming to decrease unemployment, President George Bush rejected it. Therefore, at the start of Bill Clinton’s presidency economy was in crisis situation. However, in 1990s the US economy had benefits from low oil prices as well as emerge of information technologies (especially Internet). Alongside with this, Clinton managed to reduce state budget deficit and encouraged free trade, which made stock market players more confident in future economic development. This resulted in steep decline of unemployment (to nearly 4.0% by the end of 1990s) as well as increase of all types of credit activities (Center for American Progress, 2011).
The Dot-com bubble collapse of 1999-2001 and September 11 terrorist attacks triggered the country to recession in 2001. Trying to stimulate economic growth, George Bush administration cut the taxes and allowed everyone filling tax return in 2000 a rebate. This again raised the volume of people’s dispensable income and thereby decreased the unemployment rate. In parallel with this the real estate market demonstrated record prices (Wilson & Beach, 2001).
In 2007 the latest large-scale economic crisis started. It was triggered by the crash of Lehman Brothers investment fund. Due to this the unemployment rate grew more than twice in the next three years and again reached about 10% (United States Department of Labor, 2015). During Barack Obama presidency nearly $800 billion of government funds were invested in economy in order to stimulate the economic growth and make unemployment rate lower. The effect was not quick, because the scale of the crisis had been the biggest since the Great Depression. However, according to United States Department of Labor the unemployment has been constantly lowering since 2010. And at the end of 2015 it was nearly 5%.
According to the latest United States Department of Labor information (as of April 2016), the unemployment rate in the US is still nearly 5%.
Having reviewed different methods of decreasing unemployment rate, it becomes clear that certain level of unemployment is always present in the economy. This is normal situation, because people are always changing their workplaces and thereby they periodically become temporarily unemployed, even if economy is rising. And the general approach of making unemployment lower is either direct stimulation of employment via large-scale infrastructure projects (like the Interstate construction project by the President Eisenhower in the late 1950s) or any kinds of actions stimulating overall amount of demand in the economy. This allows the companies to get more profit, expand and thereby be able to hire more people. The method of demand stimulation in different variations has been regularly used throughout the last 50 years.
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